SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
AMENDMENT NO. 1 TO FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission file number 0-10699
Hudson United Bancorp
(Exact name of registrant as specified in its Charter)
New Jersey 22-2405746
(State or other jurisdiction of Incorporation I.R.S. Employer Identification
or organization No.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(201)236-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value Series B Preferred Stock
(Title of Class) (Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 27, 2000 was $1,029,830,711.
The number of shares of Registrant's Common Stock, no par value, outstanding
as of March 27, 2000 was 51,652,951.
<PAGE>
Hudson United Bancorp
Form l0-K Annual Report
For The Fiscal Year Ended December 31, 1999
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Hudson United Bancorp ("HUB" or "Registrant" or the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"Bank Holding Company Act"). The Company was organized under the laws of New
Jersey in 1982 by Hudson United Bank ("Hudson United" or the "Bank") for the
purpose of creating a bank holding company for Hudson United. The Company
directly owns Hudson United, HUBCO Capital Trust I, HUBCO Capital Trust II, JBI
Capital Trust I, Jefferson Delaware Inc., and AMFDCM, Inc. In March 1999, the
former Lafayette American Bank and Bank of the Hudson were merged into Hudson
United. In addition, the shareholders of the Company on April 21, 1999 approved
an amendment to the certificate of incorporation to change the name of the
Company from HUBCO, Inc. to Hudson United Bancorp. The Company is also the
indirect owner, through Hudson United, of 19 subsidiaries.
Merger Agreement with Dime Bancorp, Inc.
HUB and Dime Bancorp, Inc. ("Dime") have entered into an Agreement and Plan of
Merger, dated as of September 15, 1999, and amended and restated on December 27,
1999. The agreement provides for HUB and Dime to merge, with Dime as the
surviving corporation changing its name to Dime United Bancorp, Inc. ("Dime
United"). In the merger, each share of HUB stock is to be converted into one
share of Dime United stock, and each share of Dime stock is to be converted into
0.60255 of a share of Dime United stock. Based on that exchange ratio,
immediately after the merger, Dime shareholders would own 56% of the outstanding
Dime United stock and HUB shareholders would own 44%. The merger is structured
generally to be tax-free to both Dime and Hudson shareholders.
Completion of the merger is subject to a number of conditions, many of which are
outside the control of HUB. Among the conditions which have not yet been met are
the receipt of bank regulatory approval and approval of the merger agreement by
HUB and Dime shareholders. For HUB shareholders to approve the merger, a
majority of votes cast at a special meeting by holders of HUB stock outstanding
on the record date for that meeting must be voted in favor of the merger
agreement. For Dime shareholders to approve the merger, a majority of the shares
of Dime stock outstanding on the record date for the Dime special meeting must
be voted in favor of the merger agreement.
On March 5, 2000, North Fork Bancorporation ("North Fork") announced that it was
commencing a hostile, unsolicited bid to acquire Dime. On March 9, 2000, Dime
and HUB jointly announced that they would delay their special shareholder
meetings to vote on the merger from March 15 to March 24, 2000, in order to
provide additional time for dissemination to shareholders of information about
recent developments. On March 21, 2000, Dime and HUB jointly announced that they
would further delay their special shareholder meetings. HUB announced that it
would adjourn its meeting until Thursday, May 18, 2000 and that shareholders of
record as of February 7, 2000 would be eligible to vote at the meeting. Dime
announced that it would postpone its meeting until Wednesday, May 17, 2000 and
that shareholders of record as of March 30, 2000 would be eligible to vote at
the meeting. The actions that have been taken by North Fork since March 5, 2000
may make it difficult for Dime to obtain the requisite shareholder approval that
is needed under Delaware law for Dime to consummate the transaction with HUB as
contemplated by the merger agreement.
HUB and Dime have both reiterated their commitment to the proposed merger. If
the merger agreement with Dime is terminated, HUB expects to continue with its
acquisition strategy described below. HUB believes that the Company's adherence
to, and successful implementation of, this strategy have been among the primary
reasons for the increase in shareholder value which HUB experienced during the
past decade.
Stock Option Granted by Dime to HUB
As an inducement for HUB to enter into the merger agreement, Dime agreed
to grant HUB an option to purchase shares of Dime stock. As explained below,
there has been an initial triggering event under that option. The option
agreement was filed as an annex to our February 9th joint proxy
statement-prospectus, and the following description is qualified by reference to
the full agreement. Under the option, HUB can purchase up to 22,271,682 shares
of Dime stock. Although these numbers are subject to adjustment in certain
cases, including the issuance of additional shares, they will never exceed 19.9%
of the number of shares of Dime stock outstanding immediately before exercise of
the option. The exercise price of the option is $17.75 per share of Dime stock,
but the per share option price is subject to adjustment in certain cases,
including stock dividends, recapitalizations and other changes in
capitalization. The exercise price was determined by using the closing price for
Dime stock on September 14, 1999, the day before the merger was announced.
HUB issued a substantially identical option to Dime, which if it were to
be triggered would allow Dime to purchase up to 8,283,253 shares of HUB common
stock on similar terms, and with an exercise price of $29.25.
Exercise and Expiration. HUB can exercise its option if both an initial
triggering event and a subsequent triggering event occur prior to the occurrence
of an exercise termination event, as these terms are described below. The
purchase of any shares of Dime stock pursuant to the options is subject to
compliance with applicable law and cannot be made if HUB is in material breach
of obligations it has undertaken in the merger agreement.
The option agreement describes a number of different events as initial
triggering events. Generally, an initial triggering event will occur when Dime
enters into, proposes to enter into, or is the subject of an acquisition
transaction or a proposed acquisition transaction. North Fork's filing of its
official offer documents constituted an initial triggering event.
The stock option agreement generally defines the term subsequent
triggering event to mean any of the following events or transactions:
o the acquisition by a third party of beneficial ownership of 25% or more of
the outstanding common stock of Dime or
o Dime or any of its subsidiaries, without the prior written consent of HUB,
enters into an agreement to engage in certain types of acquisition
transactions with a third party, or the board of directors of Dime
recommends that its stockholders approve or accept any acquisition
transaction, other than the merger.
The stock option agreement defines the term exercise termination event to mean
any of the following:
o completion of the Dime-HUB merger;
o termination of the merger agreement in accordance with its terms if before
an initial triggering event, provided that this would not include a
termination of the merger agreement by HUB based on a willful breach by
Dime of a representation, warranty, covenant or other agreement contained
in the merger agreement; or
o the passage of 18 months, subject to extension in order to obtain required
regulatory approvals, after termination of the merger agreement if the
termination follows the occurrence of an initial triggering event or is a
termination of the merger agreement by HUB based on a willful breach by
Dime of a representation, warranty, covenant or other agreement contained
in the merger agreement.
Under these circumstances, an exercise termination event will occur either
upon consummation of the HUB-Dime merger or 18 months after termination of the
merger agreement, subject to extension to obtain required regulatory approval.
The option may be exercised in whole or in part within six months
following the subsequent triggering event. The right to exercise the option and
certain other rights under the stock option agreement is subject to an extension
in order to obtain required regulatory approvals and comply with applicable
regulatory waiting periods and to avoid liability under the short-swing trading
restrictions contained in Section 16(b) of the Securities Exchange Act. The
option price and the number of shares issuable under the option are subject to
adjustment in the event of specified changes in the capital stock of Dime.
Nevertheless, HUB may not exercise the option if it is in material breach of any
of certain covenants or agreements under the merger agreement.
Rights of the Grantee of the Option. At any time after a repurchase event,
as this term is described below, upon the request of HUB, Dime may be required
to repurchase the option and all or any part of the shares issued under the
option. The repurchase of the option will be at a price per share equal to the
amount by which the option repurchase price, as that term is defined in the
stock option agreement, exceeds the option price. The term repurchase event is
defined to mean:
o the acquisition by any third party of beneficial ownership of 50% or
more of the outstanding shares of Dime's common stock or
o the consummation of certain other acquisition transactions.
The stock option agreement also provides that HUB may, at any time within
90 days after a repurchase event, surrender the option and any shares issued
under the option for a cash fee equal to $50 million, adjusted if there have
been purchases of stock under the option and gains on sales of stock purchased
under the option. This cash fee establishes an effective minimum value of the
option. The actual value of the option to HUB may substantially exceed $50
million.
If prior to an exercise termination event Dime enters into certain
transactions in which it is not the surviving corporation, certain fundamental
changes in its capital stock occur, or Dime sells all or substantially all of
its or its significant subsidiaries' assets, the option will be converted into
or exchangeable for a substitute option, at HUB's election, of:
o the continuing or surviving person of a consolidation or merger,
o the acquiring person in a plan of exchange in which Dime is acquired,
o the issuer in a merger or plan of exchange in which Dime is the
acquiring person,
o the transferee of all or substantially all of the assets of Dime or its
significant subsidiary, or
o any person that controls any of these entities, as the case may be.
The substitute option will have the same terms and conditions as the
original option. However, if the terms of the substitute option cannot be the
same as those of the option by law, the terms of the substitute option will be
as similar as possible and at least as advantageous to the grantee.
<PAGE>
Recent Growth of Hudson United Bancorp
The Company's acquisition philosophy is to seek in-market or contiguous market
opportunities which can be accomplished with little or no dilution to earnings.
From October 1990 through December 1999, the Company has acquired 31
institutions. During this time the company has grown from total assets of $550
million to $9.7 billion at December 31, 1999 and has expanded its branch network
from 15 branches to over 200 branches. Over $700 million of these assets and
liabilities were acquired through government assisted transactions which allowed
the Company to reprice deposits, review loans and purchase only those loans
which met its underwriting criteria. The balance of the acquisitions were
accomplished in traditional negotiated transactions.
The Company consummated six acquisitions in 1999. On March 26, 1999, the Company
completed its purchase of $151 million in deposits and a retail branch office in
Hartford, Connecticut from First International Bank.
On May 20, 1999, the Company acquired Little Falls Bancorp, Inc. ("LFB") which
had assets of approximately $341 million and operated six offices in the
Hunterdon and Passaic counties of New Jersey.
On October 22, 1999, the Company acquired the assets of Lyon Credit Corporation,
a $350 million asset finance company and subsidiary of Credit Lyonnais Americas.
On December 1, 1999, the Company completed its purchase of loans (approximately
$148 million) and other financial assets, as well as assumed the deposit
liabilities (approximately $112 million) of Advest Bank and Trust. In addition,
a strategic partnership with Advest, Inc. was consummated on October 1, 1999, in
which Hudson United Bank became the exclusive provider of banking products and
services to the clients of Advest, Inc.
The above 1999 acquisitions were accounted for under the purchase method of
accounting.
On November 30, 1999, the Company completed its acquisition of JeffBanks, Inc.
("Jeff"), a $1.8 billion bank holding company with 32 branches located
throughout the greater Philadelphia area of Pennsylvania and Southern New
Jersey.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"), a $425 million asset institution with 17 branches in Southern
New Jersey.
The above 1999 acquisitions were accounted for using the pooling-of-interests
method of accounting.
<PAGE>
Summary of Acquisitions
The following chart summarizes the acquisitions undertaken by the Company since
October 1990. The amounts shown as "Purchase Price" represent either cash paid
or the market value of securities issued by Hudson United Bancorp to the
shareholders or owners of the acquired entity:
<TABLE>
<CAPTION>
PURCHASE DEPOSITS LOANS
PRICE ASSUMED PURCHASED BRANCHES
INSTITUTION (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ACQUIRED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mountain Ridge State Bank $ 0.3 $ 47 $ 12 1
Meadowlands National Bank 0.4 36 22 3
Center Savings and Loan 0.1 90 79 1
Irving Federal Savings and Loan 0.1 160 62 5
Broadway Bank and Trust 3.4 346 10 8
Pilgrim State Bank 6.0 123 47 6
Polifly Federal Savings and Loan 6.2 105 1 4
Washington Savings Bank 40.5 238 169 8
Shoppers Charge Accounts 16.3 -- 56 --
Jefferson National Bank 9.7 85 42 4
Urban National Bank 38.22 204 90 9
Growth Financial Corp 25.6 110 102 3
CrossLand Federal Savings Branches 3.0 60 1 3
Lafayette American Bank & Trust 120.0 647 548 19
Hometown Bancorporation, Inc. 31.6 162 99 2
UST Bank, CT 13.7 95 70 4
Westport Bancorp, Inc. 67.8 259 183 7
The Bank of Southington 26.7 122 85 2
Security National Bank & Trust 11.0 77 48 4
Poughkeepsie Financial 136.0 611 648 16
MSB Bancorp 115.0 686 375 16
First Union Branches 32.0 320 1 23
Community Financial 29.6 137 87 8
Dime Financial 201.0 817 374 11
IBS Financial 227.0 560 218 10
FNB Branch Purchase 9.1 151 -- 1
Little Falls Bancorp, Inc. 55.0 234 153 6
Lyon Credit Corporation not disclosed -- 350 --
Advest Bank & Trust Assets/Liabilities 2.0 112 148 --
JeffBanks, Inc. 371.0 1,380 1,429 32
Southern Jersey Bancorp 54.0 382 213 17
</TABLE>
The Company's profitability and its financial condition may be significantly
impacted by its acquisition strategy and by the consummation of its recent
acquisitions.
The Company intends to continue to seek acquisition opportunities. There can be
no assurance that the Company will be successful in acquiring additional
financial institutions or, if additional financial institutions are acquired,
that these acquisitions will enhance the profitability of the Company.
<PAGE>
On November 8, 1993, the Company's Board of Directors approved a stock
repurchase plan and authorized management to repurchase up to 10% of its
outstanding common stock per year. There is no assurance that the Company will
purchase the full amount authorized in any year. The acquired shares are to be
held in treasury and to be used for stock option and other employee benefit
plans, stock dividends or in connection with the issuance of common stock in
pending or future acquisitions. During 1999, the Company purchased 3.7 million
shares at an aggregate cost of $121.4 million. During 1999, 3.7 million shares
were reissued for the stock dividend, stock options, other employee benefit
plans and acquisitions.
Other Subsidiaries
In 1983, HUB formed a directly owned subsidiary called HUB Financial Services,
Inc., which was a wholly owned data processing subsidiary. In 1995, HUB sold 50%
of the stock in HUB Financial Services, Inc. to United National Bank. HUB
simultaneously made a capital contribution of the remaining 50% to Hudson United
Bank. The joint venture was operated pursuant to the provisions of the Bank
Service Corporation Act. Simultaneously with the sale of 50% to United National
Bank, the name of HUB Financial Services, Inc. was changed to United Financial
Services, Inc.("UFS"). UFS ceased to provide data processing and imaged check
processing services to both of its owner banks in October 1999. UFS is in the
process of dissolution.
In 1997, Hudson United established a directly owned subsidiary called HUB
Mortgage Investments, Inc. At December 31, 1999, this wholly owned subsidiary
had $130 million of mortgage loans and $692 million in mortgage-related
securities and operates as a real estate investment trust.
As of December 31, 1999, $37 million and $109 million of Hudson United's
investment portfolio is being managed by Hendrick Hudson Corp. of New Jersey and
F&M Investment Company, respectively. Hendrick Hudson Corp. of New Jersey was
established in 1987 and F&M Investment Company was established in 1984.
In 1998, three additional investment companies were established - NJ Investments
of Delaware, Inc., LAB Investment Corp. of Delaware, Inc., and BOTH Investments
of Delaware, Inc. In 1999, in conjunction with the merger of Lafayette American
Bank and Bank of the Hudson into Hudson United, LAB Investment Corp. of
Delaware, Inc. and BOTH Investments of Delaware, Inc. were merged into NJ
Investments of Delaware, Inc. As of December 31, 1999, $1.2 billion of Hudson
United's investment portfolio was being managed by NJ Investments of Delaware,
Inc.
In 1995, the Company established a directly owned subsidiary called HUB
Investment Services, Inc. This wholly owned subsidiary provided brokerage
services through an agreement with BFP Financial Partners, Inc. which is a
subsidiary of Legg Mason, Inc. In August 1997, the Company made a capital
contribution of this subsidiary to Hudson United. In February of 1998, the
agreement with BFP Financial Partners, Inc. was terminated. The subsidiary
is currently inactive.
<PAGE>
Hudson United owns 11 real estate holding companies that engage in
various aspects of the real estate business. They are: Fair Street
Associates, Inc., Markgard Realty, Inc., Maramet Apartments of West
Virginia, Inc., Plural Realty of Chappaqua, Inc., Riverdale Timber Ridge,
Inc., Plural Realty, Inc. Posabk, Inc., PSB Associates, PSB Building
Corp., Atlantic Company, Inc. and Woulf Asset Holdings.
Hudson United owns Hudson Trader Brokerage Services, which offers a full range
of investment, and insurance products and services.
Employee Relations
Hudson United Bank enjoys a good relationship with its employees and is
currently not party to any collective bargaining agreements.
Regulatory Matters
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit the options
of its management to deploy assets and maximize income. Proposals to change the
laws and regulations governing the banking industry are frequently introduced in
Congress, in the state legislatures and before the various bank regulatory
agencies. The likelihood and timing of any changes and the impact such changes
might have on HUB cannot be determined at this time. The following discussion is
not intended to be a complete list of all the activities regulated by the
banking laws or of the impact of such laws and regulations on HUB or its banks.
It is intended only to briefly summarize some material provisions.
CAPITAL ADEQUACY GUIDELINES AND DEPOSIT INSURANCE
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
required each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. In
addition, pursuant to FDICIA, each federal banking agency has promulgated
regulations, specifying the levels at which a financial institution would be
considered "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", or "critically undercapitalized", and to take
certain mandatory and discretionary supervisory actions based on the capital
level of the institution.
The regulations implementing these provisions of FDICIA provide that an
institution will be classified as "well capitalized" if it (i) has a total
risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based
capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at
least 5.0 percent, and (iv) meets certain other requirements. An institution
will be classified as "adequately capitalized" if it (i) has a total risk-based
capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital
ratio of at least 4.0 percent, (iii) has a Tier 1 leverage ratio of (a) at least
4.0 percent, or (b) at least 3.0 percent if the institution was rated 1 in its
most recent examination, and (iv) does not meet the definition of "well
capitalized". An institution will be classified as
<PAGE>
"undercapitalized" if it (i)has a total risk-based capital ratio of less than
8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 4.0
percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0 percent, or
(b) less than 3.0 percent if the institution was rated 1 in its most recent
examination. An institution will be classified as "significantly
undercapitalized" if it (i) has a total risk-based capital ratio of less than
6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0
percent, or (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An
institution will be classified as "critically undercapitalized" if it has a
tangible equity to total assets ratio that is equal to or less than 2.0 percent.
An insured depository institution may be deemed to be in a lower capitalization
category if it receives an unsatisfactory examination.
As of December 31, 1999, the Bank's capital ratios exceed the requirements to be
considered a well capitalized institution under the FDIC regulations.
Bank holding companies must comply with the Federal Reserve Board's risk-based
capital guidelines. Under the guidelines, risk weighted assets are calculated by
assigning assets and certain off-balance sheet items to broad risk categories.
The total dollar value of each category is then weighted by the level of risk
associated with that category. A minimum risk-based capital to risk based assets
ratio of 8.00% must be attained. At least one half of an institution's total
risk-based capital must consist of Tier 1 capital, and the balance may consist
of Tier 2, or supplemental capital. Tier 1 capital consists primarily of common
stockholders' equity along with preferred or convertible preferred stock,
qualifying trust preferred securities, minus goodwill. Tier 2 capital consists
of an institution's allowance for loan and lease losses, subject to limitation,
hybrid capital instruments and certain subordinated debt. The allowance for loan
and lease losses which is considered Tier 2 capital is limited to 1.25% of an
institution's risk-based assets. As of December 31, 1999, HUB's total risk-based
capital ratio was 12.0%, consisting of a Tier 1 ratio of 8.7% and a Tier 2 ratio
of 3.3%. Both ratios exceed the requirements under these regulations.
In addition, the Federal Reserve Board has promulgated a leverage capital
standard, with which bank holding companies must comply. Bank holding companies
must maintain a minimum Tier 1 capital to total assets ratio of 3%. However,
institutions which are not among the most highly rated by federal regulators
must maintain a ratio 100-to-200 basis points above the 3% minimum. As of
December 31, 1999, HUB had a leverage capital ratio of 5.7%. HUB and its
subsidiary bank is subject to various regulatory capital requirements
administered by 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 HUB's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, HUB and its
subsidiary bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators as
to components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require banks to maintain
minimum amounts and ratios of total and Tier 1 capital (as defined in the
regulations) to risk weighted assets (as defined) and of Tier 1 capital (as
defined) to
<PAGE>
average assets (as defined). Management believes, as of December 31, 1999, that
HUB and its subsidiary bank meet all capital adequacy requirements to which they
are subject.
Hudson United is a member of the Bank Insurance Fund ("BIF") of the FDIC. The
FDIC also maintains another insurance fund, the Savings Association Insurance
Fund ("SAIF"), which primarily covers savings and loan association deposits but
also covers deposits that are acquired by a BIF-insured institution from a
savings and loan association ("Oakar deposits"). Hudson United has approximately
$112 million of deposits at December 31, 1999 with respect to which Hudson
United pays SAIF insurance premiums.
The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act")
included the Deposit Insurance Funds Act of 1996 (the "Funds Act") under which
the FDIC was required to impose a special assessment on SAIF assessable deposits
to recapitalize the SAIF. Under the Funds Act, the FDIC will also charge
assessments for SAIF and BIF deposits in a 5 to 1 ratio to pay Financing
Corporation ("FICO") bonds until January 1, 2000, at which time the assessment
will be equal. A FICO rate of approximately 1.29 basis points will be charged on
BIF deposits, and approximately 6.44 basis points will be charged on SAIF
deposits. The 1996 Act instituted a number of other regulatory relief
provisions.
RESTRICTIONS ON DIVIDEND PAYMENTS, LOANS, OR ADVANCES
The holders of HUB Common Stock are entitled to receive dividends, when, and if
declared by the Board of Directors of HUB out of funds legally available,
subject to the preferential dividend rights of any preferred stock that may be
outstanding from time to time.
The only statutory limitation is that such dividends may not be paid when HUB is
insolvent. Because funds for the payment of dividends by HUB come primarily from
the earnings of HUB's bank subsidiary, as a practical matter, restrictions on
the ability of Hudson United to pay dividends act as restrictions on the amount
of funds available for the payment of dividends by HUB.
Certain restrictions exist regarding the ability of Hudson United to transfer
funds to HUB in the form of cash dividends, loans or advances. New Jersey state
banking regulations allow for the payment of dividends in any amount provided
that capital stock will be unimpaired and there
<PAGE>
remains an additional amount of paid-in capital of not less than 50 percent of
the capital stock amount. As of December 31, 1999, $614.0 million, subject to
regulatory capital limitations, was available for distribution to HUB from
Hudson United.
HUB is also subject to Federal Reserve Bank ("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.
Under Federal Reserve regulations, Hudson United is limited as to the amounts it
may loan to its affiliates, including HUB. All such loans are required to be
collateralized by specific obligations.
HOLDING COMPANY SUPERVISION
Under the Bank Holding Company Act, HUB may not acquire directly or indirectly
more than 5 percent of the voting shares of, or substantially all of the assets
of, any bank without the prior approval of the Federal Reserve Board.
In general, the Federal Reserve Board, under its regulations and the Bank
Holding Company Act, regulates the activities of bank holding companies and
non-bank subsidiaries of banks. The regulation of the activities of banks,
including bank subsidiaries of bank holding companies, generally has been left
to the authority of the supervisory government agency, which for Hudson United
is the FDIC and the New Jersey Department of Banking and Insurance (the
"NJDOBI").
INTERSTATE BANKING AUTHORITY
The Riegle-Neale Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking and Branching Act") significantly changed interstate banking
rules. Pursuant to the Interstate Banking and Branching Act, a bank holding
company is able to acquire banks in states other than its home state regardless
of applicable state law.
The Interstate Banking and Branching Act also authorizes banks to merge across
state lines, thereby creating interstate branches. Under such legislation, each
state has the opportunity to "opt out" of this provision, thereby prohibiting
interstate branching in such states. Furthermore, a state may "opt in" with
respect to de novo branching, thereby permitting a bank to open new branches in
a state in which the bank does not already have a branch. Without de novo
branching, an out-of-state bank can enter the state only by acquiring an
existing bank.
RECENT LEGISLATION
On November 12, 1999, the President signed the Gramm-Leach-Bliley Financial
Modernization Act of 1999 into law. The Modernization Act will:
<PAGE>
* allow bank holding companies meeting management, capital and Community
Reinvestment Act Standards to engage in a substantially broader range of
nonbanking activities than currently is permissible, including insurance
underwriting and making merchant banking investments in commercial and
financial companies; if a bank holding company elects to become a financial
holding company, it files a certification, effective in 30 days, and
thereafter may engage in certain financial activities without further
approvals;
* allow insurers and other financial service companies to acquire banks;
* remove various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
* establish the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
This part of the Modernization Act is effective March 13, 2000.
On January 19, 2000, the FRB adopted an interim rule allowing bank holding
companies to submit certifications by February 15 to become financial holding
companies on March 13, 2000. The FRB also provided regulations on procedures
which would be used against financial holding companies which have depository
institutions which fall out of compliance with the management or capital
criteria. Only financial holding companies can own insurance companies and
engage in merchant banking.
The Modernization Act also modifies other current financial laws, including laws
related to financial privacy and community reinvestment.
Additional proposals to change the laws and regulations governing the banking
and financial services industry are frequently introduced in Congress, in the
state legislatures and before the various bank regulatory agencies. The
likelihood and timing of any such changes and the impact such changes might have
on HUB cannot be determined at this time.
CROSS GUARANTEE PROVISIONS AND SOURCE OF STRENGTH DOCTRINE
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (I) the default of a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservatory or receiver and "in danger of default" is defined
generally as the existence of certain conditions, including a failure to meet
minimum capital requirements, indicative that a "default" is likely to occur in
the absence of regulatory assistance. These provisions have commonly been
referred to as FIRREA's "cross guarantee" provisions. Further, under FIRREA the
failure to meet capital guidelines could subject a banking institution to a
variety
<PAGE>
of enforcement remedies available to federal regulatory authorities, including
the termination of deposit insurance by the FDIC.
According to Federal Reserve Board policy, bank holding companies are expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support each such subsidiary. This support may be required at times
when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the FDIC - either
as a result of default of a bank subsidiary of the Company or related to FDIC
assistance provided to the subsidiary in danger of default - the other bank
subsidiaries of the Company may be assessed for the FDIC's loss, subject to
certain exceptions.
(b) Industry Segments
The Registrant has one industry segment -- commercial banking.
(c) Narrative Description of Business
HUB exists primarily to hold the stock of its subsidiaries. During most of 1999,
HUB had one directly-owned subsidiary--Hudson United. In addition, HUB, through
Hudson United, indirectly owns 19 additional subsidiaries. The historical growth
of, and regulations affecting, each of HUB's direct and indirect subsidiaries is
described in Item 1(a) above, which is incorporated herein by reference.
HUB is a legal entity separate from its subsidiaries. The stock of Hudson United
is HUB's principal asset. Dividends from Hudson United are the primary source of
income for HUB. As explained above in Item 1(a), legal and regulatory
limitations are imposed on the amount of dividends that may be paid by the Bank
to HUB.
Hudson United Bancorp and Hudson United Bank currently maintain their executive
offices in Mahwah, New Jersey. As of December 31, 1999, Hudson had 112 branch
offices in New Jersey, 26 branch offices in Pennsylvania, 42 branch offices in
Connecticut, and 33 branch offices in New York state. HUB owns a 64,350 square
foot building in Mahwah, New Jersey which houses the above-mentioned executive
offices and Hudson United's operations center.
At December 31, 1999, HUB, through its subsidiaries, had total deposits of $6.5
billion, total loans of $5.7 billion and total assets of $9.7 billion. HUB
ranked 2nd among commercial banks and bank holding companies headquartered in
New Jersey in terms of asset size.
Hudson United is a full service commercial bank and offers the services
generally performed by commercial banks of similar size and character, including
imaged checking, savings, and time deposit accounts, 24-hour telephone banking,
PC banking, trust services, cash management services, safe deposit boxes,
insurance, stock, bond, and mutual fund sales, secured and unsecured personal
and commercial loans, residential and commercial real estate loans, and
international services including import and export needs, foreign currency
purchases and letters
<PAGE>
of credit. The Bank's deposit accounts are competitive and include money market
accounts and a variety of interest-bearing transaction accounts. In the lending
area, the Bank primarily engages in consumer lending, commercial lending, real
estate lending, and credit card programs.
Hudson United offers a variety of trust services. At December 31, 1999, Hudson
United's Trust Department had approximately $821.8 million of assets under
management or in its custodial control.
There are numerous commercial banks headquartered in New Jersey, Connecticut,
Pennsylvania and New York, which compete in the market areas serviced by the
Company. In addition, large out-of-state banks compete for the business of
residents and businesses located in the Company's primary market. A number of
other depository institutions compete for the business of individuals and
commercial enterprises including savings banks, savings and loan associations,
brokerage houses, financial subsidiaries of other companies and credit unions.
Other financial institutions, such as mutual funds, consumer finance companies,
factoring companies, and insurance companies, also compete with the Company for
both loans and deposits. Competition for depositors' funds, for creditworthy
loan customers and for trust business is intense.
Despite intense competition with institutions commanding greater financial
resources, the Bank has been able to attract deposits and extend loans. While
the Bank, by regulation, may not exceed fifteen percent of its capital in a loan
to a single borrower, the Bank has a "house limit" significantly below that
level.
Hudson United has focused on becoming an integral part of the community it
serves. Officers and employees are incented to meet the needs of their customers
and to meet the needs of the local communities served.
Hudson United Bancorp had 2,372 full-time equivalent employees as of December
31, 1999.
(d) Financial Information about foreign and
domestic operations and export sales.
Not Applicable
<PAGE>
ITEM 2. PROPERTIES
The corporate headquarters of Hudson United Bancorp and Hudson United Bank are
located in a three story facility in Mahwah, New Jersey. The building is
approximately 64,350 square feet and houses the executive offices of the Company
and its subsidiaries. Hudson United occupies 213 branch offices, of which 107
are owned and 106 are leased.
ITEM 3. LEGAL PROCEEDINGS
On March 6, 2000, North Fork Bancorporation, Inc. filed a lawsuit in the
Delaware Court of Chancery against Dime Bancorp, Inc. ("Dime"), Dime's Board of
Directors and HUB. The complaint alleges that Dime's Board breached its
fiduciary duties, and that HUB participated in Dime Board's breach by insisting
upon and agreeing to certain provisions in the Merger Agreement. The complaint
also challenges a number of provisions in the Merger Agreement and seeks,
amongst other things, to invalidate these provisions. These provisions include:
o Dime's agreement not to engage in any discussions with, or provide
confidential information to, any person making an offer to merge with or
acquire Dime, until the completion of the merger with HUB;
o Dime's Board's agreement to recommend that Dime's stockholders adopt the
Dime-HUB Merger Agreement; and
o Dime's agreement not to terminate the Dime-HUB Merger Agreement before
June 30, 2000 even if Dime's stockholders fail to adopt its terms.
Dime, Dime's Board of Directors and HUB are the subject of at least 14
putative class action lawsuits filed on or after March 6, 2000, by Dime's
stockholders (twelve filed in the Delaware Court of Chancery, one filed in the
Supreme Court of the State of New York, County of Queens, and one filed in the
Supreme Court of New York , County of New York). These class actions allege,
among other things, that:
o HUB has knowingly aided and abetted the breaches of fiduciary duty
committed by the Dime's Board to the detriment of Dime's shareholders,
o HUB is a party to and beneficiary of an unenforceable Stock Option
Agreement; and
o HUB and its shareholders realize an unjust benefit absent the relief
sought by the Plaintiffs in the lawsuits.
The Plaintiffs in the class action lawsuits are seeking, among other
things, the following relief:
o rescinding the Stock Option Agreement;
o enjoining the merger agreement between Dime and HUB;
o directing that Dime, Dime's Board and HUB account for all damages caused
to Dime's stockholders and for all profits and any special benefits
obtained by Dime, Dime's Board and HUB.
HUB intends to defend the actions against it vigorously and believes that
they are without merit.
In the normal course of business, lawsuits and claims may be brought by,
and may arise against, HUB and its subsidiaries. In the opinion of management,
no other legal proceedings that have arisen in the normal course of HUB's
business and are presently pending or threatened against HUB or its
subsidiaries, when resolved, will have a material adverse effect on the business
or financial condition of HUB or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of HUB during the fourth
quarter of 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1999, Hudson United Bancorp had approximately 7,945
shareholders.
Hudson United Bancorp's common stock is listed on the New York Stock Exchange.
The following represents the high and low closing sale prices from each quarter
during the last two years. The numbers have been restated to reflect all stock
dividends.
1999
----
High Low
--------------------
1st Quarter $33.25 $28.88
2nd Quarter 34.95 29.73
3rd Quarter 32.77 27.49
4th Quarter 32.70 25.00
1998
----
High Low
--------------------
1st Quarter $36.76 $31.34
2nd Quarter 36.52 30.34
3rd Quarter 33.98 24.64
4th Quarter 29.25 21.00
The following table shows the per share quarterly cash dividends paid upon the
common stock over the last two years, restated to give retroactive effect to
stock dividends.
1999 1998
---- ----
March 1 $0.243 March 1 $0.188
June 1 0.243 June 1 0.188
September 1 0.243 September 0.236
December 1 0.243 December 1 0.243
Dividends are generally declared within 30 days prior to the payable date, to
stockholders of record 10-20 days after the declaration date.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands Except For Per Share Amounts)
Reference should be made to footnote 2, Business Combinations, in the
consolidated financial statements set forth in Item 8 of this Report on Form
10-K for a discussion of recent acquisitions which affect the comparability of
the information contained in this table.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 343,066 $ 328,850 $ 326,544 $312,627 $298,172
Provision for Possible
Loan Losses 52,200 35,607 24,442 29,060 30,229
Net Income 69,338 26,751 83,995 47,304 58,479
Per Share Data(1)
Earnings Per Share:
Basic 1.33 0.50 1.55 0.86 1.09
Diluted 1.30 0.49 1.48 0.83 1.05
Cash Dividends - Common 0.97 0.85 0.71 0.62 0.53
Balance Sheet Totals
(at or for the year ended
December 31,):
Total Assets 9,686,286 8,897,775 8,649,847 8,262,962 7,385,378
Long Trem Debt 257,300 257,300 210,050 134,750 36,750
Average Equity 508,238 646,851 669,756 670,979 623,443
Average Assets 9,248,141 8,721,572 8,314,181 7,884,000 7,045,663
</TABLE>
(1)Per share data is adjusted retroactively to reflect a 3% stock dividend paid
November 15, 1996 to stockholders of record on November 4, 1996, a 3% stock
dividend paid December 1, 1997 to stockholders of record on November 13, 1997, a
3% stock dividend paid September 1, 1998 to stockholders of record on August 14,
1998 and a 3% stock dividend paid December 1, 1999 to stockholders of record on
November 26, 1999.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements Regarding Forward-Looking Information
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements can
be identified by the use of words such as "believes", "expects" and similar
words or variations. Such statements are not historical facts and involve
certain risk and uncertainties. Actual results may differ materially from the
results discussed in these forward-looking statements. Factors that might cause
a difference include, but are not limited to, changes in interest rates,
economic conditions, deposit and loan growth, loan loss provisions, customer
retention, failure to realize expected cost savings or revenue enhancements from
acquisitions. The Company assumes no obligation for updating any such
forward-looking statements at any time.
As set forth in the joint proxy statement-prospectus of HUB and Dime with regard
to the merger, other risks and uncertainties in connection with HUB's merger
with Dime include, but are not limited to:
o there may be increases in competitive pressure among financial
institutions or from non-financial institutions;
o changes in the interest rate environment may reduce interest margins
or may adversely affect mortgage banking operations;
o changes in deposit flows, loan demand or real estate values may
adversely affect our business;
o changes in accounting principles, policies or guidelines may cause
our financial condition to be perceived differently;
o general economic conditions, either nationally or in some or all of
the states in which the combined company will be doing business, or
conditions in securities markets, the banking industry or the
mortgage banking industry, may be less favorable than we currently
anticipate;
o legislation or regulatory changes may adversely affect our business;
o technological changes may be more difficult or expensive than
anticipated;
o combining the businesses of Dime and HUB and retaining key personnel
may be more difficult or more costly than we expect;
o our revenues after the merger may be lower than we expect, or our
operating costs may be higher than we expect;
o expected cost savings from the merger may not be fully realized, may
not be realized at all or may not be realized within the expected
time frame; or
the timing and occurrence or non-occurrence of events may be subject to
circumstances beyond our control.
HUB, as part of its core business, regularly evaluates the potential acquisition
of, and holds discussions with, prospective acquisition candidates, which
candidates may conduct any type of businesses permissible for a bank holding
company or a financial holding company and its affiliates. HUB's discussions in
this document are subject to the changes that may result if any such acquisition
transaction is completed. HUB restates its policy that it will not comment on or
publicly announce any acquisition until after a binding and definitive
acquisition agreement has been reached. HUB specifically disclaims any
obligation to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
<PAGE>
Management's Discussion and Analysis
Acquisition Summary
Hudson United Bancorp ("the Company") began its acquisition program in the fall
of 1990. Since that time, the company has completed 31 acquisitions. Through
these acquisitions, the company has grown from a $550 million asset banking
company to a community banking franchise which had assets of $9.7 billion at
December 31, 1999. The acquisition program has been utilized to achieve
efficiencies and to distribute the cost of new products and technologies over a
larger asset base. It is the Company's philosophy that acquisitions become
accretive to earnings within a short time frame, generally within one year. The
financial results of these acquisitions are difficult to measure other than on
an as-reported basis each quarter because pooling of interest transactions
change historical results from those actually reported by the Company.
The Company consummated eight acquisitions in 1998. On January 8, 1998, the
Company acquired the Bank of Southington ("BOS"). BOS was a $135 million asset
institution with 2 branch locations headquartered in Southington, Connecticut.
On April 24, 1998, the Company acquired Poughkeepsie Financial Corporation
("PFC"), an $880 million asset institution headquartered in Poughkeepsie, New
York with 16 branches in Rockland, Orange and Dutchess counties in New York.
On May 29, 1998, the Company acquired MSB Bancorp, Inc. ("MSB"), a $774 million
asset institution headquartered in Goshen, New York that operated 16 branches in
Orange, Putnam and Sullivan counties in New York.
On August 14, 1998, the Company acquired IBS Financial Corporation ("IBS"), a
$734 million asset institution headquartered in Cherry Hill, New Jersey that
operated 10 offices in New Jersey's suburban Philadelphia communities.
On August 14, 1998, the Company acquired Community Financial Holding Corporation
("CFHC"), a $150 million asset institution headquartered in Westmont, New Jersey
that operated 8 offices in Camden, Burlington and Gloucester counties in New
Jersey.
On August 21, 1998, the Company acquired Dime Financial Corporation ("DFC"), a
$961 million asset institution headquartered in Wallingford, Connecticut that
operated 11 offices in New Haven county.
The above 1998 acquisitions were all accounted for using the
poolings-of-interests accounting method and, accordingly, the statements for
periods prior to the mergers have been restated to include these institutions
and their results of operations.
On February 5, 1998, the Company acquired Security National Bank & Trust Company
of New Jersey ("SNB"), a $86 million asset bank and trust company headquartered
in Newark, New Jersey with 4 branches.
On June 26, 1998, the Company acquired 21 branches of First Union National Bank
located in New Jersey and Connecticut with total deposits of $242.9 million.
On July 24, 1998, the Company acquired two additional branches of First Union
National Bank located in Hyde Park and Woodstock, New York. The two branches had
total deposits of $25.2 million.
The SNB and First Union National Bank branch acquisitions were accounted for
under the purchase method of accounting and, as such, their assets and earnings
are included in the Company's consolidated results only from the date of
acquisition and thereafter.
The Company consummated six acquisitions in 1999. On March 26, 1999, the Company
completed its purchase of $151 million in deposits and a retail branch office in
Hartford, Connecticut from First International Bank.
On May 20, 1999, the Company acquired Little Falls Bancorp, Inc. ("LFB"), which
had assets of approximately $341 million and operated six offices in the
Hunterdon and Passaic counties of New Jersey.
On October 22, 1999, the Company acquired Lyon Credit Corporation, a $350
million asset finance company and subsidiary of Credit Lyonnais Americas.
On December 1, 1999, the Company completed its purchase of loans (approximately
$148 million) and other financial assets, as well as assumed the deposit
liabilities (approximately $112 million) of Advest Bank and Trust. In addition,
a strategic partnership with Advest, Inc. was consummated on October 1, 1999, in
which Hudson United Bank became the exclusive provider of banking products and
services to the clients of Advest, Inc.
The above 1999 acquisitions were accounted for under the purchase method of
accounting and, as such, their assets and earnings are included in the Company's
consolidated results only from the date of acquisition and thereafter.
On November 30, 1999, the Company completed its acquisition of JeffBanks, Inc.
("Jeff"), a $1.8 billion bank holding company with 32 branches located
throughout the greater Philadelphia area of Pennsylvania and Southern New
Jersey.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"), a $425 million asset institution with 17 branches in Southern
New Jersey.
The above 1999 acquisitions were accounted for using the pooling- of-interests
accounting method and, accordingly, the statements for periods prior to the
mergers have been restated to include these institutions and their results of
operations.
Special Charges Summary
In 1999 and 1998, the Company incurred one-time charges ("special charges") as
detailed below. Further details relative to the special charges are discussed in
the "Noninterest Income" and "Noninterest Expenses" sections that follow.
SPECIAL CHARGES
(IN THOUSANDS) 1999 1998 1997
- --------------- ------- ------- --------
Writedown of assets held for sale $ -- $23,303 $ --
Merger related and restructuring charges 32,031 69,086 $ --
Investment Security losses 5,162 663 --
Special provision for loan losses 33,000 -- --
------- ------- --------
Total special charges pre-tax $70,193 $93,052 $ --
======= ======= ========
Total special charges after-tax $47,854 $63,634 $ --
======= ======= ========
<PAGE>
Results of Operations for the Years
Ended December 31, 1999, 1998 and 1997
Hudson United Bancorp reported net income of $69.3 million and fully diluted
earnings per share of $1.30 for the year ended December 31, 1999. Excluding
special charges, operating earnings were $117.2 million and fully diluted
earnings per share were $2.20 for the same 1999 period. In 1998, the Company had
net income of $26.8 million and fully diluted earnings per share of $0.49.
Excluding special charges, operating earnings and fully diluted earnings per
share were $90.4 million and $1.64, respectively, for the same 1998 period. In
1997, the Company had net income of $84.0 million and fully diluted earnings per
share of $1.48.
Return on average assets was 0.75% for 1999, 0.31% for 1998, and 1.01% for 1997.
Excluding special charges, return on average assets was 1.27% and 1.04% for 1999
and 1998, respectively. Return on average equity was 11.95% for 1999, 4.14% for
1998, and 12.54% for 1997. Excluding special charges, return on average equity
was 20.20% for 1999 and 13.97% for 1998.
The financial results in years in which acquisitions occur are difficult to
measure other than on an as-reported basis each quarter because pooling of
interest transactions change historical results from those actually reported by
the Company. On an as-reported basis each quarter, excluding special charges,
the average return on average assets was 1.41% and 1.46% and the average return
on average equity was 23.26% and 21.94% for 1999 and 1998, respectively.
<PAGE>
The following table presents a summary of the Company's average balances, the
yields earned on average assets and the cost of average liabilities and
stockholders' equity for the years ended December 31, 1999, 1998 and 1997 (in
thousands)
<TABLE>
<CAPTION>
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS, AND RATES
- ---------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks $ 17,441 $ 1,132 6.49% $ 34,475 $ 1,864 5.41%
Federal funds sold 76,672 4,980 6.50% 202,794 10,809 5.33%
Securities-taxable 3,328,654 204,937 6.16% 2,873,677 183,632 6.39%
Securities-tax exempt (1) 85,184 7,249 8.51% 112,716 9,448 8.38%
Loans (2) 5,136,467 432,041 8.41% 4,923,410 424,359 8.62%
------------------------------------ ------------------------------------
Total Earning Assets 8,644,418 650,339 7.52% 8,147,072 630,112 7.73%
Cash and due from banks 273,926 251,799
Allowance for loan losses (79,095) (84,605)
Premises and equipment 115,924 112,609
Other assets 292,968 294,697
----------- -----------
TOTAL ASSETS $ 9,248,141 $ 8,721,572
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction accounts $ 1,199,059 $ 24,125 2.01% $ 1,365,426 $ 32,070 2.35%
Savings accounts 1,405,688 28,184 2.00% 1,328,052 31,121 2.34%
Time deposits 2,821,338 138,426 4.91% 3,106,134 165,144 5.32%
------------------------------------ ------------------------------------
Total Interest-Bearing Deposits 5,426,085 190,735 3.52% 5,799,612 228,335 3.94%
Borrowings 1,722,512 88,902 5.16% 859,372 47,907 5.57%
Long-term debt 257,218 21,873 8.50% 235,886 20,231 8.58%
------------------------------------ ------------------------------------
Total Interest-Bearing Liabilities 7,405,815 301,510 4.07% 6,894,870 296,473 4.30%
Demand deposits 1,170,135 1,079,508
Other liabilities 91,953 100,343
Stockholders' equity 580,238 646,851
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,248,141 $ 8,721,572
=========== ===========
NET INTEREST INCOME $ 348,829 $ 333,639
=========== ===========
NET INTEREST MARGIN (3) 4.04% 4.10%
==== ====
<CAPTION>
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS, AND RATES
- --------------------------------------------------------------------------------
1997
------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks $ 373 $ 17 4.56%
Federal funds sold 183,086 10,552 5.76%
Securities-taxable 2,658,129 179,637 6.76%
Securities-tax exempt (1) 90,084 7,695 8.54%
Loans (2) 4,824,845 420,650 8.72%
------------------------------------
Total Earning Assets 7,756,517 618,551 7.97%
Cash and due from banks 259,907
Allowance for loan losses (81,510)
Premises and equipment 90,081
Other assets 289,186
-----------
TOTAL ASSETS $ 8,314,181
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction accounts $ 1,267,143 $ 37,135 2.93%
Savings accounts 1,403,988 33,839 2.41%
Time deposits 3,049,175 162,606 5.33%
------------------------------------
Total Interest-Bearing Deposits 5,720,306 233,580 4.08%
Borrowings 672,002 37,864 5.63%
Long-term debt 202,824 17,647 8.70%
------------------------------------
Total Interest-Bearing Liabilities 6,595,132 289,091 4.38%
Demand deposits 949,534
Other liabilities 99,759
Stockholders' equity 669,756
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 8,314,181
===========
NET INTEREST INCOME $ 329,460
===========
NET INTEREST MARGIN (3) 4.25%
====
</TABLE>
(1) The tax equivalent adjustments for the years ended December 31, 1999, 1998
and 1997 were $2,245, $3,289 and $2,694, respectively, and are based on a
tax rate of 35%.
(2) The tax equivalent adjustments for the years ended December 31, 1999, 1998
and 1997 were $3,518, $1,500 and $222, respectively, and are based on a tax
rate of 35%. Average loan balances include nonaccrual loans and loans held
for resale.
(3) Represents tax equivalent net interest income divided by interest-earning
assets.
THE FOLLOWING TABLE PRESENTS THE RELATIVE CONTRIBUTION OF CHANGES IN VOLUMES AND
CHANGES IN RATES TO CHANGES IN NET INTEREST INCOME FOR THE PERIODS INDICATED.
THE CHANGE IN INTEREST INCOME AND INTEREST EXPENSE ATTRIBUTABLE TO THE COMBINED
IMPACT OF BOTH VOLUME AND RATE HAS BEEN ALLOCATED PROPORTIONATELY TO THE CHANGE
DUE TO VOLUME AND THE CHANGE DUE TO RATE (IN THOUSANDS):
<PAGE>
CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME-RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
------------------------------------ -------------------------------------
1999 OVER 1998 1998 OVER 1997
------------------------------------ -------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 18,079 $(10,397) $ 7,682 $ 8,530 $ (4,821) $ 3,709
Securities-taxable 28,211 (6,906) 21,305 14,123 (10,128) 3,995
Securities-tax exempt (2,341) 142 (2,199) 1,861 (108) 1,753
Federal funds sold (7,810) 1,981 (5,829) 1,086 (829) 257
Interest bearing deposits (1,052) 320 (732) 1,843 4 1,847
------------------------------------ -------------------------------------
Total interest and fee income 35,087 (14,860) 20,227 27,443 (15,882) 11,561
------------------------------------ -------------------------------------
Interest bearing transaction accounts (3,650) (4,295) (7,945) 2,720 (7,785) (5,065)
Savings 1,744 (4,681) (2,937) (1,797) (921) (2,718)
Time deposits (14,507) (12,211) (26,718) 3,030 (492) 2,538
Short-term borrowings 44,794 (3,799) 40,995 10,449 (406) 10,043
Long-term debt 1,815 (173) 1,642 2,839 (255) 2,584
------------------------------------ -------------------------------------
Total interest expense 30,196 (25,159) 5,037 17,241 (9,859) 7,382
------------------------------------ -------------------------------------
Net Interest Income $ 4,891 $ 10,299 $ 15,190 $ 10,202 $ (6,023) $ 4,179
==================================== ====================================
</TABLE>
<PAGE>
Net Interest Income
Net interest income is the difference between the interest earned on earning
assets and the interest paid on deposits and borrowings. The principal earning
assets are the loan portfolio, comprised of commercial loans to businesses,
mortgage loans to businesses and individuals, consumer loans (such as car loans,
home equity loans, etc.) and credit card loans, along with the investment
portfolio. The portfolio is invested primarily in U.S. Government Agency
Securities, U.S. Government Agency mortgage-backed securities and
mortgage-related securities. Given the current rate environment, the weighted
average life of the portfolio is approximately 2.4 years. Deposits and
borrowings not required to fund loans and other assets are invested primarily in
U.S. Government and U.S. Government Agency Securities.
Net interest income is affected by a number of factors including the level,
pricing, and maturity of earning assets and interest-bearing liabilities,
interest rate fluctuations, asset quality and the amount of noninterest-bearing
deposits and capital. In the following discussion, interest income is presented
on a fully taxable-equivalent basis ("FTE"). Fully taxable-equivalent interest
income restates reported interest income on tax-exempt loans and securities as
if such interest were taxed at the statutory Federal income tax rate of 35%.
Net interest income on an FTE basis in 1999 was $348.8 million compared to
$333.6 million in 1998 and $329.5 million in 1997. The increase in net interest
income in 1999 compared to 1998 was due to a $497 million increase in
interest-earning assets, partially offset by a decline in the net interest
margin of six basis points. The increase in interest-earning assets was mainly
due to a higher average volume of investment securities and loans. The
improvement in net interest income in 1998 compared to 1997 was due to a $391
million increase in interest-earning assets, partially offset by a 15 basis
point decline in the net interest margin. Higher average volumes of investment
securities and loans were the primary factors underlying the increase in
interest-earning assets for the 1998 period compared to 1997.
Net Interest Margin
Net interest margin is computed by dividing net interest income on a FTE basis
by average interest-earning assets. The Company's net interest margin was 4.04%,
4.10%, and 4.25% for 1999, 1998 and 1997, respectively. The six basis point
decline in net interest margin from 1998 to 1999 was due primarily to the impact
of treasury share repurchases and lower rates earned on loans and investment
securities. Partially offsetting these factors was an increase in average demand
deposits and lower rates paid on interest-bearing deposits and borrowings. The
15 basis point decline in net interest margin in 1998 compared to 1997 was due
to the same factors described above in the 1999 and 1998 comparison, including
higher average demand deposits.
The Company's average cost of deposits for 1999 was 2.89% compared to 3.32% for
1998 and 3.50% for 1997.
Approximately 37% of the Company's deposits were in transaction accounts, 24% in
savings accounts, and 39% in time deposits as of December 31, 1999.
<PAGE>
Provision and Allowance for Possible Loan Losses
The determination of the adequacy of the Allowance for Possible Loan Losses
("the Allowance") and the periodic provisioning for estimated losses included in
the consolidated financial statements is the responsibility of management. The
evaluation process is undertaken on a monthly basis. Methodology employed for
assessing the adequacy of the Allowance consists of the following criteria:
The establishment of reserve amounts for all specifically identified criticized
loans, including those arising from business combinations, that have been
designated as requiring attention by management's internal loan review program.
The establishment of reserves for pools of homogenous types of loans not subject
to specific review, including 1-4 family residential mortgages, consumer loans,
and credit card accounts, based upon historical loss rates.
An allocation for the non-criticized loans in each portfolio, and for all
off-balance sheet exposures, based upon the historical average loss experience
of those portfolios.
Consideration is also given to the changed risk profile brought about by the
aforementioned business combinations, customer knowledge, the results of ongoing
credit quality monitoring processes, the adequacy and expertise of the Company's
lending staff, underwriting policies, loss histories, delinquency trends, the
cyclical nature of economic and business conditions and the concentration of
real estate related loans located in the Northeastern part of the United States.
Since many of the loans depend upon the sufficiency of collateral as a secondary
source of repayment, any adverse trend in the real estate markets could affect
underlying values available to protect the Company from loss. Other evidence
used to determine the amount of the Allowance and its components are as follows:
- - regulatory and other examinations
- - the amount and trend of criticized loans
- - actual losses
- - peer comparisons with other financial institutions
- - economic data associated with the real estate market in the Company's area
of operations
- - opportunities to dispose of marginally performing loans for cash
considerations
Based upon the process employed and giving recognition to all attendant factors
associated with the loan portfolio, management considers the Allowance for
Possible Loan Losses to be adequate at December 31,1999.
The provision for possible loan losses was $52.2 million for 1999 compared with
$35.6 million and $24.4 million in 1998 and 1997, respectively. The increase in
1999 from 1998 was due to a $33.0 million special provision taken to conform the
loan reserve policies of Jeff and SJB to that of the Company. The increased
provision in 1998 when compared to 1997 was primarily due to higher provisions
taken by acquired companies. The Allowance as a percentage of total loans
outstanding at year-end for the last three years was 1.74%, 1.56% and 1.74%. The
Allowance as a percentage of nonperforming loans for the past three years was
201%, 147% and 102%.
<PAGE>
The following is a summary of the activity in the allowance for possible loan
losses, by loan category for the years indicated (in thousands):
ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Amount of Loans Outstanding at End of Year $5,679,581 $4,885,643 $4,911,761
============================================
Daily Average Amount of Loans Outstanding $5,136,467 $4,923,410 $4,824,845
============================================
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Balance at beginning of year $ 76,043 $ 85,230 $ 81,979
Loans charged off:
Real estate mortgages 13,657 11,207 10,861
Commercial and Industrial 10,388 10,034 7,489
Consumer Credit 24,012 22,083 15,364
Other -- -- 384
Writedown of assets held for sale (1) -- 9,521 --
--------------------------------------------
Total loans charged off 48,057 52,845 34,098
--------------------------------------------
Recoveries:
Real estate mortgages 1,902 988 2,684
Commercial and Industrial 1,962 1,629 3,113
Consumer Credit 6,065 3,437 3,512
Other -- 47 798
--------------------------------------------
Total recoveries 9,929 6,101 10,107
--------------------------------------------
Net loans charged off 38,128 46,744 23,991
--------------------------------------------
Provision for loan losses 52,200 35,607 24,442
Allowance of acquired companies 8,634 1,950 2,800
--------------------------------------------
Balance at end of year $ 98,749 $ 76,043 $ 85,230
============================================
Net charge offs as a percentage of average loans
outstanding 0.74% 0.95% 0.50%
Allowance for possible loan losses as a percentage
of loans outstanding at year end 1.74% 1.56% 1.74%
</TABLE>
(1) The writedown of assets held for sale pertains to the disposal of $54
million of nonaccrual loans discussed further in the "Noninterest Income" and
"Asset Quality" sections that follow.
The following is the allocation of the allowance for possible loan losses by
loan category (in thousands):
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------
CATEGORY CATEGORY CATEGORY
PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgages $25,484 46.5% $23,868 60.6% $30,273 65.2%
Commercial and industrial 43,974 31.8% 18,493 25.3% 20,233 22.5%
Consumer Credit 24,895 21.7% 20,650 14.1% 11,650 12.3%
Unallocated 4,396 13,032 23,074
--------------------------------------------------------------------------------------
Total $98,749 100.0% $76,043 100.0% $85,230 100.0%
======================================================================================
</TABLE>
Noninterest Income
Noninterest income, excluding securities gains and loss on assets held for sale,
increased 27% to $89.9 million for 1999 from $70.9 million in 1998. The amount
in 1998 was an increase of 16% over the $61.0 million reported in 1997. The
increase for 1999 compared to 1998 was due to growth in Shoppers Charge fees
(the Company's private label credit card division) and mortgage divisions and
increased sales of alternative investment products. The improvement in 1998 from
1997 was mainly the result of growth in Shoppers Charge fees and other
non-deposit related fee income. Noninterest income, excluding security gains and
loss on assets held for sale, as a percentage of total net revenue was 21%, 19%
and 15% in 1999, 1998, and 1997, respectively. The Company had $1.2 million in
securities losses in 1999, and security gains of $4.5 million and $9.4 million
in 1998 and 1997, respectively. The $1.2 million in losses in 1999 included a
$5.2 million pre-tax special charge related to the sale of investment securities
acquired in the Jeff acquisition. The amount for 1998 included a $0.6 million
pre-tax special charge related to the sale of investment securities acquired in
the PFC acquisition. Excluding the special charges, the Company had security
gains of $4.0 million in 1999 and $5.1 million in 1998.
Included in noninterest income for 1998 is a $23.3 million pre-tax, $14.9
million after-tax special charge, related to the
<PAGE>
disposal of $64 million of non-performing loans and Other Real Estate Owned
(OREO).
Noninterest Expenses
Noninterest expense, excluding merger related and restructuring costs, increased
to $239.3 million in 1999 from $232.2 million in 1998. The primary reason for
the increase was the higher cost of supporting the Company's expanding business
lines. The decline in expenses from $239.5 million in 1997 to $232.2 million in
1998 resulted mainly from the consolidation and realization of efficiencies in
acquired institutions.
Salary and benefit expense was $102.7 million in 1999, $107.2 million and $115.2
million in 1998 and 1997, respectively. The decline in 1999 compared to 1998
was due to efficiencies realized in staff and support functions and
consolidation of benefit plans. The decline from 1997 to 1998 resulted mainly
from the same sources related to acquired institutions.
Occupancy expense was $24.9 million in 1999, $24.8 million in 1998, and $23.2
million in 1997. The increase in 1998 resulted largely from the acquisition of
the First Union branches. Equipment expense was $14.7 million in 1999 compared
to $11.3 million in 1998 and $11.6 million in 1997. The higher 1999 expense when
compared to 1998 resulted from improvements in the Company's technology
infrastructure.
Outside services expense was $48.8 million in 1999, $34.8 million in 1998 and
$33.4 million in 1997. The increase in 1999 compared to 1998 reflected higher
expenses, primarily related to Shoppers Charge, incurred to support business
expansion.
Other Real Estate Owned (OREO) expense declined to $0.1 million in 1999 compared
to $3.3 million in 1998 and $5.6 million in 1997. A decline in OREO properties
was responsible for the reduction in expense.
Amortization of intangibles expense increased to $14.9 million in 1999 from
$12.1 million in 1998 and $10.4 million in 1997. The increases are attributable
to the additional goodwill established for the acquisitions and branch purchases
described previously.
Merger related and restructuring costs were $32.0 million in 1999 and $69.1
million in 1998. The 1999 costs include payout and accruals for employment
contracts, severance and other employee related costs ($12.6 million), branch
closing, fixed asset disposition and other occupancy related costs ($3.9
million), technical support for system conversion and early termination of
system related contracts ($5.6 million), legal and accounting professional
services and approval costs ($1.8 million), financial advisor costs ($4.1
million), provison for other real estate owned ($2.0 million) and other merger
related expenses ($2.0 million).
Federal Income Taxes
The income tax provision for Federal and state taxes approximates 36.0% for
1999, 38.8% for 1998 and 36.9% for 1997. The higher effective tax rate in 1998
compared to both 1999 and 1997 was due primarily to higher nondeductible
merger-related expenses in 1998.
Financial Condition
Total assets at December 31, 1999 were $9.7 billion, an increase from assets of
$8.9 billion at December 31, 1998. This increase in assets resulted primarily
from a $794 million increase in loans to $5.7 billion at December 31, 1999.
Total deposits were $6.5 billion and $6.8 billion, respectively, at year-end
1999 and 1998. Borrowings amounted to $2.4 billion and $970 million at December
31, 1999 and 1998, respectively. The increase in borrowings resulted primarily
from the need to fund the growth in loans and investment securities.
The Company considers its liquidity and capital to be adequate. At the end of
1999, the Company had $3.4 billion in investment securities, $2.8 billion in its
available for sale portfolio and $562 million in its held to maturity portfolio.
Total Stockholders' Equity was $519.2 million at December 31, 1999 and $619.9
million at December 31, 1998. The net decline in Stockholders' Equity of $100.7
million resulted from the Company's purchase of $121.4 million in treasury
shares , the impact of marking to market the Company's available for sale
security portfolio of $53.6 million, and cash dividends paid of $45.3 million.
This was partially offset by $69.3 million of net income and an increase in
equity of $50.1 million resulting from the effect of exercised stock options,
warrants, other compensation plans and the issuance of treasury shares for the
LFB acquisition.
Securities Held to Maturity and Securities Available for Sale
The securities portfolios serve as a source of liquidity, earnings, and a means
of managing interest rate risk. Consequently, the portfolios are managed over
time in response to changes in market conditions and loan demand. At December
31, 1999 and 1998, the portfolios comprised 35% and 37%, respectively, of the
total assets of the Company.
<PAGE>
The following tables summarize the composition of the portfolios as of
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------- -------------------------------------------------
GROSS UNREALIZED ESTIMATED GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------- MARKET AMORTIZED ------------------- MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY PORTFOLIO
U. S. Government $ 24,195 $ -- $ (253) $ 23,942 $ 42,373 $ 393 $ -- $ 42,766
U.S. Government Agencies 45,960 201 (636) 45,525 37,360 1,462 -- 38,822
Mortgage-backed securities 467,540 220 (19,967) 447,793 539,725 2,277 (717) 541,285
States and Political
subdivisions 24,500 26 (575) 23,951 16,190 204 (4) 16,390
Other debt securities 29 -- -- 29 -- -- -- --
------------------------------------------------- -------------------------------------------------
$ 562,224 $ 447 $(21,431) $ 541,240 $ 635,648 $ 4,336 $ (721) $ 639,263
================================================= ==================================================
<CAPTION>
1999 1998
------------------------------------------------- -------------------------------------------------
GROSS UNREALIZED ESTIMATED GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------- MARKET AMORTIZED ------------------- MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government $ 87,332 $ 196 $ (303) $ 87,225 $ 108,036 $ 1,940 $ -- $ 109,976
U.S. Government Agencies 350,040 85 (7,595) 342,530 425,610 3,555 (59) 429,106
Mortgage-backed securities 2,167,606 1,431 (48,880) 2,120,157 1,888,149 14,984 (4,956) 1,898,177
States and Political
subdivisions 3,118 12 (10) 3,120 87,132 3,047 (114) 90,065
Other debt securities 47,128 4 (1,813) 45,319 20,690 152 (58) 20,784
Equity securities 213,826 1,932 (9,807) 205,951 110,403 2,471 (674) 112,200
------------------------------------------------- -------------------------------------------------
$ 2,869,050 $ 3,660 $(68,408) $ 2,804,302 $ 2,640,020 $ 26,149 $ (5,861) $ 2,660,308
================================================= ==================================================
</TABLE>
<PAGE>
Loan Portfolio Distribution of Loans by Category
DECEMBER 31,
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------------------------------
Loans secured by real estate:
Residential mortgage loans $1,639,578 $1,739,054 $1,877,888
Mortgages held for sale 9,073 14,600 4,327
Residential home equity
loans 357,941 230,587 216,215
Commercial mortgage loans 1,024,844 978,040 1,105,440
---------------------------------------------
3,031,436 2,962,281 3,203,870
---------------------------------------------
Commercial and industrial
loans:
Secured by
real estate 275,411 233,536 285,057
Other 1,490,837 1,004,149 818,484
---------------------------------------------
1,766,248 1,237,685 1,103,541
---------------------------------------------
Credit cards 209,863 107,331 114,550
Other loans to individuals 672,034 578,346 489,800
---------------------------------------------
Total Loan Portfolio $5,679,581 $4,885,643 $4,911,761
=============================================
Total loans increased by $793.9 million to $5.7 billion at December 31, 1999
from $4.9 billion at December 31, 1998. Commercial and industrial loans
accounted for over half of the growth as they increased by $528.5 million to
$1.8 billion at year-end 1999. Of the growth, $370.0 million was related to the
Company's acquisition of Lyon Credit Corporation. Home equity and credit card
loans also exhibited high growth rates. The Company continued its strategy of
reducing its percentage of lower yielding residential mortgage loans arising
from the thrift institutions acquired in 1998. Residential mortgage loans
amounted to $1.6 billion at December 31, 1999 and represented 29% of total loans
compared to 36% of total loans at December 31, 1998.
Asset Quality
The Company's principal earning assets are its loans, which are made primarily
to businesses and individuals located in New Jersey, New York, Connecticut and
Pennsylvania. Inherent in the lending business is the risk of deterioration in a
borrower's ability to repay loans under existing loan agreements. Other risk
elements include the amount of nonaccrual and past-due loans, the amount of
potential problem loans, industry or geographic loan concentrations, and the
level of OREO that must be managed and disposed of. The following table shows
the loans past due 90 days or more and still accruing and applicable asset
quality ratios:
DECEMBER 31,
-------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
-------------------------------------------------------------------------------
Commercial & industrial $ 3,004 $ 3,048 $ 3,578
Real estate mortgages 13,085 9,739 13,938
Consumer credit 3,011 4,263 3,224
Credit card 4,139 4,211 3,609
-------------------------------------------
Total Loans Past-Due 90-Days
or More and Still Accruing $ 23,239 $ 21,261 $ 24,349
===========================================
As a percent of Total Loans 0.41% 0.44% 0.50%
As a percent of Total Assets 0.24% 0.24% 0.28%
Nonaccruing loans include commercial loans and commercial mortgage loans
past-due 90-days or more or deemed uncollectable. Residential real estate loans
are generally placed on nonaccrual status after 180 days of delinquency.
Consumer loans are charged off after 120 days and credit card loans are charged
off after 180 days. Any loan may be put on nonaccrual status earlier if the
Company has concern about the future collectability of the loan or its ability
to return to current status.
Nonaccrual real estate mortgage loans are principally loans in the foreclosure
process secured by real estate, including single family residential,
multi-family, and commercial properties.
Nonaccruing consumer credit loans are loans to individuals. Excluding the credit
card receivables, these loans are principally secured by automobiles or real
estate.
Renegotiated loans are loans which were renegotiated as to the term or rate or
both to assist the borrower after the borrower has suffered adverse effects in
financial condition. Terms are designed to fit the ability of the borrower to
repay and the Company's objective of obtaining repayment. The Company has $2.7
million of loans which are considered renegotiated.
OREO consists of properties on which the Bank has foreclosed or has taken a deed
in lieu of the loan obligation. OREO properties are carried at the lower of cost
or fair value at all times, net of estimated costs to sell. The cost to maintain
the properties during ownership, and any further declines in fair value are
charged to current earnings. The Company has been successful in disposing of
OREO properties, including those acquired in acquisitions. At December 31, 1999,
1998, and 1997, OREO, including OREO classified in "Assets Held for Sale" on the
balance sheet, amounted to $3.9 million, $8.2 million, and $15.6 million,
respectively. The year to year declines reflect the Company's continuing efforts
to dispose of OREO properties.
Nonperforming assets were $53.1 million at December 31, 1999, $60.0 million at
December 31, 1998, and $99.4 million at December 31, 1997. The decline from
December 31, 1998 to December 31, 1999 was mainly the result of the Company's
continuing effort to reduce the level of nonperforming assets. The decline from
year-end 1997 to year-end 1998 was largely due to the $23.3 million pre-tax
charge and the $10.3 million writedown against the Allowance for Possible Loan
Losses and OREO reserve related
<PAGE>
to the disposal of non-performing loans and OREO.
The amount of interest income on nonperforming loans which would have been
recorded had these loans continued to perform under their original terms
amounted to $3.2 million, $8.0 million, and $6.8 million for the years 1999,
1998, and 1997, respectively. The amount of interest income recorded on such
loans for each of the years was $0.4 million, $0.7 million, and $1.5 million,
respectively. The Company has no outstanding commitments to advance additional
funds to borrowers whose loans are in a nonperforming status.
Measures to control and reduce the level of nonperforming loans are continuing.
Efforts are made to identify slow paying loans and collection procedures are
instituted. After identification, steps are taken to understand the problems of
the borrower and to work with the borrower toward resolving the problem, if
practicable. Continuing collection efforts are a priority for the Company.
The following table summarizes the Company's nonperforming assets at the dates
indicated (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
NONPERFORMING ASSETS (INCLUDING ASSETS HELD FOR SALE) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual Loans $46,352 $46,178 $64,766
Renegotiated Loans 2,751 5,632 19,054
-----------------------------
Total Nonperforming Loans 49,103 51,810 83,820
Other Real Estate Owned 3,948 8,151 15,568
-----------------------------
Total Nonperforming Assets $53,051 $59,961 $99,388
=============================
Ratios:
Nonaccrual Loans to Total Loans 0.82% 0.95% 1.32%
Nonperforming Assets to Total Assets 0.55 0.67 1.15
Allowance for Loan Losses to Nonaccrual Loans 213 165 132
Allowance for Loan Losses to Nonperforming Loans 201 147 102
</TABLE>
Deposits
As of December 31, 1999, Hudson had 112 branch offices in New Jersey 33 branch
offices in New York state, 42 branch offices in Connecticut, and 26 branch
offices in Pennsylvania.
Through business development incentives, the Company strives to generate the
lowest cost deposits. The following table summarizes the deposit base at the
dates indicated (in thousands):
DECEMBER 31,
1999 1998 1997
------------------------------------------
Noninterest- bearing
deposits $1,231,478 $1,214,521 $1,048,846
NOW/MMDA deposits 1,145,398 1,249,772 1,312,082
Savings deposits 1,528,033 1,367,117 1,366,225
Time deposits 2,550,436 2,941,826 3,049,894
------------------------------------------
Total Deposits $6,455,345 $6,773,236 $6,777,047
==========================================
While total deposits declined from year-end 1998 to year-end 1999, there was a
favorable change in the mix, as higher cost time deposits declined by $391
million while noninterest-bearing and other lower cost deposits increased by $73
million. As of December 31, 1999, noninterest bearing, NOW, MMDA, and savings
deposits represented 61% of total deposits.
Liquidity
Liquidity is a measure of the Company's ability to meet the needs of depositors,
borrowers, and creditors at a reasonable cost and without adverse financial
consequences. The Company has several liquidity measurements that are evaluated
on a frequent basis. The Company has adequate sources of liquidity including
Securities Available for Sale, Federal funds lines, and the ability to borrow
funds from the Federal Home Loan Bank and Federal Reserve discount window. The
management of balance sheet volumes, mixes, and maturities enables the Company
to maintain adequate levels of liquidity.
Capital
Capital adequacy is a measure of the amount of capital needed to support asset
growth, absorb unanticipated losses, and provide safety for depositors. The
regulators establish minimum capital ratio guidelines for the banking industry.
The following table sets forth the regulatory minimum capital ratio guidelines,
the capital ratio guidelines an institution must meet to be considered well
capitalized and the current capital ratios of the Company.
<TABLE>
<CAPTION>
REGULATORY MINIMUM WELL CAPITALIZED COMPANY CAPITAL
CAPITAL RATIOS CAPITAL RATIOS RATIOS
<S> <C> <C> <C>
Tier 1 Leverage Ratio 4% 5% 5.7%
Tier 1 Risk-Based Capital Ratio 4% 6% 8.7%
Total Risk-Based Capital 8% 10% 12.0%
</TABLE>
At December 31, 1999, 1998, and 1997, the Company exceeded all regulatory
capital guidelines including those for a well capitalized institution.
On December 1, 1997, the Company paid a 3% stock dividend and increased its
regular quarterly cash dividend from $0.18 to $0.19 per common share. On
September 3, 1998, the Company paid a 3% stock dividend and increased its
regular quarterly cash dividend to $0.25 per common share. On December 1, 1999,
the Company paid a 3% stock dividend and maintained its regular quarterly cash
dividend at $0.25 per common share. The dividend payout ratio, based on cash
dividends per share and diluted earnings per share, was 75% for 1999 compared to
173% for 1998
<PAGE>
and 48% in 1997. The higher ratios in 1999 and 1998 were due to lower net income
resulting from the special charges in those years. Excluding special charges,
the payout ratio would have been 44% in 1999 and 52% in 1998.
In February 1993, the Company issued $9.0 million aggregate principal amount of
subordinated debentures which mature in 2003 and bear interest at 9.5% per annum
payable semi-annually. These notes are redeemable at the option of the Company,
in whole or in part, at any time after February 15, 2000, at their stated
principal amount plus accrued interest, if any.
In January 1994, the Company issued $25.0 million aggregate principal amount of
subordinated debentures which mature in 2004 and bear interest at 7.75% per
annum payable semi-annually.
In March 1996, the Company issued $23.0 million aggregate principal amount of
subordinated debentures which mature in 2006 and bear interest at 8.75% per
annum payable semi-annually. These notes are redeemable at the option of the
Company, in whole or in part, at any time after April 1, 2001, at their stated
principal amount plus accrued interest, if any.
In September 1996, the Company issued $75.0 million of subordinated debt. The
subordinated debentures bear interest at 8.20% per annum payable semi-annually
and mature in 2006.
Proceeds of the above issuances were used for general corporate purposes
including providing Tier I capital to the subsidiary bank. The debt has been
structured to comply with the Federal Reserve Bank rules regarding debt
qualifying as Tier 2 capital at the Company.
In January 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 8.98% Junior Subordinated
Debentures due 2027 of the Company.
In February 1997, the Company placed $25.0 million in aggregate liquidation
amount of 9.25% Capital Securities due March 2027, using JBI Capital Trust I, a
statutory business trust formed under the laws of the State of Delaware. The
sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $25.3 million principal amount of 9.25% Junior Subordinated
Debentures due 2027 of the Company. The 9.25% Trust preferred securities are
callable by the Company on or after March 31, 2002, or earlier in the event the
deduction of related interest for federal income taxes is prohibited, treatment
as Tier I capital is no longer permitted or certain other contingencies arise.
In June 1998, the Company placed $50.0 million in aggregate liquidation amount
of 7.65% Capital Securities due June 2028, using HUBCO Capital Trust II, a
statutory business trust formed under the laws of the State of Delaware. The
sole assets of the trust, which is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 7.65% Junior Subordinated
Debentures due 2028 of the Company.
The three issues of capital securities have preference over the common
securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation and are guaranteed by the Company. The net
proceeds of the offerings are being used for general corporate purposes and to
increase capital levels of the Company and its subsidiaries. The securities
qualify as Tier I capital under the capital guidelines of the Federal Reserve.
At the end of the reporting period, there were no known uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity or capital resources.
Liquidity and interest rate sensitivity management
The primary objectives of asset/liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity, maintain an
appropriate balance between interest-sensitive earning assets and
interest-sensitive liabilities and enhance earnings. Liquidity management is a
planning process that ensures that the Company has ample funds to satisfy
operational needs, projected deposit outflows, repayment of borrowing and loan
obligations and the projected credit needs of its customer base. Interest rate
sensitivity management ensures that the Company maintains acceptable levels of
net interest income throughout a range of interest rate environments. The
Company seeks to maintain its interest rate risk within a range that it believes
is both manageable and prudent, given its capital and income generating
capacity.
Liquidity risk is the risk to earnings or capital that would arise from a bank's
inability to meet its obligations when they come due, without incurring
unacceptable losses. The Company uses several measurements in monitoring its
liquidity position. In addition, the Company has a number of borrowing
facilities with banks, primary broker dealers, the Federal Home Loan Bank and
Federal Reserve that are or can be used as sources of liquidity without having
to sell assets to raise cash. At December 31, 1999, the Company's liquidity
ratios exceed all minimum standards set forth by internal policies.
The Company has an asset/liability management committee which manages the risks
associated with the volatility of interest rates and the resulting impact on net
interest income, net income and capital. The management of interest rate risk at
the Company is performed by: (i) analyzing the maturity and repricing
relationships between interest earning assets and interest bearing liabilities
at specific points in time (`GAP') and (ii) "income simulation analysis" which
analyzes the effects of interest rate changes on net interest income, net income
and capital over specific periods of time and captures the dynamic impact of
interest rate changes on the Company's mix of assets and liabilities.
The table on the following page presents the GAP position of the Company at
December 31, 1999. In preparing this table, management has anticipated
prepayments for mortgage-backed securities and mortgage-related securities
according to standard industry prepayment assumptions in effect at year-end.
Total loans includes adjustable rate loans which are placed according to
repricing periods. Fixed rate residential mortgages are assumed to prepay at an
annual rate of 6% which is consistent with historical average housing turnover
rates. Money market deposits and interest-bearing demand accounts have been
included in the due within 90 days category. Assets with daily floating rates
are included in the due
<PAGE>
within 90 days category. Assets and liabilities are included in the table based
on their maturities, expected cash repayments or period of first repricing,
subject to the foregoing assumptions.
In analyzing its GAP position, although all time periods are considered, the
Company emphasizes the next twelve month period. An institution is considered to
be liability sensitive, or having a negative GAP, when the amount of
interest-bearing liabilities maturing or repricing within a given time period
exceeds the amount of its interest-earning assets also repricing within that
time period. Conversely, an institution is considered to be asset sensitive, or
having a positive GAP, when the amount of its interest-bearing liabilities
maturing or repricing is less than the amount of its interest-earning assets
also maturing or repricing during the same period. Theoretically, in a falling
interest rate environment, a negative GAP should result in an increase in net
interest income, and in a rising interest rate environment this negative GAP
should adversely affect net interest income. The converse would be true for a
positive GAP.
However, shortcomings are inherent in a simplified GAP analysis that may result
in changes in interest rates affecting net interest income more or less than the
GAP analysis would indicate. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Furthermore, repricing
characteristics of certain assets and liabilities may vary substantially within
a given time period. In the event of a change in interest rates, prepayment and
early withdrawal levels could also deviate significantly from those assumed in
calculating GAP. Also, GAP does not permit analysis of how changes in the mix of
various assets and liabilities and growth rate assumptions impact net interest
income.
<PAGE>
The following table shows the Gap position of the Company at December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
GAP ANALYSIS DUE
DUE WITHIN BETWEEN
ONE YEAR ONE AND DUE OVER NONINTEREST
OR LESS FIVE YEARS FIVE YEARS BEARING TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Securities $ 445,130 $ 1,654,553 $ 1,266,843 $ -- $ 3,366,526
Total Loans 2,409,754 1,789,391 1,480,436 -- 5,679,581
Noninterest Bearing Assets -- -- -- 640,179 640,179
------------------------------------------------------------------------------
Total Assets $ 2,854,884 3,443,944 2,747,279 640,179 9,686,286
Percent of Total Assets 29.5% 35.6% 28.3% 6.6% 100.0%
SOURCE OF FUNDS
Interest-Bearing Deposits $ 2,620,394 $ 2,112,587 $ 490,886 $ -- $ 5,223,867
Borrowings 2,320,635 55,000 8,031 -- 2,383,666
Long-Term Debt -- 9,000 248,300 -- 257,300
Noninterest Bearing Deposits 408,420 740,131 89,927 -- 1,231,478
Other Liabilities -- -- -- 70,809 70,809
Stockholders' Equity -- -- -- 519,166 519,166
------------------------------------------------------------------------------
Total Source Of Funds $ 5,349,449 $ 2,916,718 $ 830,144 $ 589,975 $ 9,686,286
Percent of Total Source of Funds 35.3% 30.1% 8.6% 6.0% 100.0%
===================================================================================================================================
Interest Rate Sensitivity Gap $(2,494,565) $ 527,226 $ 1,917,135 $ 50,204 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Interest Rate Sensitivity Gap $(2,494,565) (1,967,339) $ (50,204) $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due in part to the shortcomings of GAP analysis, the Asset/Liability Committee
of Hudson United Bancorp believes that financial simulation modeling more
accurately estimates the effects and exposure to changes in interest rates. Net
interest income simulation considers the relative sensitivities of the balance
sheet including the effects of interest rate caps on adjustable rate mortgages
and the relatively stable aspects of core deposits. As such, net interest income
simulation is designed to address the likely probability of interest rate
changes and behavioral response of the balance sheet to those changes. Market
Value of Portfolio Equity represents the fair values of the net present value of
assets, liabilities, and off-balance sheet items.
Financial modeling is performed under several scenarios including a regulatory
rate shock scenario which measures changes in net interest income over the next
twelve months and market value of portfolio equity given instantaneous and
sustained changes in interest rates.
The following table depicts the Company's sensitivity to interest rate changes
and the effects on Market Value of Portfolio Equity as of December 31, 1999
under several scenarios including the regulatory rate shock scenario (in
thousands).
RATE SHOCK MODEL
<TABLE>
<CAPTION>
Basis point rate change Net Interest Income Effect on Market Value of Portfolio Equity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
+200 bp -2% -18%
+100 bp -1% - 9%
- -100 bp +2% + 8%
- -200 bp +2% + 7%
</TABLE>
Recent Accounting Standards
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", establishing standards for
the accounting and reporting of derivatives. The statement is effective for
fiscal years beginning after June 15, 2000; earlier application is permitted.
The Company has elected not to adopt this statement prior to its effective date.
The Company does not expect that adoption of the statement will have a material
effect on its financial position or results of operations.
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM II
INVESTMENT PORTFOLIO
Book Value at End of Each Reporting Period
DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands)
U.S. Treasury and other U.S.
Government Agencies and
Corporations $3,087,607 $3,056,717 $2,494,101
State and Political Subdivisions 27,620 106,255 106,005
Other Debt Securities 45,348 20,784 57,828
Equity Securities 205,951 112,200 63,422
---------- ---------- ----------
TOTAL $3,366,526 $3,295,956 $2,721,356
========== ========== ==========
Maturities and Weighted Average Yield at End of Latest Reporting Period (in
thousands)
<TABLE>
<CAPTION>
Maturing
- -----------------------------------------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
--------------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Other U.S. Government
Agencies and Corporations $495,631 6.18% $1,862,556 6.15% $484,297 6.23% $245,123 6.08%
States and Political Subdivisions 14,195 6.15% 6,865 6.86% 4,303 7.69% 2,257 7.51%
Other Debt Securities 3,451 6.08% 6,419 5.79% 18,048 6.91% 17,430 8.68%
Equity Securities -- -- -- -- -- -- 205,951 6.44%
-------- ---------- -------- --------
TOTAL $513,277 6.18% $1,875,840 6.15% $506,648 6.26% $470,761 6.34%
======== ========== ======== ========
</TABLE>
Weighted average yields on tax-exempt obligations have been computed on a fully
tax-equivalent basis assuming a federal tax rate of 35 percent.
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Types of Loans At End of Each Reporting Period (in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $1,550,070 $1,070,844 $ 918,106 $ 923,380 $ 935,550
Real Estate -
Construction 216,178 166,841 185,435 163,387 132,610
Real Estate -
Mortgage 3,031,436 2,962,281 3,203,870 3,225,591 2,908,022
Installment 881,897 685,677 604,350 504,853 408,743
---------- ---------- ---------- ---------- ----------
TOTAL $5,679,581 $4,885,643 $4,911,761 $4,817,211 $4,384,925
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
The following table shows the maturity of loans (excluding residential mortgages
of 1-4 family residences, installment loans and lease financing) outstanding as
of December 31, 1999. Also provided are the amounts due after one year
classified according to the sensitivity to changes in interest rates.
Maturities and Sensitivity to Changes in Interest Rates (in thousands)
MATURING
---------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
-------- ---------- ----- -----
Commercial, Financial,
and Agricultural $358,896 $710,707 $480,467 $1,550,070
Real Estate Construction 163,662 48,711 3,805 216,178
Real Estate - Mortgage 353,004 330,252 341,588 1,024,844
----------------------------------------------
TOTAL $875,562 $1,089,670 $825,860 $2,791,092
==============================================
SENSITIVITY
----------------------------
Fixed Variable
Rate Rate
----------------------------
Due After One But Within Five Years $ 621,113 $468,557
Due After Five Years 711,805 114,055
----------------------------
TOTAL $1,332,918 $582,612
============================
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Nonaccrual, Past Due and Restructured Loans
(In thousands) December 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Loans accounted for on
a nonaccrual basis $46,352 $46,178 $64,766 $72,883 $63,005
Loans contractually past
due 90 days or more as
to interest or principal
payments 23,239 21,261 24,349 22,628 18,595
Loans whose terms have been
renegotiated to provide a
reduction or deferral of
interest or principal
because of a deterioration
in the financial position
of the borrower 2,751 5,632 19,054 13,261 3,134
At the end of the reporting period, all loans were disclosed in the above table
if known information about possible credit problems of borrowers caused
management of the Company to have serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms.
At December 31, 1999 and 1998, there were no concentrations of loans exceeding
10% of total loans which are not otherwise disclosed as a category of loans
pursuant to Item III.A. of Guide 3.
Recognition of interest on the accrual method is discontinued based on
contractual delinquency and when timely payment is not expected. A nonaccrual
loan is not returned to an accrual status until interest is received up to date
on a current basis and other factors indicate collection ability is no longer
doubtful.
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
The following is a summary of the activity in the allowance for possible loan
losses, broken down by loan category (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Amount of Loans Outstanding at End of Year $ 5,679,581 $ 4,885,643 $ 4,911,761 $ 4,817,211 $ 4,384,925
=========== =========== =========== =========== ===========
Daily Average Amount of Loans $ 5,136,467 $ 4,923,410 $ 4,824,845 $ 4,547,221 $ 4,152,111
=========== =========== =========== =========== ===========
Balance of Allowance for Possible
Loan Losses at Beginning of Year $ 76,043 $ 85,230 $ 81,979 $ 79,968 $ 75,204
Loans Charged Off:
Commercial, Financial and Agricultural (10,388) (10,034) (7,489) (10,493) (19,090)
Real Estate - Construction -- (213) -- (473) (75)
Real Estate - Mortgage (13,657) (10,994) (10,861) (13,980) (14,901)
Installment (24,012) (22,083) (15,364) (4,647) (2,996)
Write down of assets held for sale -- (9,521) -- -- --
Other Loans -- -- (384) (9,452) (73)
----------- ----------- ----------- ----------- -----------
Total Loans Charged Off (48,057) (52,845) (34,098) (39,045) (37,135)
----------- ----------- ----------- ----------- -----------
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural 1,962 1,629 3,113 1,874 1,765
Real Estate-Construction -- -- -- -- 40
Real Estate-Mortgage 1,902 988 2,684 2,429 2,643
Installment 6,065 3,437 3,512 1,534 990
Other Loans -- 47 798 1,501 22
----------- ----------- ----------- ----------- -----------
Total Recoveries 9,929 6,101 10,107 7,338 5,460
----------- ----------- ----------- ----------- -----------
Net Loans Charged Off (38,128) (46,744) (23,991) (31,707) (31,675)
----------- ----------- ----------- ----------- -----------
Provision Charged to Expense 52,200 35,607 24,442 29,060 30,229
Additions Acquired Through Acquisitions 8,634 1,950 2,800 4,658 6,121
Other -- -- -- -- 89
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 98,749 $ 76,043 $ 85,230 $ 81,979 $ 79,968
=========== =========== =========== =========== ===========
Ratios
Net Loans Charged Off to
Average Loans Outstanding 0.74% 0.95% 0.50% 0.70% 0.76%
Allowance for Possible Loan
Losses to Average Loans
Outstanding 1.92% 1.54% 1.77% 1.80% 1.93%
</TABLE>
Management formally reviews the loan portfolio and evaluates credit risk on at
least a quarterly basis throughout the year. Such review takes into
consideration the financial condition of the borrowers, fair market value of
collateral, level of delinquencies, historical loss experience by loan category,
industry trends, and the impact of local and national economic conditions.
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
ALLOWANCE FOR POSSIBLE LOAN LOSSES ALLOCATION (in thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
---------------------------------------------------------------------------------------------------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
In Each In Each In Each In Each In Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to domestic loans:
Commercial
Financial and
Agricultural $38,592 27.9% $16,789 21.9% $19,751 18.7% $20,328 19.2% $22,359 21.3%
Real Estate -
Construction 5,382 3.9 1,704 3.4 482 3.8 685 3.3 338 3.0
Real Estate -
Mortgage 25,484 46.5 23,868 60.6 30,273 65.2 30,541 67.0 26,223 66.3
Installment 24,895 21.7 20,650 14.1 11,650 12.3 12,876 10.5 4,780 9.4
Unallocated 4,396 13,032 23,074 17,549 26,268
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
TOTAL $98,749 100.0% $76,043 100.0% $85,230 100.0% $81,979 100.0% $79,968 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The allowance for possible loan losses has been allocated according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the above categories of loans at the date
indicated.
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM V
DEPOSITS
The following table sets forth average deposits and average rates for each of
the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---------------------- -------------------- ------------------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic Bank Offices:
Noninterest bearing demand deposits $ 1,170,135 $1,079,508 $ 949,534
Interest-bearing
demand deposits 1,199,059 2.01% 1,365,426 2.35% 1,267,143 2.93%
Savings deposits 1,405,688 2.00% 1,328,052 2.34% 1,403,988 2.41%
Time deposits 2,821,338 4.91% 3,106,134 5.32% 3,049,175 5.33%
---------- ---------- -----------
TOTAL $6,596,220 $6,879,120 $ 6,669,840
========== ========== ===========
</TABLE>
Maturities of certificates of deposit and other time deposits of $100,000 or
more issued by domestic offices, outstanding at December 31, 1999 are summarized
as follows:
Time Certificates Other Time
of Deposit Deposits Total
---------- -------- -----
(In thousands)
3 months or less $292,412 $ -- $292,412
Over 3 through 6 months 127,564 -- 127,564
Over 6 through 12 months 63,783 -- 63,783
12 months 61,304 -- 61,304
-------- ----- --------
TOTAL $545,063 $ -- $545,063
======== === ========
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM VI
RETURN ON EQUITY AND ASSETS
Year Ended December 31,
-------------------------------
1999 1998 1997
-------------------------------
Return on Average Assets 0.75% 0.31% 1.01%
Return on Average Equity 11.95% 4.14% 12.54%
Common Dividend Payout Ratio 73.00% 173.47% 47.97%
Average Stockholders' Equity to
Average Assets Ratio 6.27% 7.42% 8.06%
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM VII
BORROWINGS
The following table shows the distribution of the Company's borrowings and the
weighted average interest rates thereon at the end of each of the last three
years. Also provided are the maximum amounts of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years.
<TABLE>
<CAPTION>
Federal Funds
Purchased and
Securities Sold
Under Agreement Other
to Repurchase Borrowings
------------------------------
(In Thousands)
<S> <C> <C>
At Year end December 31:
1999 $985,170 $1,398,496
1998 422,158 548,252
1997 437,813 463,014
Weighted average interest rate at year end:
1999 5.24% 5.76%
1998 4.83 5.09
1997 5.44 5.80
Maximum amount outstanding at any month's end:
1999 $994,143 $1,500,677
1998 470,382 696,048
1997 470,723 482,956
Average amount outstanding during the year:
1999 $950,039 $725,604
1998 414,793 444,579
1997 268,417 403,585
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Federal Funds
Purchased and
Securities Sold
Under Agreement Other
to Repurchase Borrowings
---------------------------
(In Thousands)
Weighted average interest rate during the year:
<S> <C> <C>
1999 5.08% 5.47%
1998 5.21 5.92
1997 5.04 6.03
</TABLE>
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "GAP ANALYSIS" in Item 7 above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>
Hudson United Bancorp and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 277,558 $ 293,882
Federal funds sold -- 85,397
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 277,558 379,279
Investment securities available for sale, at market value 2,804,302 2,660,308
Investment securities held to maturity, at cost
(market value of $541,240 and $639,263 at 1999 and 1998, respectively) 562,224 635,648
Mortgage loans and assets held for sale 9,073 28,747
Loans:
Residential mortgages 1,639,578 1,739,054
Commercial real estate mortgages 1,024,844 978,040
Commercial and industrial 1,766,248 1,237,685
Consumer credit 1,029,975 808,933
Credit card 209,863 107,331
----------- -----------
TOTAL LOANS 5,670,508 4,871,043
Less: Allowance for possible loan losses (98,749) (76,043)
----------- -----------
NET LOANS 5,571,759 4,795,000
Premises and equipment, net 129,720 114,604
Other real estate owned 3,948 4,527
Intangibles, net of amortization 115,841 84,471
Other assets 211,861 195,191
----------- -----------
TOTAL ASSETS $ 9,686,286 $ 8,897,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 1,231,478 $ 1,214,521
Interest bearing 5,223,867 5,558,715
----------- -----------
TOTAL DEPOSITS 6,455,345 6,773,236
Borrowings 2,383,666 970,410
Other liabilities 70,809 276,904
----------- -----------
8,909,820 8,020,550
Subordinated debt 132,000 132,000
Company-obligated mandatorily redeemable preferred capital securities
of three subsidiary trusts holding solely junior
subordinated debentures of the Company 125,300 125,300
----------- -----------
TOTAL LIABILITIES 9,167,120 8,277,850
Stockholders' Equity:
Convertible Preferred stock-Series B, no par value;
authorized 25,000,000 shares; 0 shares issued and outstanding in 1999;
500 shares issued and outstanding in 1998
-- 50
Common stock, no par value; authorized 103,000,000
shares; 52,189,803 shares issued and 51,896,258 shares
outstanding in 1999 and 53,789,444 shares issued and 53,327,244 shares
outstanding in 1998 92,794 93,470
Additional paid-in capital 326,673 360,621
Retained earnings 152,591 165,269
Treasury stock, at cost, 293,545 shares in 1999 and 462,200 shares in 1998 (8,438) (9,819)
Employee stock awards and unallocated shares held in ESOP, at cost (3,549) (2,368)
Accumulated other comprehensive income (loss) (40,905) 12,702
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 519,166 619,925
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,686,286 $ 8,897,775
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME:
Loans $ 428,523 $ 422,859 $ 420,428
Investment securities 209,941 189,791 184,638
Other 6,112 12,673 10,569
--------- --------- ---------
TOTAL INTEREST AND FEE INCOME 644,576 625,323 615,635
--------- --------- ---------
INTEREST EXPENSE:
Deposits 190,735 228,335 233,580
Borrowings 88,902 47,907 37,864
Subordinated and other debt 21,873 20,231 17,647
--------- --------- ---------
TOTAL INTEREST EXPENSE 301,510 296,473 289,091
--------- --------- ---------
NET INTEREST INCOME 343,066 328,850 326,544
PROVISION FOR POSSIBLE LOAN LOSSES 52,200 35,607 24,442
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 290,866 293,243 302,102
--------- --------- ---------
NONINTEREST INCOME:
Trust department income 4,574 4,472 4,190
Service charges on deposit accounts 27,576 27,314 28,031
Securities (losses) gains (1,164) 4,474 9,445
Loss on assets held for sale -- (23,303) --
Credit card fee income 22,128 12,353 9,504
Other income 35,584 26,713 19,256
--------- --------- ---------
TOTAL NONINTEREST INCOME 88,698 52,023 70,426
--------- --------- ---------
NONINTEREST EXPENSE:
Salaries 81,205 84,005 87,024
Pension and other employee benefits 21,544 23,239 28,201
Occupancy expense 24,927 24,784 23,292
Equipment expense 14,681 11,317 11,620
Deposit and other insurance 3,521 3,118 3,520
Outside services 48,805 34,819 33,365
Other real estate owned expense 90 3,337 5,590
Amortization of intangibles 14,870 12,105 10,446
Other 29,613 35,721 36,410
Merger related and restructuring costs 32,031 69,086 --
--------- --------- ---------
TOTAL NONINTEREST EXPENSE 271,287 301,531 239,468
--------- --------- ---------
INCOME BEFORE INCOME TAXES 108,277 43,735 133,060
PROVISION FOR INCOME TAXES 38,939 16,984 49,065
--------- --------- ---------
NET INCOME $ 69,338 $ 26,751 $ 83,995
========= ========= =========
EARNINGS PER SHARE:
Basic $ 1.33 $ 0.50 $ 1.55
Diluted $ 1.30 $ 0.49 $ 1.48
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 52,241 53,380 53,488
Diluted 53,242 55,153 56,508
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 69,338 $ 26,751 $ 83,995
======== ======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized securities losses (gains) arising during period $(54,364) $ 8,508 $ 15,635
Less: reclassification for losses (gains) included in net income 757 (2,858) (5,755)
-------- -------- --------
Other comprehensive income (loss) (53,607) 5,650 9,880
-------- -------- --------
COMPREHENSIVE INCOME $ 15,731 $ 32,401 $ 93,875
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries - Consolidated Statements of Changes in
Stockholders' Equity FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ---------------------- PAID-IN
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT SHARES AMOUNT CAPITAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 490,135 $ 4,126 47,508,148 $ 84,470 $ 400,627
===============================================================================================================================
Net income -- -- -- -- --
Cash dividends common -- -- -- -- --
Cash dividends preferred -- -- -- -- --
3% Stock Dividend -- -- 321,046 570 9,859
Stock Dividend of acquired company -- -- 231,905 412 5,931
Preferred Stock Dividend 36,048 13 -- -- 454
Preferred Stock Offering 13,477 5 -- -- 101
Shares issued for:
Stock options exercised -- -- 68,852 122 (5,956)
Warrants exercised -- -- -- -- (48)
Dividend reinvestment and stock reinvestment
plan -- -- 10,294 18 292
Preferred stock conversion (524,792) (4,014) 175,152 311 (36,645)
Redemption of Preferred Stock (13,618) (5) 979 2 (140)
Acquire minority interest -- -- 470,659 837 7,917
Cash in lieu of fractional shares -- -- -- -- (97)
Purchase of treasury stock -- -- -- -- --
Effect of compensation plans -- -- 18,589 34 1,372
Other comprehensive income -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,250 $ 125 48,805,624 $ 86,776 $ 383,667
===============================================================================================================================
Net income -- -- -- -- --
IBSF Fiscal Year Adjustment -- -- -- -- --
Cash dividends common -- -- -- -- --
3% Stock Dividend -- -- 82,629 147 270
Stock dividend of acquired company -- -- 4,057,468 7,214 (3,067)
Shares issued for:
Stock options exercised -- -- 582,159 1,035 (6,282)
Warrants exercised -- -- 7,158 13 (97)
Dividend reinvestment and stock
reinvestment plan -- -- 4,893 9 161
Preferred stock conversion (750) (75) 16,608 30 (130)
Cash in lieu of fractional shares -- -- -- -- (212)
Other transactions -- -- 3,750 7 (7)
Purchase of treasury stock -- -- -- -- --
Issue & retirement of treasury stock -- -- (989,058) (1,759) (18,930)
Effect of compensation plans -- -- (783) (2) 5,248
Other comprehensive income -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 500 $ 50 52,570,448 $ 93,470 $ 360,621
===============================================================================================================================
Net income -- -- -- -- --
Cash dividends common -- -- -- -- --
3% Stock Dividend -- -- 159,131 283 2,890
Shares issued for:
Stock options exercised -- -- 590,164 1,050 (7,868)
Warrants exercised -- -- -- -- (182)
Dividend reinvestment and stock reinvestment
plan -- -- 11,742 21 276
Preferred stock conversion (500) (50) -- -- (478)
Cash in lieu of fractional shares -- -- -- -- (22)
Other transactions -- -- (2,106) (4) 4
Purchase of treasury stock -- -- -- -- --
LFB acquisition -- -- -- -- --
Issue & retirement of treasury stock -- -- (1,139,576) (2,026) (32,853)
Effect of compensation plans -- -- -- -- 4,285
Other comprehensive loss -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 -- $ -- 52,189,803 $ 92,794 $ 326,673
===============================================================================================================================
<CAPTION>
EMPLOYEE STOCK
AWARDS AND
UNALLOCATED ACCUMULATED
SHARES HELD OTHER
RETAINED TREASURY IN ESOP AT COMPREHENSIVE
(IN THOUSANDS, EXCEPT SHARE DATA) EARNINGS STOCK COST INCOME(LOSS) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 223,411 $ (25,091) $ (11,980) $ (2,828) $ 672,735
============================================================================================================================
Net income 83,995 -- -- -- 83,995
Cash dividends common (32,199) -- -- -- (32,199)
Cash dividends preferred (650) -- -- -- (650)
3% Stock Dividend (45,066) 34,723 -- -- 86
Stock Dividend of acquired company (6,343) -- -- -- --
Preferred Stock Dividend (467) -- -- -- --
Preferred Stock Offering -- -- -- -- 106
Shares issued for:
Stock options exercised -- 10,380 -- -- 4,546
Warrants exercised -- 65 -- -- 17
Dividend reinvestment and stock reinvestment
plan -- -- -- -- 310
Preferred stock conversion -- 40,348 -- -- --
Redemption of Preferred Stock -- -- -- -- (143)
Acquire minority interest -- -- -- -- 8,754
Cash in lieu of fractional shares -- -- -- -- (97)
Purchase of treasury stock -- (83,614) -- -- (83,614)
Effect of compensation plans 6 300 2,371 -- 4,083
Other comprehensive income -- -- -- 9,880 9,880
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 222,687 $ (22,889) $ (9,609) $ 7,052 $ 667,809
============================================================================================================================
Net income 26,751 -- -- -- 26,751
IBSF Fiscal Year Adjustment 1,539 -- -- -- 1,539
Cash dividends common (39,706) -- -- -- (39,706)
3% Stock Dividend (41,851) 41,434 -- -- --
Stock dividend of acquired company (4,147) -- -- -- --
Shares issued for:
Stock options exercised -- 18,548 -- -- 13,301
Warrants exercised -- 173 -- -- 89
Dividend reinvestment and stock
reinvestment plan -- -- -- -- 170
Preferred stock conversion -- 175 -- -- --
Cash in lieu of fractional shares (4) -- -- -- (216)
Other transactions -- -- -- -- --
Purchase of treasury stock -- (70,138) -- -- (70,138)
Issue & retirement of treasury stock -- 20,689 -- -- --
Effect of compensation plans -- 2,189 7,241 -- 14,676
Other comprehensive income -- -- -- 5,650 5,650
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 165,269 $ (9,819) $ (2,368) $ 12,702 $ 619,925
============================================================================================================================
Net income 69,338 -- -- -- 69,338
Cash dividends common (45,257) -- -- -- (45,257)
3% Stock Dividend (36,759) 33,586 -- -- --
Shares issued for:
Stock options exercised -- 24,986 -- -- 18,168
Warrants exercised -- 236 -- -- 54
Dividend reinvestment and stock reinvestment
plan -- -- -- -- 297
Preferred stock conversion -- 528 -- -- --
Cash in lieu of fractional shares -- -- -- -- (22)
Other transactions -- -- -- -- --
Purchase of treasury stock -- (121,367) -- -- (121,367)
LFB acquisition -- 26,563 -- -- 26,563
Issue & retirement of treasury stock -- 34,879 -- -- --
Effect of compensation plans -- 1,970 (1,181) -- 5,074
Other comprehensive loss -- -- -- (53,607) (53,607)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 152,591 $ (8,438) $ (3,549) $ (40,905) $ 519,166
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999,1998 AND 1997 (IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 69,338 $ 26,751 $ 83,995
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses 52,200 35,607 24,442
Provision for depreciation and amortization 28,131 23,887 22,341
Amortization of security premiums, net 1,776 2,344 2,799
Securities (gains) losses 1,164 (4,474) (9,445)
Loss (gain) on sale of premises and equipment (892) 1,964 113
Gain on sale of loans (5,065) (3,029) (1,289)
Loss on assets held for sale -- 23,303 --
Market adjustment on ESOP -- 728 894
MRP earned -- 2,809 1,210
IBSF Fiscal Year Adjustment -- 1,539 --
Mortgage Loans Originated For Sale (148,616) (203,172) (118,022)
Mortgage Loan Sales 154,143 192,899 113,945
Deferred income tax provision 554 1,750 9,675
Net (increase) decrease in assets held for sale 14,147 (14,147) 456
(Increase) decrease in other assets 15,521 (14,036) (7,647)
Increase (decrease) in other liabilities (21,201) 179,872 11,913
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 161,200 254,595 135,380
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 332,512 479,997 464,288
Proceeds from repayments and maturities of investment securities:
Available for sale 834,451 996,197 456,502
Held to maturity 155,126 532,366 257,875
Purchases of investment securities:
Available for sale (1,428,159) (1,861,926) (920,556)
Held to maturity (82,085) (684,718) (235,873)
Net cash (used) acquired through acquisitions (262,763) 231,417 --
Increase in loans other than purchases and sales (158,391) (108,014) (212,042)
Loans purchased (114,273) -- (29,704)
Loans sold 100,449 129,842 127,204
Proceeds from sales of premises and equipment 7,939 124 702
Purchases of premises and equipment (31,483) (14,646) (16,830)
Decrease in other real estate owned 876 11,047 11,910
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (645,801) (288,314) (96,524)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits 9,580 113,215 52,832
Net (decrease) increase in NOW and savings accounts (239,340) (196,879) 10,860
Net (decrease) increase in certificates of deposit (595,770) (262,524) 21,084
Net increase in borrowings 1,354,442 69,240 226,269
Reduction of ESOP loan 2,073 853 696
Net proceeds from issuance of debt -- 45,987 74,513
Net proceeds from the issuance of stock 18,519 13,560 14,114
Termination of ESOP Plan -- 10,220 --
Cash dividends paid (45,257) (39,706) (32,849)
Purchase of stock for pension plan -- (341) --
Acquisition of treasury stock (121,367) (70,138) (83,614)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 382,880 (316,513) 283,905
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (101,721) (350,232) 322,761
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 379,279 729,511 406,750
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 277,558 $ 379,279 $ 729,511
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 297,116 $ 292,807 $ 287,881
Income taxes 23,167 27,684 35,874
Liabilities assumed in purchase business combinations and branch acquisitions 572,981 342,720 --
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hudson United Bancorp (the Company) provides a full range of banking services to
individual and corporate customers through its banking subsidiary, Hudson United
Bank (Hudson United), with branch locations in New Jersey, Connecticut, New York
and Pennsylvania. The Company is subject to the regulations of certain Federal
and State banking agencies and undergoes periodic examinations by those
agencies.
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Hudson United
Bancorp and its subsidiaries, all of which are wholly owned. The financial
statements of institutions acquired which have been accounted for by the
pooling-of-interests method are included herein for all periods presented.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent liabilities, as of the date of the
financial statements and revenues and expenses for the period. Actual results
could differ significantly from those estimates.
All significant intercompany accounts and transactions are eliminated in
consolidation.
SECURITIES
The Company classifies its securities as held to maturity, available for sale
and held for trading purposes. Securities for which the Company has the ability
and intent to hold until maturity are classified as held to maturity. These
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts on a straight-line basis which is not materially
different from the interest method. Management reviews its intent to hold
securities to maturity as a result of changes in circumstances, including major
business combinations. Sales or transfers of held to maturity securities may be
necessary to maintain the Company's existing interest rate risk position or
credit risk policy.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability management strategy, or that may
be sold in response to changes in interest rates, changes in prepayment risk,
increases in capital requirements or other similar factors, are classified as
available for sale and are carried at fair value. Differences between available
for sale securities' amortized cost and fair value are charged/credited directly
to stockholders' equity, net of income taxes. The cost of securities sold is
determined on a specific identification basis. The Company had no securities
held for trading purposes at December 31, 1999 and 1998.
Security purchases and sales are recorded on the trade date.
MORTGAGE LOANS AND ASSETS HELD FOR SALE
Mortgages held for sale are recorded at cost, which approximates market. These
mortgages are typically sold within three months of origination without
recourse. Assets held for sale are carried at lower of cost or market.
LOANS
Loans are recorded at their principal amounts outstanding. Interest income on
loans not made on a discounted basis is credited to income based on principal
amounts outstanding at applicable interest rates. Interest income on consumer
credit loans is recorded primarily using the simple interest method.
Recognition of interest on the accrual method is discontinued when, based on
contractual delinquency, timely payment is not expected. A nonaccrual loan is
not returned to an accrual status until interest is received on a current basis
and other factors indicate that collection of principal and interest is no
longer doubtful.
The net amount of all loan origination fees, direct loan origination costs and
loan commitment fees are deferred and recognized over the estimated life of the
related loans as an adjustment of yield.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio. Management's determination of the
adequacy of the allowance is based on an evaluation of the portfolio, past loan
loss experience, current economic conditions, volume, growth and composition of
the loan portfolio and other relevant factors. The allowance is increased by
provisions charged to expense and reduced by net charge-offs.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118," Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure," a loan is deemed impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. These accounting standards require that the measurement of impairment
of a loan be based on one of the following: the present value of expected future
cash flows, net of estimated costs to sell, discounted at the loan's effective
interest rate; a loan's observable market price; or the fair value of
collateral, if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company will be
required to establish a valuation allowance, or adjust existing valuation
allowances, with a corresponding charge or credit to the provision for possible
loan losses. The valuation allowance, if any, is maintained as part of the
allowance for possible loan losses. The Company's process of identifying
impaired loans is conducted as part of its review for the adequacy of the
allowance for possible loan losses.
While management uses available information to recognize potential losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions, particularly in the Company's market areas. In addition,
various regulatory agencies, as an integral part of their examination processes,
periodically review the allowance for possible loan losses of subsidiary banks.
Such agencies may require additions to the allowance based on their judgments of
information available to them at the time of their examinations.
PREMISES AND EQUIPMENT
Land, buildings and furniture, fixtures and equipment are carried at cost.
Depreciation on substantially all buildings and furniture, fixtures and
equipment is provided using the straight-line method based on estimated useful
lives ranging from 3-25 years. Maintenance and repairs are expensed as incurred
and additions and improvements are capitalized.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) includes loan collateral that has been formally
repossessed. These assets are transferred to OREO and recorded at the lower of
carrying cost or fair value of the properties. Subsequent provisions that result
from ongoing periodic evaluations of these OREO properties are charged to
expense in the period in which they are identified. OREO is carried at the lower
of cost or fair value, less estimated costs to sell. Carrying costs, such as
maintenance and property taxes, are charged to expense as incurred.
INTANGIBLES
Intangible assets resulting from acquisitions under the purchase method of
accounting consist of goodwill and core deposit intangibles. Goodwill is being
amortized on a straight-line basis over periods
<PAGE>
ranging from five to ten years. Core deposit intangibles are being amortized, on
a straight-line basis, over the estimated average remaining lives of such
intangible assets (primarily five years).
FEDERAL INCOME TAXES
The Company uses the liability method of accounting for income taxes. Certain
income and expense items are recorded differently for financial reporting
purposes than for Federal income tax purposes and provisions for deferred taxes
are made in recognition of these temporary differences. A deferred tax valuation
allowance is established if it is more likely than not that all or a portion of
the Company's deferred tax asset will not be realized. Changes in the deferred
tax valuation allowance are reported through charges or credits to the income
tax provision.
The Company and its subsidiaries file a consolidated Federal income tax return.
Under tax sharing agreements, each subsidiary provides for and settles income
taxes with the Company as if they would have filed on a separate return basis.
As discussed further in Note (2), the Company acquired all of the outstanding
shares of Poughkeepsie Financial Corp. (PFC) on April 24, 1998, and all of the
outstanding shares of Dime Financial (DFC) on August 21, 1998. PFC and DFC
established valuation allowances due to uncertainties surrounding their ability
to realize their deferred tax assets. Considering the combined operating results
of the Company, it is unlikely that the Company would have established these
valuation allowances with respect to its deferred tax assets had the companies
previously been combined. Accordingly, the accompanying financial statements
(including quarterly financial information in Note 21) have been restated to
reflect what the changes to the valuation allowance would have been had the
companies always been combined.
TREASURY STOCK
The Company determines the cost of treasury shares under the weighted-average
cost method.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and allows
companies to choose either: 1 ) a fair value method of valuing stock-based
compensation plans which will affect reported net income; or 2) to continue
following the existing accounting rules for stock option accounting but disclose
what the impact would have been had the new standard been adopted. The Company
elected the disclosure option of this standard. See Note 15.
TRANSFERS & SERVICING OF FINANCIAL ASSETS
Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Such standards
are based on consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The adoption of the
standard did not have a material impact on the Company's financial position or
results of operations.
PER SHARE AMOUNTS
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per
Share." This statement establishes standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share.
Basic earnings per common share is computed by dividing net income, less
dividends on the convertible preferred stock, by the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
plus the number of shares issuable upon conversion of the preferred stock and
the incremental number of shares issuable from the exercise of stock options and
warrants calculated using the treasury stock method. All per share amounts have
been retroactively adjusted for the three-for-two common stock split on January
14, 1995 and for all stock dividends. All prior annual and interim periods
presented have been restated in the new format.
RECENT ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting of
comprehensive income and its components in a full set of general purpose
financial statements. The Company has elected to display Consolidated Statements
of Income and Consolidated Statements of Comprehensive Income separately for the
disclosed periods.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The Company's banking subsidiary, Hudson United
Bank, meets the criteria of SFAS No. 131 to be considered in the aggregate as a
reportable segment. Hudson United Bancorp, the bank's holding company, is not a
reportable segment because it does not exceed any of the quantitative
thresholds.
Effective for the fiscal year ended December 31, 1998, the Company adopted SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pension and other
postretirement benefits to the extent practicable and requires additional
information on changes in the benefit obligations and fair values of plan
assets.
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishing standards for
the accounting and reporting of derivatives. The statement is effective for
fiscal years beginning after June 15, 2000; earlier application is permitted.
The Company has elected not to adopt this statement prior to its effective date.
The Company does not expect that adoption of the statement will have a material
effect on its financial position or results of operations.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and Federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 amounts in order
to conform to 1999's presentation.
(2) BUSINESS COMBINATIONS
The following business combinations have been accounted for using the
poolings-of-interests method of accounting.
<PAGE>
On January 8, 1998, the Company acquired all the outstanding shares of The Bank
of Southington (BOS) based in Southington, Connecticut. Each share of BOS common
stock outstanding was converted into .637 shares of the Company's common stock
for a total of 755,133 shares. At the time of the acquisition, BOS had
approximately $135 million in assets.
On April 24, 1998, the Company acquired all the outstanding shares of
Poughkeepsie Financial Corp. (PFC) based in Poughkeepsie, New York. Each share
of PFC's common stock outstanding was converted into .309 shares of the
Company's common stock for a total of 3,586,360 shares. At the time of the
acquisition, PFC had approximately $830 million in assets.
On May 29, 1998, the Company acquired all the outstanding shares of MSB Bancorp
(MSB) based in Goshen, New York. Each share of MSB's common stock outstanding
was converted into 1.052 shares of the Company's common stock for a total of
2,933,710 shares. At the time of the acquisition MSB, had approximately $745
million in assets.
On August 14, 1998, the Company acquired all the outstanding shares of IBS
Financial (IBS) based in Cherry Hill, New Jersey. Each share of IBS common stock
outstanding was converted into .550 shares of the Company's common stock for a
total of 5,946,880 shares. At the time of the acquisition, IBS had approximately
$743 million in assets.
On August 14, 1998, the Company acquired all the outstanding shares of Community
Financial Holding Corporation (CFHC) based in Westmont, New Jersey. Each share
of CFHC common stock was converted into .716 shares of the Company's common
stock for a total of 766,144 shares. At the time of the acquisition, CFHC had
approximately $150 million in assets.
On August 21, 1998, the Company acquired all the outstanding shares of Dime
Financial Corporation (DFC) based in Wallingford, Connecticut. Each share of DFC
common stock was converted into 1.0815 shares of the Company's common stock for
a total of 5,221,614 shares. At the time of the acquisition, DFC had
approximately $961 million in assets.
On November 30, 1999, the Company acquired all the outstanding shares of
JeffBanks, Inc. (Jeff) based in Philadelphia, Pennsylvania. Each share of Jeff
common stock was converted into .9785 shares of the Company's common stock for a
total of 10,863,069 shares. At the time of the acquisition, Jeff had
approximately $1.8 billion in assets.
On December 1, 1999, the Company acquired all the outstanding shares of Southern
Jersey Bancorp (SJB) based in Bridgeton, New Jersey. Each share of SJB common
stock was converted into 1.2978 shares of the Company's common stock for a
total of 1,467,405 shares. At the time of the acquisition, SJB had approximately
$425 million in assets.
Under the pooling-of-interests method, the accompanying consolidated financial
statements include the accounts of these acquired institutions for all periods
presented.
Separate results of the combining pooled entities for the period prior to their
acquisition are as follows-
1998 1997
-------------------------
Net interest income-
The Company, as previously reported (1) $ 254,194 $ 139,110
BOS -- 6,733
PFC -- 27,448
MSB -- 24,484
CFHC -- 6,316
IBS -- 22,623
DFC -- 28,221
JEFF 59,773 54,968
SJB 14,883 16,641
-------------------------
Net income $ 328,850 $ 326,544
=========================
The Company, as previously reported (1) $ 23,151 $ 48,180
BOS -- 327
PFC(2) -- 2,429
MSB -- 2,281
CFHC -- 630
IBS -- 5,806
DFC(2) -- 10,174
JEFF 11,432 13,331
SJB (7,832) 837
-------------------------
$ 26,751 $ 83,995
=========================
(1) Represents amounts previously reported by the Company as restated for the
elimination of preferred stock dividends paid by MSB to the Company of $1.13
million in 1997.
(2) Represents amounts previously reported by PFC and DFC as restated for
certain changes in the timing of deferred tax asset valuation allowance changes
(see Note 1 Federal Income Taxes).
Results of operations have been included for periods subsequent to the
acquisition date for business combinations that have been accounted for using
the purchase method.
On February 5, 1998, the Company acquired Security National Bank & Trust Company
of New Jersey (SNB) for a cash purchase price of $9.8 million which was $5.5
million in excess of the fair value of the net assets acquired. Security was a
$86 million asset bank and trust company with 4 branch locations, headquartered
in Newark, New Jersey. In the merger, shareholders of SNB received $34.00 in
cash for each share of SNB common stock.
<PAGE>
On June 26, 1998, the Company acquired 21 branches of First Union National Bank
located in New Jersey and Connecticut. The 8 Connecticut branches representing
$99.6 million in deposits were merged into Lafayette. The 13 New Jersey branches
representing $143.3 million in deposits were merged into Hudson.
On July 24, 1998, the Company acquired two additional branches of First Union
National Bank located in Hyde Park and Woodstock, New York. The branches
representing $25.2 million in deposits were merged into Bank of the Hudson.
On March 26, 1999, the Company completed its purchase of $151 million in
deposits and a retail branch office in Hartford, Connecticut from First
International Bank.
On May 20, 1999, the Company acquired Little Falls Bancorp, Inc. (LFB) in a
combination stock and cash purchase price of $55.0 million, which was $21.8
million in excess of the fair value of net assets acquired. LFB had
approximately $341 million in assets at the time of acquisition.
On October 22, 1999, the Company acquired the assets of Lyon Credit Corporation,
a $350 million asset finance company and subsidiary of Credit Lyonnis
Americas.
On December 1, 1999 the Company completed its purchase of loans (approximately
$148 million) and other financial assets, as well as assumed the deposit
liabilities (approximately $112 million) of Advest Bank and Trust.
Pro forma results of operations have not been disclosed herein because the SNB,
First Union branches, Hartford branch, LFB, Lyon Credit Corporation, and Advest
combinations were not deemed to be significant.
Merger related and restructuring costs were $32.0 million in 1999 and $69.1
million in 1998. The 1999 costs include payout and accruals for employment
contracts, severance and other employee related costs ($12.6 million), branch
closing, fixed asset disposition and other occupancy related costs ($3.9
million), technical support for system conversion and early termination of
system related contracts ($5.6 million), legal and accounting professional
services and approval costs ($1.8 million), financial advisor costs ($4.1
million), provision for other real estate owned ($2.0 million) and other merger
related expenses ($2.0 million).
The tables that follow present the activity in 1999 related to the
restructuring charge reserves established in 1999 and 1998. The
Company believes that the remaining restructuring reserves as of
December 31, 1999 are adequate and that no revisions of estimates are
necessary at this time.
Restructuring Cash Noncash Remaining
($ Millions) Charge Activity Activity Reserve 12/31/99
------------- -------- -------- ----------------
1999 Reserves
- -----------------------
Severance and related costs $12.6 0.4 0.0 $12.2
Costs of consolidating
operations 19.4 7.7 0.0 11.7
----- --- --- -----
Total $32.0 8.1 0.0 $23.9
===== === === =====
1999 Reserves
- -----------------------
Severance and related costs $29.4 26.2 (3.1) $ 0.1
Costs of consolidating
operations 39.7 34.5 (3.4) 1.8
----- ---- --- -----
Total $69.1 60.7 (6.5) $ 1.9
===== ==== === =====
$6.5 million of the 1998 charges were reversed in the second and third quarters
of 1999 and other unanticipated restructuring costs of approximately the same
amount were recognized relating to the disposition of United Financial Services,
Inc. and the Bank's charter consolidations and Company name change.
(3) CASH AND DUE FROM BANKS
The Company's subsidiary bank is required to maintain an average reserve balance
as established by the Federal Reserve Board. The amount of those reserve
balances for the reserve computation period, which included December 31, 1999,
was approximately $11.2 million.
(4) INVESTMENT SECURITIES
The amortized cost and estimated market value of Investment Securities as of
December 31, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999
------------------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED --------------------- MARKET
COST GAINS (LOSSES) VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government $ 87,332 $ 196 $ (303) $ 87,225
U.S. Government agencies 350,040 85 (7,595) 342,530
Mortgage-backed securities 2,167,606 1,431 (48,880) 2,120,157
States and political subdivisions 3,118 12 (10) 3,120
Other debt securities 47,128 4 (1,813) 45,319
Equity securities 213,826 1,932 (9,807) 205,951
-------------------------------------------------------
$ 2,869,050 $ 3,660 $ (68,408) $ 2,804,302
=======================================================
HELD TO MATURITY
U. S. Government $ 24,195 $ -- $ (253) $ 23,942
U. S. Government agencies 45,960 201 (636) 45,525
States and political subdivisions 467,540 220 (19,967) 447,793
Mortgage-backed securities 24,500 26 (575) 23,951
Other debt securities 29 -- -- 29
-------------------------------------------------------
$ 562,224 $ 447 $ (21,431) $ 541,240
=======================================================
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED --------------------- MARKET
COST GAINS (LOSSES) VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U. S. Government $ 108,036 $ 1,940 $ -- $ 109,976
U. S. Government agencies 425,610 3,555 (59) 429,106
Mortgage-backed securities 1,888,149 14,984 (4,956) 1,898,177
States and political subdivisions 87,132 3,047 (114) 90,065
Other debt securities 20,690 152 (58) 20,784
Equity securities 110,403 2,471 (674) 112,200
-------------------------------------------------------
$ 2,640,020 $ 26,149 $ (5,861) $ 2,660,308
=======================================================
HELD TO MATURITY
U. S. Government $ 42,373 $ 393 $ -- $ 42,766
U. S. Government agencies 37,360 1,462 -- 38,822
State and political subdivisions 16,190 204 (4) 16,390
Mortgage-backed securities 539,725 2,277 (717) 541,285
-------------------------------------------------------
$ 635,648 $ 4,336 $ (721) $ 639,263
=======================================================
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
AMORTIZED ESTIMATED MARKET
(in thousands) COST VALUE
- --------------------------------------------------------------------------------
AVAILABLE FOR SALE
Due in one year or less $ 109,686 $ 107,120
Due after one year through five years 287,594 284,290
Due after five years through ten years 40,640 38,967
Due after ten years 49,698 47,817
----------------------------
487,618 478,194
Mortgage-backed securities 2,167,606 2,120,157
Equity securities 213,826 205,951
----------------------------
$2,869,050 $2,804,302
============================
HELD TO MATURITY
Due in one year or less $ 21,050 $ 21,000
Due after one year through five years 58,360 57,404
Due after five years through ten years 13,608 13,586
Due after ten years 1,666 1,457
----------------------------
94,684 93,447
Mortgage-backed securities 467,540 447,793
----------------------------
$ 562,224 $ 541,240
============================
Sales of securities for the years ended December 31, are summarized as follows
(in thousands):
1999 1998 1997
- --------------------------------------------------------------------------------
Proceeds from sales $ 332,512 $ 479,997 $ 464,288
Gross gains from sales 4,156 5,342 9,939
Gross losses from sales (5,320) (868) (494)
Securities with a book value of $1.6 billion and $496.2 million at December 31,
1999 and 1998, respectively, were pledged to secure public funds, repurchase
agreements and for other purposes as required by law.
<PAGE>
(5) LOANS AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company's loan portfolio is diversified with no industry comprising greater
than 10% of the total loans outstanding. Real estate loans are primarily made in
the local lending area of the subsidiary banks.
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known. A summary of the activity
in the allowance for possible loan losses is as follows (in thousands):
1999 1998 1997
- -------------------------------------------------------------------------------
Balance at January 1 $ 76,043 $ 85,230 $ 81,979
Additions (deductions):
Provision charged to expense 52,200 35,607 24,442
Allowance acquired through mergers or
acquisitions 8,634 1,950 2,800
Recoveries on loans previously charged off 9,929 6,101 10,107
Loans charged off (1) (48,057) (52,845) (34,098)
--------------------------------
Balance at December 31 $ 98,749 $ 76,043 $ 85,230
================================
1) Includes $9,521 writedown on assets held for sale in 1998.
(6) NONPERFORMING ASSETS
The following table presents information related to loans which are on
nonaccrual, contractually past due ninety days or more as to interest or
principal payments and loans which have been restructured to provide a reduction
or deferral of interest or principal for reasons related to the debtors'
financial difficulties.
(in thousands) DECEMBER 31,
---------------------
1999 1998
- --------------------------------------------------------------------------------
Nonaccrual loans $46,352 $46,178
Renegotiated loans 2,751 5,632
--------------------
Total nonperforming loans $49,103 $51,810
====================
90 days or more past due and still accruing $23,239 $21,261
====================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
--------------------------
<S> <C> <C> <C>
Gross interest income which would have been recorded
under original terms $3,217 $8,012 $6,341
========================
Gross interest income recorded during the year $ 407 $ 685 $1,454
========================
</TABLE>
At December 31, 1999 and 1998 impaired loans, comprised principally of
nonaccruing loans, totaled $2.7 million and $38.4 million, respectively. The
allowance for possible loan losses related to such impaired loans was $0.4
million and $9.9 million at December 31, 1999 and 1998, respectively. The
average balance of impaired loans for 1999 and 1998 was $20.6 million and $41.3
million, respectively.
(7) LOANS TO RELATED PARTIES
In the ordinary course of business, the subsidiary bank has extended credit to
various directors, officers and their associates.
The aggregate loans outstanding to related parties are summarized below for the
year ended December 31, 1999 (in thousands):
Balance at January 1 $ 29,958
New loans issued 17,515
Repayment of loans (859)
Loans to former directors (20,586)
--------
Balance at December 31 $ 26,028
========
Charles F.X. Poggi who is the Chairman of the Compensation Committee, and is
involved in setting executive compensation, is president of Poggi Press, a
general printing company. During 1999 Poggi Press was paid $677 thousand for
printing work for Hudson United Bancorp. Management believes the terms and
conditions of the transactions with Poggi Press to be equivalent to terms
available from an independent third party.
W. Peter McBride who is on the Compensation Committee, and is involved in
setting executive compensation, is affiliated with McBride Corporate Real
Estate. McBride Corporate Real Estate was retained to assist in the sale and/or
leasing of various Hudson United Bancorp properties and in doing so earned
commissions of approximately $584 thousand. Management believes the terms and
conditions of the transactions with McBride Corporate Real Estate to be
equivalent to terms available from an independent third party.
(8) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31 (in
thousands):
1999 1998
- --------------------------------------------------------------------------------
Land $ 19,634 $ 20,175
Premises 108,767 106,698
Furniture, fixtures and equipment 111,724 90,108
-------------------------
240,125 216,981
Less- Accumulated depreciation (110,405) (102,377)
-------------------------
$ 129,720 $ 114,604
=========================
Depreciation and amortization expense for premises and equipment for 1999, 1998
and 1997 amounted to $12.5 million, $11.6 million and $11.8 million,
respectively.
(9) INCOME TAXES
The components of the provision (benefit) for income taxes for the year ended
December 31 are as follows (in thousands):
1999 1998 1997
- --------------------------------------------------------------------------------
Federal-
Current $ 32,179 $ 15,614 $ 31,874
Deferred 554 1,750 9,675
State 6,206 (380) 7,516
-------------------------------------
Total provision for income taxes $ 38,939 $ 16,984 $ 49,065
=====================================
A reconciliation of the provision for income taxes, as reported, with the
Federal income tax at the statutory rate for the year ended December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $37,897 $ 15,281 $ 46,390
Increase (decrease) in taxes resulting
from-
Tax-exempt income (3,075) (4,180) (1,740)
Non-deductible merger related expenses 1,750 5,232 --
State income taxes, net of Federal income
tax benefit 4,033 (247) 4,969
Other, net (1,666) 898 (554)
-----------------------------------
Provision for income taxes $38,939 $ 16,984 $ 49,065
===================================
</TABLE>
Significant components of deferred tax assets and liabilities are as follows (in
thousands):
DECEMBER 31,
1999 1998
- --------------------------------------------------------------------------------
Deferred Tax Assets (Liabilities):
Allowance for possible loan losses $ 30,504 $ 25,159
Federal and state tax operating loss carry forwards 7,040 5,847
Director/Officer Compensation Plans 1,820 1,340
Allowance for Losses on OREO 2,170 2,152
Depreciation (3,877) (5,432)
Accumulated Other Comprehensive (Income) Loss 22,662 (7,038)
Acquisition Related Expenses 6,650 4,710
Writedown of Assets Held for Sale 3,332 --
Other (18,511) 14,367
-------------------------
Net Deferred Tax Asset $ 51,790 $ 41,105
=========================
<PAGE>
Management periodically evaluates the realizability of its deferred tax asset
and will adjust the level of the valuation allowance if it is deemed more likely
than not that all or a portion of the asset is realizable. There was no
valuation allowance as of December 31, 1999 or 1998.
The following represents the tax impact of unrealized securities gains (losses):
For the year ended
December 31,1999
---------------------------------
Before tax Tax Net of Tax
Amount Benefit Amount
--------------------------------
Unrealized holding gains (losses) arising
during period $(86,200) $ 31,836 $(54,364)
Less: reclassification for gains (losses)
realized in Net Income (1,164) 407 (757)
--------------------------------
Net change during period $(85,036) $ 31,429 $(53,607)
================================
For the year ended
December 31,1999
---------------------------------
Before tax Tax Net of Tax
Amount Benefit Amount
--------------------------------
Unrealized holding gains arising during
period $ 13,224 $ (4,716) $ 8,508
Less: reclassification for gains realized in
Net Income 4,474 (1,616) 2,858
--------------------------------
Net change during period $ 8,750 $ (3,100) $ 5,650
================================
For the year ended
December 31,1999
---------------------------------
Before tax Tax Net of Tax
Amount Benefit Amount
--------------------------------
Unrealized holding gains arising during
period $ 25,350 $ (9,715) $ 15,635
Less: reclassification for gains realized in
Net Income 9,445 (3,690) 5,755
--------------------------------
Net change during period $ 15,905 $ (6,025) $ 9,880
================================
(10) BENEFIT PLANS AND POSTRETIREMENT BENEFITS
The Company and its acquired subsidiaries have certain pension plans which cover
eligible employees. The plans provide for payments to qualified employees based
on salary and years of service. The Company's funding policy for these plans is
to make the maximum annual contributions allowed by the applicable regulations.
Information regarding the benefit obligation resulting from the actuarial
valuations prepared as of January 1, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 40,059 $ 35,575
Service cost 1,965 1,437
Interest cost 2,447 2,364
Actuarial gain (6,822) 291
Amendments 60 --
Settlements (1,589) --
Benefits paid (2,456) (2,297)
--------- --------
Benefit obligation at end of year $ 33,664 $ 37,370
========= ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 42,875 $ 39,965
Actual return on plan assets 4,162 3,764
Employer contribution 293 --
Settlements (1,589) --
Benefits paid (2,456) (2,297)
-------- --------
Fair value of plan assets at end of year $ 43,285 $ 41,432
======== ========
PREPAID PENSION COST CONSISTS OF THE FOLLOWING AS OF DECEMBER 31:
Funded status $ 9,621 $ 4,061
Unrecognized net transition obligation (299) (486)
Unrecognized net actuarial loss (8,455) (247)
Unrecognized prior service cost 654 (298)
-------- --------
Prepaid pension cost $ 1,521 $ 3,030
======== ========
</TABLE>
Assumptions used by the Company in the accounting for its plans in 1999 and 1998
were:
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31
1999 1998
- --------------------------------------------------------------------------------
Discount rate 7.5%-7.8% 6.5-7.5%
Expected return on plan assets 8.0%-8.3% 8.0-8.5%
Rate of compensation increase 3.5%-4.5% 3.5-4.5%
COMPONENTS OF NET PERIODIC BENEFIT COST (IN THOUSANDS):
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2,023 $ 1,437 $ 1,583
Interest cost 2,388 2,364 2,050
Expected return on plan assets (3,403) (3,137) (2,857)
Amendments 60 -- --
Settlements 473 -- --
Net Amortization and deferral 44 (118) (92)
------------------------------
Net periodic benefit cost $1,585 $ 546 $ 684
==============================
</TABLE>
The Company has 401(k) savings plans covering substantially all of its
employees. Under these Plans, the Company matches varying percentages of the
employee's contribution. The Company's contributions under these Plans were
approximately $1.2, $1.4 and $1.1 million in 1999, 1998 and 1997, respectively.
Except for the pension plans, the Company does not provide any significant
post-retirement benefits.
(11) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $545.1 million and $483.8
million at December 31, 1999 and 1998, respectively.
<PAGE>
The scheduled maturities of certificates of deposit are as follows at December
31, 1999 (in thousands):
3 months or less $ 871,612
Greater than 3 months to 1 year 1,200,179
Greater than 1 year to 3 years 398,548
Greater than 3 years 80,097
-----------
$ 2,550,436
===========
(12) BORROWINGS
The following is a summary of borrowings at December 31 (in thousands):
1999 1998
------------------------
Federal Home Loan Bank advances $1,371,760 $ 524,444
Securities sold under agreements to repurchase 759,670 271,558
Federal funds purchased 225,500 150,600
Treasury, Tax and Loan note 4,149 16,394
Other borrowings 22,587 7,414
------------------------
Total borrowings $2,383,666 $ 970,410
========================
Maturity distribution of borrowings at December 31, 1999 (in thousands):
2000 $2,320,635
2001 50,000
2003 5,000
2008 6,240
2009 and after 1,791
----------
Total $2,383,666
==========
Information concerning securities sold under agreements to repurchase and FHLB
advances is summarized as follows (in thousands):
1999 1998
- --------------------------------------------------------------------------------
Average daily balance during the year $ 1,588,007 $ 732,188
Average interest rate during the year 5.18% 5.57%
Maximum month-end balance during the year $ 2,169,579 1,063,419
Investment securities underlying the repurchase agreements
at December 31 (in thousands):
1999 1998
- --------------------------------------------------------------------------------
Carrying value $983,012 $ 351,404
Estimated fair value $986,507 352,657
(13) SUBORDINATED DEBT
In February 1993, the Company issued $9.0 million aggregate principal amount of
subordinated debentures which mature in 2003 and bear interest at 9.5% per annum
payable semi-annually. These notes are redeemable at the option of the Company,
in whole or in part, at any time after February 15, 2000, at their stated
principal amount plus accrued interest, if any.
In January, 1994, the Company sold $25.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2004, bear interest at
7.75% per annum payable semi-annually.
In March 1996, the Company issued $23.0 million aggregate principal amount of
subordinated debentures which mature in 2006 and bear interest at 8.75% per
annum payable semi-annually. These notes are redeemable at the option of the
Company, in whole or in part, at any time after April 1, 2001, at their stated
principal amount plus accrued interest, if any.
In September 1996, the Company sold $75.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2006, bear interest at
8.20% per annum payable semi-annually.
Proceeds of the above issuances were used for general corporate purposes
including providing Tier I capital to the subsidiary banks. The debt has been
structured to comply with the Federal Reserve Bank rules regarding debt
qualifying as Tier 2 capital at the Company.
(14) CAPITAL TRUST SECURITIES
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 8.98% Junior Subordinated
Debentures due 2027 of the Company.
On February 5, 1997, the Company placed $25.0 million in aggregate liquidation
amount of 9.25% Capital Securities due March 2027, using JBI Capital Trust I, a
statutory business trust formed under the laws of the State of Delaware. The
sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $25.3 million principal amount of 9.25% Junior Subordinated
Debentures due 2027 of the Company. The 9.25% Trust preferred securities are
callable by the Company on or after March 31, 2002, or earlier in the event the
deduction of related interest for federal income taxes is prohibited, treatment
as Tier I capital is no longer permitted or certain other contingencies arise.
On June 19, 1998, the Company placed $50.0 million in aggregate liquidation
amount of 7.65% Capital Securities due June 2028, using HUBCO Capital Trust II,
a statutory business trust formed under the laws of the State of Delaware. The
sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 7.65% Junior Subordinated
Debentures due 2028 of the Company.
The three issues of capital securities have preference over the common
securities under certain circumstances with respect to cash distribution and
amounts payable on liquidation and are guaranteed by the Company.
The net proceeds of the offerings are being used for general corporate purposes
and to increase capital levels of the Company and its subsidiaries. The
securities qualify as Tier I capital under the capital guidelines of the Federal
Reserve.
(15) STOCKHOLDERS' EQUITY
On December 1, 1997, the Company paid a 3% stock dividend to stockholders of
record on November 13, 1997. On September 1, 1998, the Company paid a 3% stock
dividend to stockholders of record on August 14, 1998. On December 1, 1999, the
Company paid a 3% stock dividend to stockholders of record on November 26, 1999.
As a result, all share data has been retroactively restated.
In December 1996, as part of the Westport Bancorp, Inc. (Westport) acquisition,
the Company converted all outstanding preferred shares of Westport into a new
class of preferred stock. Holders of the preferred stock were entitled to
dividends when and if declared by the Company's Board of Directors. Each share
of the preferred stock was convertible at any time at the option of the holder
thereof into 33.2175 shares of common stock. All the preferred share have been
converted into common stock.
In July 1996, as part of the Lafayette American Bank (Lafayette) acquisition,
the Company converted all outstanding Lafayette warrants into Hudson United
Bancorp warrants. Each Hudson United Bancorp warrant was exercisable at $6.85
for one share of Hudson United Bancorp common stock. The warrants were
exercisable at the option of the holder, until February 1999, at which time the
warrants expired. During 1999 all remaining warrants were exercised.
In April 1999, the Board of Directors adopted the 1999 Stock Option Plan, which
provides for the issuance of up to 1,030,000 stock options to employees of the
Company in addition to those previously granted. The option or grant price
cannot be less than the fair market value of the common
<PAGE>
stock at the date of the grant. These options were granted under the existing
plans of the acquired companies.
In connection with the PFC, MSB, DFC, IBS, and Jeff acquisitions, all of the
outstanding PFC, MSB, DFC, IBS, and Jeff options were converted into options to
purchase common stock of the Company. Transactions under the Company's plans are
summarized as follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
- -------------------------------------------------------------------------------
Outstanding, December 31, 1997 4,087,628 $3.34-$31.86
Granted 429,361 $26.10-$33.87
Exercised (1,449,285) $3.34-$27.83
Forfeited/Cancelled (36,687) $11.40-$31.87
----------------------------------
Outstanding, December 31, 1998 3,031,017 $4.72-$33.87
----------------------------------
Granted 334,329 $16.10-$34.10
Exercised (1,344,242) $6.88-$27.83
Forfeited/Cancelled (58,351) $4.72-$32.11
----------------------------------
Outstanding, December 31, 1999 1,962,753 $4.72-$34.10
----------------------------------
As of December 31, 1999, 1,596,079 shares are exercisable. In connection with
the BOS, CNB, and SJB acquisitions, the Company issued Hudson United Bancorp
common shares to the holders of options to purchase BOS, CNB, and SJB common
stock, the value of which was based on the value of the options on the date of
acquisition.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, the
Company's net income and income per share would have been reduced to the
proforma amounts indicated below (in thousands, except share data):
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $ 69,338 $ 26,751 $ 83,995
Pro forma 67,781 24,730 81,122
Basic earnings per share
As reported $1.33 $0.50 $ 1.55
Pro forma $1.30 0.46 1.50
Diluted earnings per share
As reported $1.30 $0.49 $ 1.48
Pro forma $1.27 0.45 1.43
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for 1999
and 1998: dividend yield of 2.87% to 3.05% for 1999 and 2.59% to 4.35% for 1998;
risk-free interest rates of 6.55% in 1999 and 5.00% to 5.37% for 1998;
volatility factors of the expected market price of the Company's common stock of
approximately 51% in 1999 and 22% to 29% in 1998 and an expected life of 7 years
in 1999 and 7 to 10 years in 1998.
The Company has a restricted stock plan in which 583,495 shares of the Company's
common stock may be granted to officers and key employees. During 1999 and 1998,
68,055 and 84,495 shares of common stock were awarded which vest between two to
five years from the date of grant. The value of shares issued that have not
vested, $3.5 million and $2.3 million, has been recorded as a reduction
of stockholders' equity for 1999 and 1998, respectively. Amortization of
restricted stock awards charged to expense amounted to $673, $275 and $135 in
1999, 1998 and 1997, respectively.
The Company maintained three Employee Stock Ownership Plans (ESOP) which were
originally established by MSB and IBS, and Jeff. The ESOP established by IBS was
terminated during 1998. Loan payments are funded principally from the Company's
contributions to the ESOP on behalf of eligible employees, which are expensed as
incurred. Shares purchased by the ESOP are held in a suspense account until
allocated to individual participants and are reflected as a reduction of
stockholders' equity.
The Company maintained two Bank Recognition and Retention Plan and Trusts (BRP)
in which shares of the Company's common stock may be granted to plan
participants. These plans were originally established by MSB and IBS but the
shares have been fully vested and allocated in 1998. The expense recognized for
the BRP and ESOP amounted to $9,953 and $4,719 for the years ended December 31,
1998 and 1997, respectively.
On November 8, 1993, the Company's Board of Directors authorized management to
repurchase up to 10 percent of its outstanding common stock each year. The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury and to be used for stock option and other employee
benefit plans, stock dividends, or in connection with the issuance of common
stock in pending or future acquisitions. During 1999, the Company purchased 3.7
million treasury shares at an aggregate cost of $121.4 million. During 1999,
$3.7 million shares were reissued for stock dividends, stock option and other
employee benefit plans, and acquisitions.
(16) EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This statement established standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share. A reconciliation of net income to net income available to common
stockholders and of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows (in thousands,
except share data):
Year Ended
December 31,
---------------------------
1999 1998 1997
---------------------------
Basic Earnings Per Share
Net income $69,338 $26,751 $83,995
Less: Preferred stock dividends -- -- 1,117
---------------------------
Net income available to common stockholders $69,338 $26,751 $82,878
Weighted average common shares outstanding 52,241 53,380 53,488
Basic Earnings Per Share $ 1.33 $ 0.50 $ 1.55
===========================
Diluted Earnings Per Share
Net income $69,338 $26,751 $83,995
Less: Preferred stock dividends -- -- 467
---------------------------
Net income available to common stockholders $69,338 $26,751 $83,528
Weighted average common shares outstanding 52,241 53,380 53,488
Effect of Dilutive Securities:
Convertible Preferred Stock -- 23 1,038
Warrants -- 23 38
Unearned MRP -- -- 180
Stock Options 1,001 1,727 1,764
---------------------------
$53,242 55,153 56,508
Diluted Earnings Per Share $ 1.30 $ 0.49 $ 1.48
===========================
(17) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson United to transfer
funds to the Company in the form of cash dividends, loans or advances. New
Jersey state banking
<PAGE>
regulations allow for the payment of dividends in any amount provided that
capital stock will be unimpaired and there remains an additional amount of
paid-in capital of not less than 50 percent of the capital stock amount. As of
December 31, 1999, $614.0 million, subject to regulatory capital limitations,
was available for distribution to the Company from Hudson United.
Under Federal Reserve regulations, Hudson United is limited as to the amounts it
may loan to its affiliates, including the Company. All such loans are required
to be collateralized by specific obligations.
(18) LEASES
Total rental expense for all leases amounted to approximately $10.3 million,
$12.7 million and, $8.3 million in 1999, 1998 and 1997, respectively.
At December 31, 1999, the minimum total rental commitments under all
noncancellable leases on bank premises with initial or remaining terms of more
than one year were as follows (in thousands):
2000 $ 9,482
2001 8,200
2002 6,372
2003 5,170
2004 and Thereafter 18,930
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases of other properties.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries, from time to time, may be defendants in legal
proceedings. In the opinion of management, based upon consultation with legal
counsel, the ultimate resolution of these legal proceedings will not have a
material effect on the consolidated financial statements. In the normal course
of business, the Company and its subsidiaries have various commitments and
contingent liabilities such as commitments to extend credit, letters of credit
and liability for assets held in trust which are not reflected in the
accompanying financial statements. Loan commitments, commitments to extend lines
of credit and standby letters of credit are made to customers in the ordinary
course of business. Both arrangements have credit risk essentially the same as
that involved in extending loans to customers and are subject to the Company's
normal credit policies. The Company's maximum exposure to credit loss for loan
commitments, primarily unused lines of credit, and standby letters of credit
outstanding at December 31, 1999 was $927.4 million and $91.3 million,
respectively. Commitments under commercial letters of credit used to facilitate
customers trade transactions were $2.9 million at December 31, 1999.
<PAGE>
(20) HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31,
-------------------
<S> <C> <C>
BALANCE SHEETS 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash $ 11,868 $ 43,670
Federal Funds -- 600
Securities:
Available for sale 79,413 32,551
Held to maturity 800 802
Investment in subsidiaries 653,553 732,434
Investments in bank's subordinated notes 23,000 23,000
Accounts receivable 11,502 13,526
Premises and equipment, net 7,945 7,387
Other assets 48,715 41,537
-------------------
TOTAL ASSETS $836,796 $895,507
===================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 147 $ 15,601
Notes payable-subsidiaries 62,194 2,449
Dividends payable -- 4
Accrued taxes and other liabilities 6,989 9,228
-------------------
69,330 27,282
Subordinated Debt 123,000 123,000
Company-obligated mandatorily redeemable preferred capital
securities of three subsidiary trusts holding solely
junior subordinated debentures of the Company 125,300 125,300
-------------------
TOTAL LIABILITIES 317,630 275,582
Stockholders' equity 519,166 619,925
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $836,796 $895,507
===================
</TABLE>
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31,
---------------------------------
STATEMENTS OF INCOME 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Cash dividends from bank subsidiaries $ 53,052 $ 33,244 $ 54,824
Interest 4,183 4,687 7,934
Securities gains 1,849 3,698 8,601
Rental income 1,142 1,166 1,165
Other 7,955 24,489 12,708
--------------------------------
68,181 67,284 85,232
EXPENSES:
General and administrative 6,608 30,836 21,966
Interest 25,442 19,585 17,829
--------------------------------
32,050 50,421 39,795
--------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 36,131 16,863 45,437
Income taxes (6,046) (6,529) (2,135)
--------------------------------
42,177 23,392 47,572
Equity in undistributed net income of subsidiaries 27,161 3,359 36,423
--------------------------------
NET INCOME $ 69,338 $ 26,751 $ 83,995
================================
</TABLE>
<PAGE>
HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31,
STATEMENTS OF CASH FLOWS 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 69,338 $ 26,751 $ 83,995
Adjustments to reconcile net income to net cash provided by
operating activities-
Amortization and depreciation 988 701 523
Amortization of restricted stock 673 275 135
Securities gains (1,849) (3,698) (8,601)
Equity in undistributed net income -- 1,071 (6,645)
Decrease (increase) in investment in subsidiaries 78,881 81,929 (36,352)
IBSF fiscal year adjustment -- 1,539 --
Decrease (increase) in accounts receivable 2,024 (4,305) (1,764)
(Increase) decrease in other assets (30,470) (29,789) 3,663
Increase (Decrease) in notes payable 59,745 (373) (372)
(Decrease) Increase in accounts payable (15,458) 10,308 4,435
(Decrease) increase in accrued taxes and other liabilities (2,239) 8,066 (6,990)
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 161,633 92,475 32,027
-----------------------------------
Investing activities:
Proceeds from sale of securities 9,232 13,961 78,174
Proceeds from maturities of securities 10,000 4,895 20,142
Purchase of securities (65,813) (39,686) (91,586)
Investments in bank's subordinated notes -- -- (25,300)
Capital expenditures (1,422) (1,985) (3,414)
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (48,003) (22,815) (21,984)
-----------------------------------
Financing activities:
Proceeds from issuance of common stock 18,519 13,385 4,756
Proceeds from issuance of preferred stock -- -- 106
Net proceeds from issuance of capital trust securities -- 48,737 74,550
Net proceeds from issuance of subordinated debt -- (2,750) --
Redemption of preferred stock -- -- (143)
Dividends paid (45,257) (39,706) (32,847)
Purchase of treasury stock (121,367) (70,138) (83,614)
Sale of treasury stock -- 175 306
Termination of ESOP -- 10,220 --
Infusion of capital into subsidiary -- -- 24,018
Other 2,073 (341) 3,731
-----------------------------------
NET CASH USED IN FINANCING ACTIVITIES (146,032) (40,418) (9,137)
-----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (32,402) 29,242 906
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 44,270 15,028 14,122
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,868 $ 44,270 $ 15,028
===================================
</TABLE>
<PAGE>
(21) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 1999 and 1998 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods are reflected. Results
of operations for the periods are not necessarily indicative of the results of
the entire year or any other interim period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(Dollars in thousands) March 31(a) June 30(a) September 30(a) December 31(b)
-------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C>
Net interest income $ 80,770 $ 86,962 $ 87,925 $ 87,409
Provision for possible loan losses 4,521 4,524 5,245 37,910
Income (loss) before income taxes 43,093 43,749 45,301 (23,866)
Net income (loss) 28,751 28,989 29,149 (17,551)
Earnings (loss) per share-basic 0.54 0.55 0.56 (0.34)
Earnings (loss) per share-diluted 0.53 0.54 0.55 (0.34)
1998
Net interest income $ 80,917 $ 82,712 $ 83,940 $ 81,281
Provision for possible loan losses 8,444 7,068 8,905 11,190
Income (loss) before income taxes 28,269 8,574 (25,203) 32,095
Net income (loss) 18,205 4,062 (19,924) 24,408
Earnings (loss) per share-basic 0.34 0.08 (0.38) 0.46
Earnings (loss) per share-diluted 0.33 0.07 (0.38) 0.45
</TABLE>
(a) Net income and related per share amounts for these periods in 1998 were
significantly impacted by merger related and restructuring costs resulting
from the 1998 acquisitions of BOS, PFC, MSB, CFHC, IBS, and DFC (see Note
2) and the writedown of assets held for sale.
(b) Net income and related per share amounts for this period in 1999 was
significantly impacted by merger related and restructuing costs resulting
from the 1999 acquisitions of SJB and Jeff (See Note 2).
<PAGE>
(22) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, loan agreements, accounts receivable and
payable, debt securities, deposit liabilities, loan commitments, standby letters
of credit and financial guarantees, among others. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than a forced or liquidation sale.
Estimated fair values have been determined by the Company using the best
available data and estimation methodology suitable for each category of
financial instruments. For those loans and deposits with floating rates, it is
presumed that estimated fair values generally approximate their recorded book
balances. The estimation methodologies used, the estimated fair values and
recorded book balances of the Company's financial instruments at December 31,
1999 and 1998 were as follows:
Cash and cash equivalents include cash and due from bank balances and Federal
funds sold. For these instruments, the recorded book balance approximates their
fair value.
For securities in the Company's portfolio, fair value was determined by
reference to quoted market prices. In the few instances where quoted market
prices were not available, prices for similar securities were used. Additional
detail is contained in Note 4 to these consolidated financial statements.
<TABLE>
<CAPTION>
1999 1998
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 277,558 $ 277,558 $ 379,279 $ 379,279
Investment securities available for sale 2,804,302 2,804,302 2,660,308 2,660,308
Investment securities held to maturity 541,240 562,224 639,263 635,648
</TABLE>
The Company aggregated loans into pools having similar characteristics when
comparing their terms, contractual rates, type of collateral, risk profile and
other pertinent loan characteristics. Since no active market exists for these
pools, fair values were estimated using the present value of future cash flows
expected to be received. Loan rates currently offered by the Bank were used in
determining the appropriate discount rate.
<TABLE>
<CAPTION>
1999 1998
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net of allowance, and assets held for sale $5,444,824 $5,580,832 $4,869,509 $4,823,747
</TABLE>
The fair value of demand deposits, savings deposits and certain money market
accounts approximates their recorded book balances. The fair value of fixed
maturity certificates of deposit was estimated using the present value of
discounted cash flows based on rates currently offered for deposits of similar
remaining maturities.
<TABLE>
<CAPTION>
1999 1998
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits $6,318,508 $6,455,345 $6,592,419 $6,773,236
</TABLE>
The fair value for accrued interest receivable and the cash surrender value of
life insurance policies approximates their respective recorded book balance. The
fair value of borrowed funds is estimated using the present value of discounted
cash flows based on the rates currently offered for debt instruments of similar
remaining maturities.
<TABLE>
<CAPTION>
1999 1998
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued interest receivable $71,275 $71,275 $ 64,370 $ 64,370
Cash surrender value of life insurance 22,812 22,812 22,282 22,282
Borrowings 2,336,403 2,383,666 969,215 970,410
</TABLE>
The fair value of the subordinated debt and capital trust securities was
determined by reference to quoted market prices.
<TABLE>
<CAPTION>
1999 1998
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subordinated Debt $128,023 $132,000 $ 139,481 132,000
Capital Trust Securities 109,012 125,300 127,512 125,300
</TABLE>
The Company's remaining assets and liabilities, which are not considered
financial instruments, have not been valued differently than has been customary
with historical cost accounting. There is no material difference between the
notional amount and estimated fair value of off-balance sheet items which are
primarily comprised of unfunded loan commitments which are generally priced at
market at the time of funding.
For certain homogeneous categories of loans, such as some residential mortgages,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
31
<PAGE>
(23) REGULATORY MATTERS
The Company and its subsidiary bank are subject to various regulatory capital
requirements administered by 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 Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
Tier I capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1999, that the Company and its subsidiary bank meet all
capital adequacy requirements to which they are subject.
The Company's and the Bank's actual capital amounts and ratios at December 31,
1999 and 1998 are presented in the following table (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital to Risk Weighted Assets:
Hudson United Bancorp $739,846 12.0% $493,019 >8.0% $616,274 >10.0%
Hudson United Bank 625,687 10.3% 487,894 >8.0% 609,867 >10.0%
Tier I Capital to Risk Weighted Assets:
Hudson United Bancorp 535,730 8.7% 246,509 >4.0% 369,764 >6.0%
Hudson United Bank 522,362 8.6% 243,947 >4.0% 365,920 >6.0%
Tier I Capital to Average Assets:
Hudson United Bancorp 535,730 5.7% 378,920 >4.0% 473,650 >5.0%
Hudson United Bank 522,362 5.6% 375,835 >4.0% 469,794 >5.0%
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total Capital to Risk Weighted Assets:
Hudson United Bancorp $845,449 16.3% $416,043 > 8.0% $520,053 > 10.0%
Hudson United Bank 708,840 13.7% 414,596 > 8.0% 518,244 > 10.0%
Tier I Capital to Risk Weighted Assets:
Hudson United Bancorp 647,498 12.5% 208,021 > 4.0% 312,032 > 6.0%
Hudson United Bank 611,920 11.8% 207,298 > 4.0% 310,947 > 6.0%
Tier I Capital to Average Assets:
Hudson United Bancorp 647,498 7.4% 349,028 > 4.0% 436,285 > 5.0%
Hudson United Bank 611,920 7.0% 348,334 > 4.0% 435,418 > 5.0%
</TABLE>
(24) SUBSEQUENT EVENTS
Merger Agreement with Dime Bancorp, Inc.
HUB and Dime Bancorp, Inc. ("Dime") have entered into an Agreement and Plan of
Merger, dated as of September 15, 1999, and amended and restated on December 27,
1999. The agreement provides for HUB and Dime to merge, with Dime as the
surviving corporation changing its name to Dime United Bancorp, Inc. ("Dime
United"). In the merger, each share of HUB stock is to be converted into one
share of Dime United stock, and each share of Dime stock is to be converted into
0.60255 of a share of Dime United stock. Based on that exchange ratio,
immediately after the merger, Dime shareholders would own 56% of the outstanding
Dime United stock and HUB shareholders would own 44%. The merger is structured
generally to be tax-free to both Dime and Hudson shareholders.
Completion of the merger is subject to a number of conditions, many of which are
outside the control of HUB. Among the conditions which have not yet been met are
the receipt of bank regulatory approval and approval of the merger agreement by
HUB and Dime shareholders. For HUB shareholders to approve the merger, a
majority of votes cast at a special meeting by holders of HUB stock outstanding
on the record date for that meeting must be voted in favor of the merger
agreement. For Dime shareholders to approve the merger, a majority of the shares
of Dime stock outstanding on the record date for the Dime special meeting must
be voted in favor of the merger agreement.
On March 5, 2000, North Fork Bancorporation ("North Fork") announced that it was
commencing a hostile, unsolicited bid to acquire Dime. On March 9, 2000, Dime
and HUB jointly announced that they would delay their special shareholder
meetings to vote on the merger from March 15 to March 24, 2000, in order to
provide additional time for dissemination to shareholders of information about
recent developments. On March 21, 2000, Dime and HUB jointly announced that they
would further delay their special shareholder meetings. HUB announced that it
would adjourn its meeting until Thursday, May 18, 2000 and that shareholders of
record as of February 7, 2000 would be eligible to vote at the meeting. Dime
announced that it would postpone its meeting until Wednesday, May 17, 2000 and
that shareholders of record as of March 30, 2000 would be eligible to vote at
the meeting. The actions that have been taken by North Fork since March 5, 2000
may make it difficult for Dime to obtain the requisite shareholder approval that
is needed under Delaware law for Dime to consummate the transaction with HUB as
contemplated by the merger agreement.
HUB and Dime have both reiterated their commitment to the proposed merger. If
the merger agreement with Dime is terminated, HUB expects to continue with its
acquisition strategy described below. HUB believes that the Company's adherence
to, and successful implementation of, this strategy have been among the primary
reasons for the increase in shareholder value which HUB experienced during the
past decade.
32
<PAGE>
Report of Independent
Public Accountants
To the Stockholders of Hudson United Bancorp:
We have audited the accompanying consolidated balance sheets of Hudson United
Bancorp (a New Jersey corporation) and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company'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
in the United States. 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 Hudson United Bancorp and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles in
the United States.
Arthur Andersen LLP
Roseland, New Jersey
February 14, 2000 (except with respect to the matter discussed in Note 24,
as to which the date is March 30, 2000)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name, Age & Position With Principal Occupation
Hudson During Past Five Years Director Since Term Expiring
- -------------------------- ---------------------- -------------- -------------
<S> <C> <C> <C> <C>
Robert J. Burke, 66 o President and Chief Operating Officer, Union Dry Dock 1979 2000
and Repair Co., Hoboken, N.J. (ship repair facility).
Donald P. Calcagnini, 64 o Chairman of the Board of Directors of Lafayette 1996 2000
American Bank since March 1993;
o Chief Executive Officer of Lafayette American Bank
from March 1993 to April 1994;
o Chairman of the Board of Directors of Lafayette
American Bancorp from March 1992 to February 1994
o Chief Executive Officer from 1986 to February 1994 of
Lafayette American Bancorp.
Charles F.X. Poggi, 69 o President and Chief Operating Officer, The Poggi 1973 2000
Press (general printing business).
David A. Rosow, 57 o Director of the former Westport Bancorp and its 1996 2000
subsidiary The Westport Bank and Trust
Company from 1990 to 1996 and Chairman of
the Board of both from 1991 to 1996;
o Chairman and CEO of Rosow & Company, Inc. (a private
investment company);
o Chairman of International Golf Group, Inc.
Betsy Z. Cohen, 58 o Chairman and Chief Executive Officer of the former 1999 2000
JeffBanks, Inc., Jefferson Bank, Jefferson Bank of New
Jersey, and JeffMortgage, Inc.
o Director of Aetna, Inc.
o Chairman and Chief Executive Officer of Resource
Asset Investment Trust
William H. Lamb, 60 o Secretary and Director of JeffBanks, Inc. and 1999 2000
Jefferson Bank.
o Senior Member of law firm of Lamb, Windle &
McErlane, P.C.
Joan David, 61 o Substitute Teacher, Board of Cooperative Educational 1994 2001
Services of Rockland County.
Thomas R. Farley, 73 o Retired February 1995; 1994 2001
o Formerly a partner in the law firm of Farley & Isles
from 1980 to 1995.
Kenneth T. Neilson, 51 o Chairman, President and CEO of Hudson and Hudson 1989 2001
United Bank.
Sister Grace Frances o Chairperson, Franciscan Health System of N.J. from 1979 2001
Strauber, 72 1991 to 1993, Member from 1991 to 1998;
o Administrative Post on the Leadership Team for the
U.S. region of the Franciscan Sisters of the Poor from
1993 to 1997;
o Chairperson, Audit Committee Franciscan Health
Partnership from 1996 to present;
o Management Consultant, Health System, Inc., Brooklyn,
N.Y., Franciscan Sisters of the Poor from 1986 to present;
o Member, Board of Stewards Franciscan Health
Partnership, Inc. from 1998 to present.
W. Peter McBride, 54 o President of McBride Enterprises, Inc.; 1995 2002
o President of Urban Farms, Inc. (real-estate
development and investment companies).
Bryant Malcolm, 65 o President, Malcolm-Brooker Company, Inc. (a 1995 2002
consulting firm);
o President, of B.D. Malcolm Company, Inc. (general
contractors) from 1961 to 1998.
James E. Schierloh, 70 o Chairman, Emeritus; 1996 to present; 1972 2001
o Chairman of the Board of Hudson and Hudson United
Bank from 1990 to 1996;
o Formerly self-employed Certified Public Accountant.
John H. Tatigian, Jr., 63 o Senior Vice President of Peter Paul-Hershey 1996 2002
(confection company).
Noel deCordova, Jr., 70 o Director of former Poughkeepsie Savings Bank, FSB 1998 2002
1970 to 1998;
o Director of The Hammond Company from 1982 to 1995;
o Of Counsel to law firm of Van DeWater and Van DeWater
since 1990.
</TABLE>
The following table sets forth certain information as to each executive officer
of Hudson United Bancorp who is not a director.
Name, Age and Officer of
Position with Hudson United Bancorp Principal Occupation
Hudson United Bancorp Since During Past Five Years
- ---------------------------------------------------------------------------
John F. McIlwain, 61 1991 Executive Vice President and
Chief Credit Officer
Thomas R. Nelson, 55 1994 Executive Vice President;
President, Shoppers Charge
Accounts Co.
D. Lynn Van Borkulo-Nuzzo, 50 1988 Executive Vice President and
Corporate Secretary
Thomas J. Shara, 42 1994 Executive Vice President and
Senior Loan Officer
Susan M. Staudmyer, 42 1998 Executive Vice President,
Retail Banking
Margaret Warianka, 45 1986 Executive Vice President,
Chief Operations Officer
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Hudson United Bancorp's
directors, principal officers, and persons who own more than 10% of Hudson
United Bancorp's equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
such securities. To Hudson United Bancorp's knowledge, based on a review of the
copies of such reports furnished to it, during the fiscal year ended December
31, 1999 there was full compliance with Section 16(a) filing requirements with
respects to Hudson United Bancorp's equity securities.
ITEM 11. EXECUTIVE COMPENSATION
Executive compensation is described below in the tabular format mandated by
the Securities and Exchange Commission (the "SEC").
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation earned in the past three
years for services performed in all capacities for Hudson United Bancorp and its
subsidiaries with respect to the five persons named in the table (the "Named
Officers").
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL STOCK OPTIONS/ COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) AWARD (S)(1) $ SARS(#) (2) ($)
- -------------------------- ---------- ----------- ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth T. Neilson, 1999 450,000 450,000 580,000 -0- 11,535
Chairman, President & 1998 390,000 390,000 537,500 -0- 10,171
CEO, Hudson United 1997 365,000 365,000 236,688 46,000 19,643
Bancorp & HUB
D. Lynn Van 1999 210,000 105,000 290,000 -0- 13,746
Borkulo-Nuzzo, EVP, 1998 200,000 100,000 268,750 -0- 13,578
General Counsel & 1997 185,000 92,500 67,625 12,500 15,237
Corporate Secretary,
Hudson United Bancorp &
HUB
Thomas J. Shara, Jr. EVP 1999 210,000 105,000 290,000 -0- 9,872
& Senior Loan Officer of 1998 190,000 95,000 268,750 -0- 8,371
Hudson United Bancorp & 1997 170,000 32,500 -0- 10,000 12,678
HUB
John McIlwain, EVP 1999 185,000 92,500 290,000 -0- 13,250
& Chief Credit Officer, 1998 170,000 85,000 134,375 -0- 11,090
Hudson United Bancorp & 1997 170,000 85,000 -0- 10,000 10,263
HUB
Susan Staudmyer, 1999 210,000 105,000 290,000 -0- 13,216
EVP, & Head of Retail 1998 200,000 100,000 268,750 16,015 542
Banking, Hudson United 1997 n/a n/a n/a n/a n/a
Bancorp & HUB (3)
</TABLE>
- -----------------------
Notes:
(1) The dollar amounts listed represent the number of shares of restricted
stock granted, multiplied by the fair market value of each share of stock
on the date of the grant. With respect to dividends paid on all shares of
restricted stock, cash dividends are paid directly to the officer holding
the restricted stock but stock dividends are added to the restricted stock
and are subject to the same restrictions. The number of shares reflected
have been adjusted for stock dividends. As of December 31, 1999, Mr.
Neilson, Ms. Van Borkulo-Nuzzo, Mr. Shara, Mr. McIlwain, and Ms. Staudmyer
held 20,000, 10,000, 10,000, and 10,000 shares of restricted stock,
respectively, with aggregate values of $511,250, $255,625, $255,625,
$255,625, and $255,625, respectively.
(2) All amounts in this column represent employer contributions to 401(k) plans
on behalf of the Hudson United Bancorp Named Officers, premiums for life
insurance in excess of $50,000 and income attributable to use of a company
provided vehicle.
(3) Ms. Staudmyer was hired by Hudson United Bancorp on April 13, 1998 and
therefore, information with respect to Ms. Staudmyer's compensation during
19997 is not included in this table.
OPTION GRANTS IN 1999
No stock options were granted to the Named Officers in 1999.
OPTION EXERCISES
The following table is intended to show options exercised during the last
fiscal year and the value of unexercised options held at year-end 1999 by the
Named Officers. Hudson United Bancorp does not utilize stock appreciation rights
("SARS") in its compensation package, although the SEC rules require that SARs
be reflected in Table headings.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
------------- -------------
Shares
Name Acquired on Exercise Value Exercisable/ Exercisable/
- ---- (#) Realized ($) Unexercisable Unexercisable
- --------------------------- ---------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Kenneth T. Neilson -0- -0- 174,463/103 1,779,814/0
D. Lynn Van Borkulo-Nuzzo -0 -0- 67,043/103 761,809/0
Thomas J. Shara -0- -0- 69,695/103 836,938/0
John McIlwain 13,111 256,594 10,609/103 338,109/0
Susan Staudmyer -0- -0- 0/16,015 0/542,912
</TABLE>
- -----------------------
NOTES:
(1) Options are "in the money" if the fair market value of the underlying
security exceeds the exercise price of the option at year-end.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Under HUB's restricted stock plan, each share of stock awarded is subject
to a "Restricted Period" of from two to ten years, as determined by the
committee administering the plan when it awards the shares. Effective upon the
date of grant, the officer or employee is entitled to all the rights of a
shareholder with respect to the shares, including dividend and voting rights.
However, if a share recipient leaves the employment of HUB or its subsidiaries
during the Restricted Period for any reason, his or her shares may be forfeited
to HUB. Upon the occurrence of a change in control of HUB, every Restricted
Period then in existence with a remaining term of five years or less will
automatically expire.
Under the HUB 1999 Stock Option Plan, options are granted with a term not
to exceed ten years from the grant date. Each option is granted with a vesting
schedule as determined by the Stock Committee. In the event of a change in
control, as defined in the Plan, any option which has not vested, as of the date
of the change in control, becomes fully vested.
As of January 1, 1997, the Corporation entered into change in control
agreements with Mr. Neilson, Ms. Van Borkulo-Nuzzo, Mr. Shara and Mr. McIlwain.
As of August 16, 1999, the Corporation entered into a change in control
agreement with Ms. Staudmyer. The Agreements generally provide that in the event
of a Change in Control, the Executives would be entitled to be employed for a
period of three years and each would be entitled to substantially the same
title, same salary and same benefits as existed prior to the change in control
or the Executive would be entitled to certain severance payments and benefits.
These agreements do not become effective unless there is a change in control and
then remain three years after a change in control (two years in the case of Mr.
McIlwain and Ms. Staudmyer). Prior to a change in control, unless HUB stops
their automatic renewal, the agreements are for two year "evergreen" terms (one
year in the case of Mr. McIlwain and Ms. Staudmyer).
Each agreement defines "change in control" to mean any of the following:
(i) the acquisition of beneficial ownership by any person or group of 25% or
more of HUB's voting securities or all or substantially all of its assets; (ii)
the merger consolidation or combination (a "merger") with an unaffiliated entity
unless following the merger HUB's directors constitute 50% or more of the
directors of the combined entity and HUB's CEO is the CEO of the surviving
entity; or (iii) during any two consecutive calendar years individuals who were
directors of HUB at the start of the period cease to constitute two-thirds of
the directors unless the election of the directors was approved by the vote of
two-thirds of the directors then in office; or (iv) the transfer of all or
substantially all of HUB's assets.
With respect to Ms. Van Borkulo-Nuzzo's contract and Mr. Shara's contract,
if either officer is terminated without cause, resigns for good reason following
a change in control, dies or is disabled, the officer (or the officer's estate)
is entitled to a lump sum payment equal to three times the sum of their annual
salary and highest annual bonus in the last three years, as well as a
continuation of family health coverage for a period of three years. In the event
that the severance payments and benefits under the agreement, together with any
other parachute payments, would constitute an excess parachute payment under
Section 280G of the Internal Revenue Code of 1986 (the "CODE"), the payments to
Ms. Van Borkulo-Nuzzo and Mr. Shara would be increased
<PAGE>
in an amount sufficient to pay the excise taxes and other income and payroll
taxes necessary to allow Ms. Van Borkulo-Nuzzo and Mr. Shara to retain the same
net amount, after such taxes as they were otherwise entitled to receive (a "MAKE
WHOLE TAX PROVISION").
With respect to Mr. McIlwain's contract and Ms. Staudmyer's contract, if
either officer is terminated without cause, resigns for good reason following a
change in control, dies or is disabled, the officer (or the officer's estate) is
entitled to a lump sum payment equal to three times of the sum of their annual
salary and the highest bonus paid or to be paid to the officer, as well as a
continuation of their family's health coverage for the same number of years as
the salary entitlement. However, under these contracts, in the event that the
severance payments and benefits under the agreements, together with any other
parachute payments, would constitute excess parachute payments under Section
280G of the Code, the payments and benefits under the agreements will be reduced
(but not below zero) to the extent necessary to avoid excess parachute payments.
With respect to Mr. Neilson's contract, if he is terminated without cause,
resigns for good reason (as defined in the contract) within the first 90 days
following a change in control, resigns for any reason after that 90 day period
following a change in control, dies or is disabled, he (or his estate) is
entitled to a lump sum payment equal to three times the sum of his annual salary
and his highest bonus in the last three years, as well as a continuation of his
family's health coverage for a period of three years. Mr. Neilson's contract
contains a Make Whole Tax Provision.
The completion of the Dime-HUB merger will constitute a change in control
under the terms of HUB's option and restricted stock plans, and, except for Mr.
Neilson's contract, the employment agreements described above.
Concurrently with the execution of the Dime-HUB merger agreement, HUB
entered into a new employment agreement with Mr. Neilson, which primarily
contains substantive changes to Mr. Neilson's employment arrangement that would
take effect after completion of the Dime-HUB merger. The term of Mr. Neilson's
agreement would extend to December 31, 2004. Following the completion of the
merger, Dime United will assume the obligations of HUB under Mr. Neilson's
employment agreement, and Mr. Neilson will serve as President and Chief
Operating Officer of each of Dime United and DimeBank. Mr. Neilson's employment
agreement also provides that he will succeed Mr. Lawrence Toal on December 31,
2002, or earlier if Mr. Toal leaves office earlier, as Chairman of the Board and
Chief Executive Officer of those entities. The terms of Mr. Neilson's employment
after the merger are as follows:
o Mr. Neilson's base salary will initially be at least $750,000, or, if
greater, 80% of Mr. Toal's salary, and at least $1,000,000 once he becomes
Chairman of the Board and Chief Executive Officer of both Dime United and
DimeBank.
o Mr. Neilson will be eligible to participate in Dime United's cash
incentive plan, with an annual target bonus opportunity of at least 100%
of his base salary, and to receive annual stock incentive awards while he
is President and Chief Operating Officer equal to 80% of Mr. Toal's base
annual stock incentive awards.
<PAGE>
o Mr. Neilson will be provided with a car and driver while based in New York
City, financial planning benefits and club memberships.
o After Mr. Neilson becomes Chairman of the Board and Chief Executive
Officer, he will be eligible to receive annual stock incentive awards on a
basis commensurate with those for which Mr. Toal was eligible while
holding those offices.
Immediately following completion of the merger, Mr. Neilson will receive:
o options to purchase 120,000 shares of Dime United stock at the closing
price on the first trading day after completion of the merger, with
one-third of these options to vest on the date Mr. Neilson becomes
Chairman of the Board and Chief Executive Officer and, provided that he
continues to hold such offices, one-third on the first anniversary of such
date and the remaining one-third on December 31, 2004, and
o the right to purchase, at par value of $0.01 per share, 100,000 shares of
restricted stock of Dime United, with restrictions to lapse on one-third
of the restricted shares on each of the first, second and third
anniversaries of the grant date, provided Mr. Neilson is still employed
pursuant to his employment agreement on those dates, subject to the
exceptions explained below.
Based on a 56% Dime/44% HUB weighted average of volatility and an assumed
January 31, 2000 grant date, the Black Scholes value of Mr. Neilson's stock
option grant would be $1,276,275. Based on the January 31, 2000 closing price of
HUB stock, his restricted shares would be valued at $2,336,500.
Mr. Neilson also will participate in Dime United's SERP, with a pension
goal of not less than 50% of average compensation, offset by benefits received
under other defined benefit plans, including plans of HUB, such as the HUB
Supplemental Employees' Retirement Plan. Under the terms of Dime United's SERP,
Mr. Neilson will receive credit for his years of service at HUB. As of the date
of this document, Mr. Neilson had completed 16 years of service with HUB, which
will result in his benefit under the SERP being 100% vested at the completion of
the merger.
If Mr. Neilson's employment is involuntarily terminated other than for
cause or if Mr. Neilson terminates his employment following a material change,
which is defined to include a failure to elect, re-elect, appoint or reappoint
Mr. Neilson to the positions specified above, a material diminution in his
responsibilities, other material breaches of the employment agreement, requiring
his services to be performed primarily outside the New York metropolitan area,
or adoption of a resolution by a simple majority of the board of directors of
Dime United or DimeBank providing that he shall not become Chairman of the Board
and Chief Executive Officer thereof as specified in his agreement, Mr. Neilson
will receive certain specified benefits. These benefits include:
<PAGE>
o a lump sum payment equal to his annual salary in effect immediately prior
to termination, plus 100% of his annual target bonus;
o the continuation of life, medical and dental coverage for the remainder of
the term of his agreement, or 18 months if longer;
o full vesting of all stock options granted during the term of his
agreement, continued exercisability of such stock options as if there had
been no termination of employment and continued vesting of restricted
stock granted at the completion of the merger as if there had been no
termination of employment; and
o if Mr. Neilson's SERP benefit does not then equal at least $741,000
starting at or after age 55, an additional payment so that his total
retirement benefit, commencing at or after age 55, expressed as a single
life annuity, will not be less than that amount.
If Mr. Neilson voluntarily terminates his employment, other than
following a material change, generally no additional benefits will be
provided to him.
If during the term of his agreement and following a change in control, as
defined in his agreement, of Dime United, Mr. Neilson's employment is
involuntarily terminated other than for cause, or he terminates his employment
after a material change, he will be entitled to receive the benefits described
above with respect to an involuntary termination of his employment and
additional benefits, including continued medical coverage for him and his spouse
for the remainder of their lives and, instead of the lump sum described above, a
lump sum equal to three times his rate of annual salary and target bonus, or
average actual bonus, if greater. In addition, Mr. Neilson may receive
reimbursement of costs or expenses if, following a change in control, he must
relocate his principal residence. Neither the execution and delivery of the
merger agreement between Dime and HUB nor the consummation of the transactions
contemplated by the merger agreement will constitute a change in control under
Mr. Neilson's agreement.
If any of the compensation and other benefits payable to Mr. Neilson under
his agreement results in additional tax under section 4999 of Internal Revenue
Code, Dime United will make an additional payment so as to provide Mr. Neilson
with the benefits he would have received in the absence of such tax.
<PAGE>
PENSION PLANS
The monthly retirement benefit for executives under the Employees
Retirement Plan of Hudson United Bancorp, Inc. (the "PLAN") will generally be
equal to the product of (a) 1% of the employee's base average annual monthly
earnings (based on the highest five years of service) plus 1/2% of the
employee's base average monthly earnings (based on the highest 5 years of
service) in excess of the average Social Security taxable wage base, multiplied
by (b) the years of credited service. Retirement benefits normally commence when
an employee reaches age 65, but early retirement without reduction in benefit
may be taken when an employee's age plus years of service equals 85.
In the Plan, compensation in the form of a bonus is excluded from benefit
calculations. Thus, for each Named Officer, only the amounts which are shown
each year under the heading "Salary" in the Summary Compensation Table in this
Proxy Statement are covered. The Plan also provides for disability pension
benefits.
As of January 1, 1996, Hudson United Bancorp adopted a Supplemental
Employee Retirement Plan ("SERP"). The SERP provides a pension benefit which, in
large part, makes up the amount of the benefits which cannot be provided under
the Plan as a result of the limit on the amount of compensation which can be
taken into account under Section 401(a)(17) of the Code ($160,000 in 1998 and
indexed for inflation in subsequent years) and the amount of benefits payable
under Section 415 of the Code. Unlike the Plan, the SERP covers salary and
one-third of incentive compensation. The benefit is payable as a single life
annuity and 100% survivor benefits are paid for the life of the designated
beneficiary. Kenneth Neilson is the only person who has been designated as a
participant under the SERP. Hudson United Bancorp has purchased life insurance
to fund the benefit.
The following table shows an employee's estimated annual retirement benefit
from the Plan and the SERP combined, assuming retirement at age 65 for an
individual reaching such age before January 1, 2000 and assuming a straight life
annuity benefit, for the specified compensation levels and years of service.
Except for Mr. Neilson, the amounts in the table below are limited under Section
401(a)(17) of the Code, as described in the preceding paragraph. The benefits
listed in the table are not subject to any deduction for social security or
other offset amounts. Mr. Neilson has approximately 16 years of credited service
under the pension plan as of January 1, 2000 and, at age 65, would have 31 years
of credited service. Ms. Van Borkulo-Nuzzo has approximately 33 years of
credited service under the pension plan as of January 1, 2000, and, at age 65,
would have approximately 49 years of credited service. Mr. Shara has
approximately 19 years of credited service as of January 1, 2000 and, at age 65,
would have 42 years of credited service. Mr. McIwain has 8 years of credited
service as of January 1, 2000 and, at age 65, would have approximately 11 years
of credited service. Ms. Staudmyer has approximately 2 years of credited service
as of January 1, 2000 and at age 65, would have approximately 24 years of
credited service.
<PAGE>
<TABLE>
<CAPTION>
PENSION PLAN TABLE
------------------
SALARY YEARS OF SERVICE
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $25,645 $34,193 $42,742 $51,290 $59,838
$150,000 $31,270 $41,693 $52,117 $62,540 $72,963
$200,000 $42,520 $56,693 $70,867 $85,040 $99,213
$250,000 $53,770 $71,693 $89,617 $107,540 $125,463
$300,000 $65,020 $86,693 $108,367 $130,040 $151,713
$350,000 $76,270 $101,693 $127,117 $152,540 $177,963
$400,000 $87,520 $116,693 $145,867 $175,040 $204,213
$450,000 $98,770 $131,693 $164,617 $197,540 $230,463
$500,000 $110,020 $146,693 $183,367 $220,040 $257,713
$550,000 $121,270 $161,693 $202,117 $242,5j40 $283,963
$600,000 $132,520 $176,693 $220,867 $265,040 $309,213
</TABLE>
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Various aspects of the compensation of the Hudson United executive officers
are determined by the Compensation Committee.
The Compensation Committee members are: Charles F.X. Poggi, Chairman,
Robert J. Burke, Joan David, W. Peter McBride and John H. Tatigian, Jr.
Mr. Neilson serves on the Board of Directors of Hudson United Bancorp and
is an officer of Hudson United Bancorp. Mr. Neilson absented himself from all
discussions and abstained from all voting with respects to his own compensation.
Charles F.X. Poggi, who is the Chairman of the Compensation Committee and
is involved in setting executive compensation, is President of Poggi Press, a
general printing company. During 1999 Poggi Press was paid $677,321 for printing
work for Hudson United Bancorp and its subsidiaries. Management believes the
terms and conditions of the transactions with Poggi Press to be equivalent to
terms available from an independent third party.
W. Peter McBride, who is on the Compensation Committee, and is involved in
setting executive compensation, is affiliated with McBride Corporate Real
Estate. McBride Corporate Real Estate was retained to assist in the sale and/or
leasing of various Hudson United Bancorp properties and in doing so earned
commissions of approximately $584,273 in 1999. Management believes the terms and
conditions of the transactions with McBride Corporate Real Estate to be
equivalents to terms available from an independent third party.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of Hudson United Bancorp Common Stock as of December 31, 1999, by each
director and by all directors and executive officers as a group. Hudson United
Bancorp does not know of any person who beneficially owns more than 5% of the
outstanding Hudson United Bancorp Common Stock.
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF HUDSON UNITED BANCORP COMMON STOCK
----------------------------------------------------------
NUMBER OF COMMON SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) PERCENT OF CLASS
- ------------------------ ----------------
<S> <C> <C>
Robert J. Burke 88,148(2) *
Donald P. Calcagnini 126,220(3) *
Betsy Z. Cohen 1,097,477(4) 2.1%
Joan David 167,403(5) *
Noel deCordova, Jr 25,673(6) *
Thomas R. Farley 58,649(7) *
William H. Lamb, Esq 513,705(8) 1.0%
Bryant D. Malcolm 22,017(9) *
W. Peter McBride 80,794(10) *
John F. McIlwain 42,581(11) *
Kenneth T. Neilson 352,738(12) *
Charles F.X. Poggi 234,922(13) *
David A. Rosow 668,381(14) 1.3%
James E. Schierloh 90,668(15) *
Thomas J. Shara, Jr 135,590(16) *
Susan Staudmyer 20,532(17) *
Sister Grace Frances Strauber 1,247(18) *
John H. Tatigian, Jr 36,105(19) *
D. Lynn Van Borkulo-Nuzzo, Esq 98,084(20) *
</TABLE>
Directors and Executive Officers of
Hudson United Bancorp as a group
(19 persons) 3,935,344(21) 7.6%
NOTES:
o Less than 1%
(1) Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power of sole or shared investment
power. Beneficially owned shares also include shares owned (I) by a spouse,
minor children or by relatives sharing the same home; (ii) by entities
owned or controlled by the named person, and (iii) by other persons if the
named person has the right to acquire such shares within 60 days by the
exercise of any right or option. Unless otherwise noted, all shares are
owned of record and beneficially by the named person, either directly or
through the Hudson United Bancorp dividend reinvestment plan.
(2) Of this total, 14,072 shares are held by Mr. Burke's wife, and 30,322 are
held by Union Dry Dock & Repair Co. Mr. Burke disclaims beneficial
ownership of the shares held by his wife.
(3) Of this total, 74 shares are held by Mr. Calcagnini as Trustee for his
aunt.
(4) Of this total, 96,895 shares are held by Mr. Cohen, 17,597 shares are held
by Mrs. Cohen as custodian for children, 95,210 shares are held as Trustee
of Foundation, 517,766 are held as officer of general partner of limited
partnership, and 116,072 are held by trustee for children. Mrs. Cohen
disclaims beneficial ownership of the shares held by her husband.
(5) Of this total, 11,036 shares are held in an IRA and 126,267 shares are held
by Mrs. David and Mr. Lawrence David as trustees for the David Foundation.
(6) Of this total, 4,561 shares are held by Mr. deCordova's wife. Mr. deCordova
disclaims beneficial ownership of the shares held by his wife.
(7) Of this total, 1,797 shares are held by Mr. Farley's wife. Mr. Farley
disclaims beneficial ownership of the shares owned by his wife.
(8) Of this total, 513,705 shares are held by Mrs. Lamb, 2,863 are held in the
William H. Lamb Trustee for Joshua Lamb, 6,939 shares are held in the
William H. Lamb Trustee for Amanda H. Lamb, 8563 shares are held in the
Patricia Lamb Trustee for Kate Ross, and 32,170 shares are held in the
William H. Lamb Trustee Pension account. Mr. Lamb disclaims beneficial
ownership of the shares held by his wife.
(9) Of this total, 1,715 shares are held by Mr. Malcolm's wife, 2,442 are held
by a corporation over which Mr. Malcolm exercises a controlling interest.
Mr. Malcolm disclaims beneficial ownership of the shares held by his wife.
(10) Of this total, 1,116 shares are held by Mr. McBride's wife, 24,053 are held
as Trustee for J.N. McBride Pool Associates, L.P., and 51,230 shares are
held as Trustee for McBride Ventures, L.P. Mr. McBride disclaims beneficial
ownership of the shares held by his wife.
<PAGE>
(11) Of this total, 6,399 shares are held in the Hudson United Bancorp's 401(k)
plan and 16,030 shares are under the Hudson United Bancorp restricted stock
plan.
(12) Of this total, 26,630 shares are held in Hudson United Bancorp's 401(k)
plan, which he directs, 4038 shares are held in an IRA, 2,868 shares are
held by Mr. Neilson's wife, 34,876 shares are held for his children, 20,000
shares are held under the Hudson United Bancorp's restricted stock plan,
and 174,463 shares represent vested options. Mr. Neilson disclaims
beneficial ownership of the shares owned by his wife.
(13) Mr. Poggi directly holds his shares.
(14) Of this total, 651,220 shares are held by Mr. Rosow's wife and 10,927 are
held in the Rosow Family Foundation Trust. Mr. Rosow's disclaims beneficial
ownership of the shares owned by his wife.
(15) Of this total, 5,663 shares are held by Mr. Schierloh's wife. Mr. Schierloh
disclaims beneficial ownership of Mrs. Schierloh's shares.
(16) Of this total, 17,855 shares are held in Hudson United Bancorp's 401(k)
plan, 10,000 shares are in the Hudson United Bancorp restricted stock plan,
and 69,695 represents vested options.
(17) Of this total, 232 shares are held in Hudson United Bancorp's 401(k) plan
which she directs, 10,300 shares are in the Hudson United Bancorp
restricted stock plan.
(18) All shares held directly by Sister Grace Strauber.
(19) Of this total, 22,558 are held in an IRA by Mr. Tatigian.
(20) Of this total, 11,233 shares are held in the Hudson United Bancorp's 401(k)
plan which she directs, 10,000 shares are in the Hudson United Bancorp
restricted stock plan, 67,043 shares represents vested shares.
(21) Of this total, 58,684.735 shares are held in Hudson United Bancorp's 401(k)
plans for specified individuals, 76,759 shares are held for executive
officers under Hudson United Bancorp's restricted stock plan, and 119,599
shares represent vested options. Excluded form the shares reported in the
Table are 74,013 shares held by HUB's Trust Department as trustee for
Hudson United Bancorp's pension plan. These additional shares held by HUB's
Trust Department are not reported as beneficially owned by Hudson United
Bancorp's directors or executive officers, although by virtue of the
officers' and directors' service on HUB's Trust Committee, it may be
asserted that the directors and officers have beneficial ownership of such
shares. The directors and executive officers disclaim beneficial ownership
of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Various aspects of the compensation of the Hudson United executive officers
are determined by the Compensation Committee.
The Compensation Committee members are: Charles F.X. Poggi, Chairman,
Robert J. Burke, Joan David, W. Peter McBride and John H. Tatigian, Jr.
Mr. Neilson serves on the Board of Directors of Hudson United Bancorp and
is an officer of Hudson United Bancorp. Mr. Neilson absented himself from all
discussions and abstained from all voting with respects to his own compensation.
Charles F.X. Poggi, who is the Chairman of the Compensation Committee and
is involved in setting executive compensation, is President of Poggi Press, a
general printing company. During 1999 Poggi Press was paid $677,321 for printing
work for Hudson United Bancorp and its subsidiaries. Management believes the
terms and conditions of the transactions with Poggi Press to be equivalent to
terms available from an independent third party.
W. Peter McBride, who is on the Compensation Committee, and is involved in
setting executive compensation, is affiliated with McBride Corporate Real
Estate. McBride Corporate Real Estate was retained to assist in the sale and/or
leasing of various Hudson United Bancorp properties and in doing so earned
commissions of approximately $584,273 in 1999. Management believes the terms and
conditions of the transactions with McBride Corporate Real Estate to be
equivalents to terms available from an independent third party.
CERTAIN TRANSACTIONS WITH MANAGEMENT
Hudson United Bancorp Bank has made in the past and, assuming continued
satisfaction of generally applicable credit standards, expects to continue to
make, loans to directors, executive officers and their associates (i.e.,
corporations or organizations for which they serve as officers or directors or
in which they have beneficial ownership interest of 10% or more). These loans
have all been made in the ordinary course of the banking business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other person, and do not
involve more than the normal risk of collectibility or other unfavorable
features. Directors, executive officers and their associates did not during 1999
borrow from Hudson United Bank an amount in excess of 10% of either bank's
equity capital for any one director or executive officer (together with their
associates) or an amount in excess of 20% of either bank's equity capital for
all directors and executive officers and their associates as a group.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Schedules to the Consolidated Financial Statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
(a) (3) Exhibits
List of Exhibits
(3a) The Certificate of Incorporation of the Company in effect on May
11, 1999. (Incorporated by reference from the Company's Amended
Quarterly Report on Form 10 Q/A for the quarter ended June 30, 1999
filed September 10, 1999, Exhibit (3a)).
(3b) The By-laws of HUBCO, Inc. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Exhibit (3)).
(4a) Indenture dated as of January 14, 1994 between HUBCO, Inc. and
Summit Bank as Trustee for $25,000,000 7.75% Subordinated
Debentures due 2004. (Incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993, Exhibit (4)).
(4b) Indenture dated as of September 13, 1996 between HUBCO, Inc. and
Summit Bank as Trustee for $75,000,000 8.20% Subordinated
Debentures due 2006. (Incorporated by reference from the Company's
Current Report on Form 8-K dated September 18, 1996.)
(4c) Indenture dated as of January 31, 1997 between HUBCO, Inc. and The
Bank of New York as Trustee for $50,000,000 8.98% Junior
Subordinated Debentures due 2027. (Incorporated by reference from
the Company's Current Report on Form 8-K dated February 11, 1997.)
(4d) Indenture dated as of June 19, 1998 between HUBCO, Inc. and The
Bank of New York as Trustee for $50,000,000 7.65% Junior
Subordinated Debentures due 2028. (Incorporated by reference from
the Company's Current Report on Form 8-K dated June 26, 1998.)
(10a) The agreement and Plan of Merger between Hudson United Bancorp and
Dime Bancorp, Inc. as amended and restated on December 27, 1999.
(10b) The Stock Option Agreement between Dime Bancorp, Inc. and Hudson
United Bancorp dated September 16, 1999 (Incorporated by reference
from the Company's filing on Form 8-K dated September 24, 1999,
Exhibit (99.2)).
(10c) The Stock Option Agreement between Hudson United Bancorp and Dime
Bancorp, Inc. dated September 16, 1999 (Incorporated by reference
from the Company's filing on Form 8-K dated September 24, 1999,
Exhibit (99.3)).
<PAGE>
(10d) Change in Control, Severance and Employment Agreement with Susan
Staudmyer dated August 16, 1999.
(10e) The Agreement and Plan of Merger dated June 28, 1999 among Hudson
United Bancorp, Hudson United Bank, JeffBanks, Inc., Jefferson Bank,
and Jefferson Bank of New Jersey. (Incorporated by reference from
the Company's filing on Form 8-K/A dated June 30, 1999, Exhibit
(99.1)).
(10f) The Stock Option Agreement dated June 28, 1999 between Hudson United
Bancorp and JeffBanks, Inc. (Incorporated by reference from the
Company's filing on Form 8-K/A dated June 30, 1999, Exhibit (99.2)).
(10g) The Agreement and Plan of Merger dated June 28, 1999 among Hudson
United Bancorp, Hudson United Bank, Southern Jersey Bancorp of
Delaware, Inc., and Farmers and Merchants National Bank.
(Incorporated by reference from the Company's filing on Form 8-K/A
dated June 30, 1999, Exhibit (99.4)).
(10h) The Stock Option Agreement dated June 28, 1999 between Hudson United
Bancorp and Southern Jersey Bancorp of Delaware, Inc. (Incorporated
by reference from the Company's filing on Form 8-K/A dated June 30,
1999, Exhibit (99.5)).
(10i) Agreement and Plan of Merger dated as of January 26, 1999, among
HUBCO, Inc., Hudson United Bank, Little Falls Bancorp, Inc. and
Little Falls Bank. (Incorporated by reference from the Company's
Current Report on Form 8-K dated January 28, 1999, Exhibit (99.2)).
(10j) Stock Option Agreement dated as of January 26, 1999, between HUBCO,
Inc. and Little Falls Bancorp, Inc. (Incorporated by reference from
the Company's Current Report on Form 8-K dated January 28, 1999,
Exhibit (99.3)).
(10k) Agreement and Plan of Merger dated as of March 31, 1998, among
HUBCO, Inc., Hudson United Bank, IBS Financial Corporation, and
Inter-Boro Savings and Loan Association. (Incorporated by reference
from the Company's Current Report on Form 8-K dated March 31, 1998,
Exhibit (99.2)).
(10l) Stock Option Agreement dated as of March 31, 1998, between HUBCO,
Inc., IBS Financial Corporation. (Incorporated by reference from the
Company's Current Report on Form 8-K dated march 31, 1998, Exhibit
(99.3)).
(10m) Agreement and Plan of Merger dated as of March 31, 1998, among
HUBCO, Inc., Lafayette American Bank, Dime Financial Corp., and Dime
Savings Bank of Wallingford. (Incorporated by reference from the
Company's Current Report on Form 8-k dated March 31, 1998, Exhibit
(99.4)).
<PAGE>
(10n) Stock Option Agreement dated as of March 31, 1998, between HUBCO,
Inc. and Dime Financial Corp. (Incorporated by reference from the
Company's Current Report on Form 8-K dated March 31, 1998, Exhibit
(99.5)).
(10o) Change in Control, Severance and Employment Agreement with Thomas R.
Nelson dated January 30, 1998.
(10p) Change in Control, Severance and Employment Agreement with Kenneth
T. Neilson dated January 1, 1997. (Incorporated by reference from
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
(10q) Change in Control, Severance and Employment Agreement with D. Lynn
Van Borkulo-Nuzzo dated January 1, 1997. (Incorporated by reference
from the Company's annual Report on Form 10-K for the Fiscal year
ended December 31, 1996.)
(10r) Change in Control, Severance and Employment Agreement with John F.
Mcllwain dated January 1, 1997. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
(10s) Change in Control, Severance and Employment Agreement with Thomas
Shara dated January 1, 1997.
(10t) HUBCO Supplmenetal Employees' Retirement Plan January 1, 1996.
(Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
(10u) HUBCO, Inc., Directors Deferred Compensation Plan. (Incorporated by
reference from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)
(10v) Employment Agreement with Kenneth T. Neilson dated September 14,
1999, entered into in conjuction with the Hudson United - Dime
Bancorp, Inc. Merger Agreement.
(21) List of Subsidiaries.
(27) Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K
On December 15, 1999, Hudson United Bancorp filed a Form 8-K Item (date
of earliest event--November 30, 1999), containing the consolidated
financial statements of Hudson United Bancorp restating Hudson United
Bancorp's historical consolidated financial statements as of and for the
three years ended December 31, 1998 to reflect the mergers and the
acquisition of JeffBanks, Inc. and Southern Jersey Bancorp of Delaware.
On November 24, 1999, Hudson United Bancorp filed a Form 8-K Item 5
(date of earliest event--November 16, 1999), to announce the declaration
of a cash dividend of $0.25 per common share and a 3% stock dividend.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HUDSON UNITED BANCORP
By:/s/ CHRIS A. MCFADDEN
----------------------
Chris A. McFadden
Senior Vice President
and Chief Financial Officer
Dated: March 31, 2000
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of September 15, 1999
between
HUDSON UNITED BANCORP
and
DIME BANCORP, INC.
------------------------------------------------------
As Amended and Restated
on
December 27, 1999
------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
RECITALS.................................................... A-1
A. Dime.............................................. A-1
B. Hudson........................................... A-1
C. The Merger........................................ A-1
D. Stock Option Agreements........................... A-1
E. Intention of the Parties......................... A-1
F. Approvals........................................ A-1
G. Subsidiary Bank................................... A-1
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1 The Merger....................................... A-2
1.2 Effective Time................................... A-2
1.3 Closing.......................................... A-2
ARTICLE II
GOVERNING DOCUMENTS OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation of the Surviving
Corporation........................................... A-2
2.2 By-laws of the Surviving Corporation............. A-2
ARTICLE III
CORPORATE GOVERNANCE OF THE SURVIVING CORPORATION
3.1 Survival of Article III.......................... A-3
3.2 Board of Directors of Surviving Corporation...... A-3
(a) Composition.................................. A-3
(b) Nomination of Directors...................... A-3
(c) Committees of the Board of Directors......... A-3
3.3 Officers of the Surviving Corporation............ A-3
(a) Composition.................................. A-3
(b) Succession................................... A-3
(c) Employment Agreements........................ A-3
3.4 Modifications to Corporate Governance
Provisions............................................ A-4
ARTICLE IV
CONVERSION OR CANCELLATION AND EXCHANGE OF SHARES
4.1 Conversion or Cancellation of Shares............. A-4
4.2 Exchange of Old Certificates for New
Certificates..................................... A-4
(a) Appointment of Exchange Agent................ A-4
(b) Exchange Procedures.......................... A-5
(c) Fractional Shares............................ A-5
(d) Transfers.................................... A-5
(e) No Liability................................. A-5
4.3 Hudson Options and Warrants...................... A-6
4.4 Dime Options and Warrants........................ A-6
Page
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Disclosure Schedules............................. A-6
5.2 Standard......................................... A-7
5.3 Representations and Warranties of Dime and
Hudson........................................... A-7
(a) Recitals True............................... A-7
(b) Corporate Organization and Qualification.... A-7
(c) Subsidiaries................................ A-7
(d) Capital Stock............................... A-7
(e) Corporate Authority......................... A-9
(f) Governmental Filings; No Violations......... A-9
(g) Reports and Financial Statements............ A-10
(h) Asset Classification......................... A-11
(i) Absence of Certain Events and Changes....... A-11
(j) Properties.................................. A-11
(k) Compliance with Laws........................ A-11
(l) Litigation.................................. A-12
(m) Taxes........................................ A-12
(n) Insurance................................... A-12
(o) Labor Matters............................... A-13
(p) Employee Benefits........................... A-13
(q) Environmental Matters....................... A-14
(r) Risk Management Instruments................. A-15
(s) Material Agreements......................... A-16
(t) Knowledge as to Conditions.................. A-16
(u) Year 2000 Compliance........................ A-16
(v) Brokers and Finders......................... A-16
ARTICLE VI
COVENANTS
6.1 Conduct of Business Pending the Effective Time... A-17
6.2 Dividends........................................ A-18
6.3 Acquisition Proposals............................ A-18
6.4 Stockholder Approvals; Election of Directors..... A-19
6.5 Filings; Other Actions........................... A-19
6.6 Information Supplied............................. A-20
6.7 Accountants' Letters............................. A-20
6.8 Access........................................... A-20
6.9 Notification of Certain Matters.................. A-21
6.10 Publicity........................................ A-21
6.11 Benefit Plans.................................... A-21
6.12 Expenses......................................... A-21
6.13 Indemnification; Directors' and Officers'
Insurance............................................. A-21
6.14 Antitakeover Provisions.......................... A-22
6.15 Affiliate Agreements............................. A-22
6.16 Stock Exchange Listing........................... A-23
6.17 Efforts to Consummate............................ A-23
Page
6.18 Reports.......................................... A-23
6.19 Accounting and Tax Treatment..................... A-23
6.20 Assumptions...................................... A-23
6.21 Bank Combination and Governance.................. A-23
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect
the Merger....................................... A-24
(a) Stockholder Approval........................ A-24
(b) Governmental and Regulatory Consents......... A-24
(c) Third Party Consents........................ A-24
(d) Litigation................................... A-24
(e) Registration Statement...................... A-24
(f) Listing..................................... A-24
(g) Accountants' Pooling Letter................. A-24
(h) Employment Agreements........................ A-24
7.2 Conditions to Obligation of Hudson............... A-24
(a) Representations and Warranties.............. A-24
(b) Performance of Obligations of Dime........... A-25
(c) Opinion of Counsel.......................... A-25
(d) Opinion of Tax Counsel....................... A-25
(e) Accountants' Letters........................ A-25
7.3 Conditions to Obligation of Dime................. A-25
(a) Representations and Warranties.............. A-25
(b) Performance of Obligations of Hudson......... A-25
(c) Opinion of Tax Counsel...................... A-26
(d) Accountants' Letters......................... A-26
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent.................... A-26
8.2 Termination by Either Dime or Hudson............. A-26
8.3 Termination by Hudson............................ A-26
8.4 Termination by Dime.............................. A-26
8.5 Effect of Termination and Abandonment............ A-27
ARTICLE IX
MISCELLANEOUS
9.1 Survival......................................... A-27
9.2 Modification or Amendment........................ A-27
9.3 Waiver of Conditions............................. A-27
9.4 Counterparts and Facsimile....................... A-27
9.5 Governing Law.................................... A-27
9.6 Notices.......................................... A-27
9.7 Entire Agreement, Etc............................ A-28
9.8 Definition of "subsidiary"; Covenants with
Respect to Subsidiaries............................... A-28
Page
9.9 Captions......................................... A-29
9.10 Severability..................................... A-29
9.11 No Third Party Beneficiaries..................... A-29
ANNEXES
1. Form of Amendments to Certificate of Incorporation
2. Form of Amendments to By-laws
Understanding regarding Committees of Board of Surviving
3. Corporation
4(a). Form of Hudson Affiliate Agreement
4(b). Form of Dime Affiliate Agreement
5. Senior Executive Officers of Surviving Corporation
INDEX OF DEFINED TERMS
Location of
Term Definition
- ---- -----------
Acquisition Proposal........................................ 6.3
Affiliates.................................................. 6.15
Agreement................................................... Preamble
Antitakeover Provisions..................................... 6.14
Asset Classification........................................ 5.3(h)
BHCA........................................................ Recital B
Business.................................................... 5.3(q)(1)
By-laws..................................................... 2.2
Certificate of Incorporation................................ 2.1
Certificates of Merger...................................... 1.2(a)
Closing..................................................... 1.3
Closing Date................................................ 1.3
Compensation Plans.......................................... 5.3(p)(1)
Confidentiality Agreements.................................. 6.8
Contracts................................................... 5.3(f)(2)
Costs....................................................... 6.13
DGCL........................................................ 1.1
Dime........................................................ Preamble
Dime Common Stock........................................... Recital A
Dime Meeting................................................ 6.4
Dime Option................................................. 4.4
Dime Preferred Stock........................................ Recital A
Dime Stock Option Agreement................................. Recital D
Dime Stock Plans............................................ 5.3(d)(1)
Disclosure Schedule......................................... 5.1
Effective Time.............................................. 1.2(a)
Employees................................................... 5.3(p)(1)
Employment Agreement........................................ 3.3(c)
Environmental Law........................................... 5.3(q)(1)
ERISA....................................................... 5.3(p)(1)
ERISA Affiliate............................................. 5.3(p)(4)
Exception Shares............................................ 4.1(b)
Exchange Act................................................ 5.3(f)(1)
Exchange Agent.............................................. 4.2(a)
Exchange Ratio.............................................. 4.1(a)
FDIA........................................................ 5.3(c)
FDIC........................................................ 5.3(g)(1)
Federal Reserve............................................. 5.3(k)(3)
FHLB........................................................ 5.3(g)(1)
Location of
Term Definition
- ---- -----------
Financial Statements........................................ 5.3(g)(4)
Former Dime Directors....................................... 3.2(a)
Former Hudson Directors..................................... 3.2(a)
Former Hudson Employees..................................... 6.11(a)
Former Dime Employees....................................... 6.11(a)
Governmental Entity......................................... 5.3(f)(1)
Hazardous Substances........................................ 5.3(q)(1)
HOLA........................................................ Recital A
Hudson...................................................... Preamble
Hudson Common Stock......................................... Recital B
Hudson Meeting.............................................. 6.4
Hudson Option............................................... 4.3
Hudson Preferred Stock...................................... Recital B
Hudson Stock Option Agreement............................... Recital D
Hudson Stock Plans.......................................... 5.3(d)(2)
Indemnified Parties......................................... 6.13
Internal Revenue Code....................................... Recital E
Joint Proxy Statement....................................... 6.5
Liens....................................................... 5.3(d)(1)
Material Adverse Effect..................................... 5.1(b)
Merger...................................................... Recital C
NASD........................................................ 5.3(f)
New Certificate............................................. 4.1(d)
NJBCA....................................................... 1.1
NYSE........................................................ 5.3(f)
Old Certificate............................................. 4.1(d)
OTS......................................................... 5.3(g)(1)
PCBs........................................................ 5.3(q)(1)
Pending Transactions........................................ 5.3(t)(2)
Pension Plan................................................ 5.3(p)(3)
Person...................................................... 6.1(c)
Plans....................................................... 5.3(p)(3)
Previously Disclosed........................................ 5.1(c)
Registration Statement...................................... 6.5
Reports..................................................... 5.3(g)(2)
Representatives............................................. 6.8
SEC......................................................... 5.3(g)(1)
Securities Act.............................................. 5.3(f)(1)
Securities Laws............................................. 5.3(g)(2)
Stock Option Agreements..................................... Recital D
Subject Property............................................ 5.3(q)(1)
Location of
Term Definition
- ---- -----------
subsidiary.................................................. 9.8(a)
Subsidiary Bank............................................. Recital G
Surviving Corporation....................................... Recital C
Surviving Corporation Common Stock.......................... 4.1(a)
Tax......................................................... 5.3(m)
Termination Date............................................ 3.1
Year 2000 Compliant......................................... 5.3(u)(3)
AGREEMENT AND PLAN OF MERGER, dated as of September 15, 1999 (this
"Agreement"), between Hudson United Bancorp ("Hudson") and Dime Bancorp, Inc.
("Dime") (as amended and restated on December 27, 1999).
RECITALS
A. Dime. Dime has been duly incorporated and is an existing corporation
in good standing under the laws of the State of Delaware, with its principal
executive offices located in New York, New York. As of the date hereof, Dime has
350 million authorized shares of common stock, par value $0.01 per share ("Dime
Common Stock"), of which not more than 111,918,002 shares were outstanding as of
August 31, 1999, and 40 million authorized shares of preferred stock, par value
$0.01 per share ("Dime Preferred Stock"), none of which is outstanding as of the
date hereof (no other class or series of capital stock being authorized). Dime
is a savings and loan holding company registered under the Home Owners' Loan Act
of 1933, as amended ("HOLA").
B. Hudson. Hudson has been duly incorporated and is an existing
corporation in good standing under the laws of the State of New Jersey, with its
principal executive offices located in Mahwah, New Jersey. As of the date
hereof, Hudson has 100 million authorized shares of common stock, no par value
("Hudson Common Stock"), of which not more than 40,899,905 shares are
outstanding as of the date hereof, and 25 million authorized shares of preferred
stock, no par value ("Hudson Preferred Stock"), none of which is outstanding as
of the date hereof (no other class or series of capital stock being authorized).
Hudson is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended (the "BHCA").
C. The Merger. At the Effective Time (as defined in Section 1.2), the
parties to this Agreement intend to effect the merger (the "Merger") of Hudson
with and into Dime, with Dime the surviving corporation of the Merger. At and
after the Effective Time, Dime, as the surviving corporation in the Merger, is
referred to herein as the "Surviving Corporation". The name of the Surviving
Corporation shall be "Dime United Bancorp, Inc."
D. Stock Option Agreements. As an inducement to and condition of Hudson's
willingness to enter into this Agreement and the Hudson Stock Option Agreement
(as defined in the following sentence), Dime will grant to Hudson an option
pursuant to a Stock Option Agreement (the "Dime Stock Option Agreement"). As an
inducement to and condition of Dime's willingness to enter into this Agreement
and the Dime Stock Option Agreement, Hudson will grant to Dime an option
pursuant to a Stock Option Agreement (the "Hudson Stock Option Agreement" and,
together with the Dime Stock Option Agreement, the "Stock Option Agreements").
The Stock Option Agreements will be entered into immediately following the
execution and delivery hereof.
E. Intention of the Parties. It is the intention of the parties to this
Agreement that the Merger (a) shall be accounted for as a "pooling of interests"
under generally accepted accounting principles and (b) shall qualify as a tax
free reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code").
F. Approvals. The Boards of Directors of Dime and Hudson (at meetings
duly called and held) have determined that this Agreement and the transactions
contemplated hereby are in the best interests of Dime and Hudson, respectively,
and their respective stockholders and have approved this Agreement and the Stock
Option Agreements.
G. Subsidiary Bank. It is the intention of the parties that the Surviving
Corporation shall be a bank holding company registered pursuant to the BHCA and
that the operation of the federal savings bank subsidiary of Dime and the New
Jersey state-chartered commercial bank subsidiary of Hudson shall be combined,
in a manner to be determined, so that the primary depository institution
subsidiary of the Surviving Corporation is a New Jersey state-chartered
commercial bank (the "Subsidiary Bank"). It is the intention of the parties that
the Board of Directors of the Surviving Corporation and the Board of Directors
of the Subsidiary Bank shall be the same, until otherwise modified, and that the
charter and by-
laws of the Subsidiary Bank shall contain those provisions (or other provisions
of similar effect) discussed in Article III hereof with respect to the Surviving
Corporation.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER: EFFECTIVE TIME; CLOSING
1.1 The Merger. On the terms, and subject to the conditions, of this
Agreement, at the Effective Time, Hudson shall merge with and into Dime, and the
separate corporate existence of Hudson shall thereupon cease. The Surviving
Corporation shall continue to be governed by the laws of the State of Delaware.
The Merger shall have the effects specified in the Delaware General Corporation
Law (the "DGCL") and the New Jersey Business Corporation Act (the "NJBCA").
1.2 Effective Time. (a) Subject to the conditions of this Agreement, the
parties to this Agreement will cause certificates of merger to be executed,
acknowledged and filed with the Secretary of State of the State of Delaware as
provided in Section 252 of the DGCL, and executed, acknowledged and filed with
the Secretary of State of the State of New Jersey as provided in Sections 14A:
10-7 and 14A: 10-4.1 of the NJBCA (collectively, the "Certificates of Merger").
The Merger shall become effective at such time as a Certificate of Merger has
been filed with the Secretary of State of the State of Delaware in accordance
with the provisions of Section 252 of the DGCL and a Certificate of Merger has
been filed with the Secretary of State of the State of New Jersey in accordance
with the provisions of Sections 14A: 10-7 and 14A: 10-4.1 of the NJBCA, or at
such other time as may be specified in the Certificates of Merger in accordance
with applicable law. The date and time when the Merger shall become effective is
herein referred to as the "Effective Time".
(b) Dime and Hudson each will use reasonable efforts to cause the
Effective Time to occur on the fifth business day after the date of satisfaction
or waiver of the last of the conditions specified in Sections 7.1(a) and (b) of
this Agreement has occurred. Notwithstanding anything to the contrary in this
Section 1.2, Dime and Hudson may cause the Effective Time to occur on such
earlier or later day following the satisfaction or waiver of such conditions as
they may agree in writing, consistent with the provisions of the DGCL, the NJBCA
and other applicable law.
1.3 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Sullivan & Cromwell, New York, New York, at 10:00 a.m. on the
date when the Effective Time is to occur or at such other place or time as Dime
and Hudson shall agree. The date upon which the Closing shall occur is herein
referred to as the "Closing Date".
ARTICLE II
GOVERNING DOCUMENTS OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation of the Surviving Corporation. At the
Effective Time, the certificate of incorporation of Dime, as then in effect,
shall by virtue of the Merger be amended as set forth in Annex 1; such
certificate of incorporation, as so amended, shall be the certificate of
incorporation of the Surviving Corporation (the "Certificate of Incorporation"),
until duly amended in accordance with the terms thereof and the DGCL.
2.2 By-laws of the Surviving Corporation. At the Effective Time, the
by-laws of Dime, as then in effect, shall by virtue of the Merger be amended as
set forth in Annex 2, and such by-laws, as so amended, shall be the by-laws of
the Surviving Corporation (the "By-laws"), until duly amended in accordance with
the terms thereof, the Certificate of Incorporation and the DGCL.
ARTICLE III
CORPORATE GOVERNANCE OF THE SURVIVING CORPORATION
3.1 Survival of Article III. Notwithstanding any other provision in this
Agreement, the provisions of this Article III shall survive the Effective Time
and remain continuously in effect until December 31, 2002 (the "Termination
Date"), on which date the provisions of this Article III shall terminate. This
Section 3.1 shall not affect the term of any Employment Agreements referred to
in this Article III.
3.2 Board of Directors of Surviving Corporation.
(a) Composition. The Board of Directors will consist of 25 members, 13 of
whom shall be designated by Dime ("Former Dime Directors") and 12 of whom shall
be designated by Hudson ("Former Hudson Directors"), in each case, such
designation to occur prior to the Closing Date. Dime will designate four
directors, five directors and four directors to classes one, two and three,
respectively, of directors of the Surviving Corporation and Hudson will
designate four directors to each of the three classes of directors of the
Surviving Corporation. The current Chairman and Chief Executive Officer of Dime,
Mr. Lawrence J. Toal, will be a member of the Board of Directors and will serve
as its Chairman. The current Chairman and Chief Executive Officer of Hudson, Mr.
Kenneth T. Neilson, will be a member of the Board of Directors. As set forth in
Section 6.4 and Annex 2 to this Agreement, prior to the Effective Time, the
Board of Directors of Dime will adopt resolutions, effective at the Effective
Time: (1) electing such persons designated in accordance with this Section
3.2(a) as directors of the Surviving Corporation and (2) amending the By-laws as
set forth in Annex 2.
(b) Nomination of Directors. As set forth in Annex 1, certain provisions
regarding qualifications for nomination of directors will be contained in the
Certificate of Incorporation.
(c) Committees of the Board of Directors. Annex 3 to this Agreement sets
forth certain agreements of the parties with regard to committees of the Board
of Directors and their composition. Prior to the Closing Date, Dime will
designate the Former Dime Directors who are to be members of each of the
committees set forth in Annex 3 and Hudson will designate the Former Hudson
Directors who are to be members of each of the committees set forth in Annex 3.
Prior to the Effective Time, the Board of Directors of Dime will adopt
resolutions, effective at the Effective Time, to establish the committees set
forth in Annex 3 as committees of the Board of Directors of the Surviving
Corporation and to specify the members and chairpersons of each such committee
as designated pursuant to this Section 3.2(c).
3.3 Officers of the Surviving Corporation.
(a) Composition. In addition to serving as Chairman of the Board of
Directors, Mr. Toal shall be Chief Executive Officer of the Surviving
Corporation as of the Effective Time. Mr. Neilson shall be President and Chief
Operating Officer of the Surviving Corporation as of the Effective Time. Both
Mr. Toal and Mr. Neilson shall serve in the positions described in this Section
3.3(a) until the Termination Date or until otherwise determined in accordance
with the Certificate of Incorporation. The Board of Directors of Dime will adopt
resolutions prior to the Effective Time electing Mr. Toal and Mr. Neilson to the
positions described in this Section 3.3(a) as of the Effective Time. In
addition, the Board of Directors of Dime will adopt resolutions prior to the
Effective Time electing those persons set forth in Annex 5 to the positions
described in Annex 5 as of the Effective Time.
(b) Succession. As set forth in Annex 1, certain provisions regarding the
succession of Mr. Neilson to the positions of Chairman of the Board of
Directors, Chairman of the Executive Committee of the Board of Directors and
Chief Executive Officer of the Surviving Corporation will be contained in the
Certificate of Incorporation.
(c) Employment Agreements. Dime or its depository institution subsidiary
has entered into an employment agreement with Mr. Toal (this agreement, or any
successor agreement, including any amendment thereto, an "Employment Agreement")
and Hudson has entered into an employment agreement (concurrently with or
immediately prior to entering into this Agreement) with Mr. Neilson (this
agreement, or any successor agreement, including any amendment thereto, also an
"Employment
Agreement"), each of which will be assumed by the Surviving Corporation. During
the terms of their respective Employment Agreements, Mr. Toal and Mr. Neilson
shall have the respective powers, and perform the respective duties, set forth
in each of their respective Employment Agreements, along with the duties of
their offices as described in this Article III and the Certificate of
Incorporation or By-laws.
3.4 Modifications to Corporate Governance Provisions. As set forth in
Annex 1, provisions regarding certain actions of the Board of Directors of the
Surviving Corporation and the votes required for such actions will be contained
in the Certificate of Incorporation.
ARTICLE IV
CONVERSION OR CANCELLATION AND EXCHANGE OF SHARES
4.1 Conversion or Cancellation of Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of any stockholder of
either Dime or Hudson:
(a) Each share of Dime Common Stock issued and not retired or canceled
immediately prior to the Effective Time, including treasury stock, shall be
combined into 0.60255 (the "Exchange Ratio") of a fully paid and
nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock").
(b) Other than Exception Shares, each share of Hudson Common Stock
outstanding immediately prior to the Effective Time shall be converted into
and constitute one fully paid and nonassessable share of Surviving
Corporation Common Stock. Each holder of a certificate representing ads
such shares of Hudson Common Stock shall cease to have any rights with
respect thereto, except that, from and after the Effective Time,
certificates representing Hudson Common Stock, other than Exception Shares,
immediately prior to the Effective Time shall be deemed for all purposes to
represent the number of shares of Surviving Corporation Common Stock into
which they were converted pursuant to this Section. "Exception Shares"
means shares of Hudson Common Stock held by Hudson or any of its
subsidiaries or by Dime or any of its subsidiaries, in each case other than
in a fiduciary capacity or in satisfaction of a debt previously contracted
in good faith.
(c) Each share of Hudson Common Stock constituting an Exception Share
immediately prior to the Effective Time shall be canceled and retired at
the Effective Time and no consideration shall be issued in exchange
therefor.
(d) Holders of certificates formerly representing Hudson Common Stock
shall not be required to exchange such certificates for certificates
representing Surviving Corporation Common Stock, provided, however, that if
an exchange of such certificates is required by law or applicable rule or
regulation, the parties will cause the Surviving Corporation to arrange for
such exchange on a one-share-for-one-share basis. Holders of certificates
representing the Dime Common Stock referred to in Section 4.1(a) ("Old
Certificates") shall exchange such Old Certificates for certificates
representing shares of Surviving Corporation Common Stock ("New
Certificates") in the manner described in Section 4.2.
(e) In the event that, subsequent to the date of this Agreement but
prior to the Effective Time, the shares of Dime Common Stock or Hudson
Common Stock issued and outstanding shall, through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other similar change in the capitalization of Dime or
Hudson, as the case may be, increase or decrease in number or be changed
into or exchanged for a different issue or number of securities, then an
appropriate and proportionate adjustment shall be made to the Exchange
Ratio.
4.2 Exchange of Old Certificates for New Certificates. (a) Appointment of
Exchange Agent. From the Effective Time until the end of the one-year period
following the Effective Time, the Surviving Corporation shall make available to
an exchange agent (which may be a subsidiary bank of the Surviving Corporation)
appointed prior to the Effective Time by Dime and Hudson jointly on behalf of
the Surviving Corporation (the "Exchange Agent") New Certificates and cash in
amounts sufficient to allow the
Exchange Agent to make all deliveries of New Certificates and payments that may
be required in exchange for Old Certificates pursuant to this Article IV. At the
end of such one-year period, any such New Certificates and cash remaining in the
possession of the Exchange Agent (together with any dividends or earnings in
respect thereof) shall be returned to the Surviving Corporation. Any former
holders of Old Certificates who have not theretofore exchanged their Old
Certificates for New Certificates and cash pursuant to this Article IV shall
thereafter be entitled to look exclusively to the Surviving Corporation, and
only as general creditors thereof, for the shares of Surviving Corporation
Common Stock and any cash to which they become entitled upon exchange of their
Old Certificates pursuant to this Article IV.
(b) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail or deliver to each person who
was, immediately prior to the Effective Time, a holder of record of Dime Common
Stock, a form (mutually agreed upon by Dime and Hudson) of letter of transmittal
containing instructions for use in effecting the surrender of Old Certificates
in exchange for New Certificates and any payments pursuant to this Article IV.
Upon surrender to the Exchange Agent of an Old Certificate for cancellation
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, the holder of such Old Certificate
shall be entitled to receive in exchange therefor a New Certificate representing
the shares of Surviving Corporation Common Stock, and a check in the amount, if
any, to which such holder is entitled pursuant to this Article IV, and the Old
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or will accrue on any amount payable upon surrender of Old Certificates. If any
New Certificate or cash payment is to be issued or made in a name other than
that in which the Old Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall pay any transfer or other taxes required by reason of the
issuance of such New Certificate or the making of such cash payment in a name
other than that of the registered holder of the Old Certificate surrendered, or
shall establish to the satisfaction of the Surviving Corporation that any such
taxes have been paid or are not applicable. An Affiliate (as defined in Section
6.15) of Dime shall not be entitled to receive any New Certificate or payment
pursuant to this Article IV until such Affiliate shall have duly executed and
delivered an appropriate agreement described in Section 6.15.
(c) Fractional Shares. Upon giving effect to the combination and exchange
described in Section 4.1(a), the resulting number of shares of Surviving
Corporation Common Stock of each registered holder of Dime Common Stock shall be
rounded down to the nearest whole number and each such registered holder shall
be entitled to receive from the Surviving Corporation in lieu of any fractional
share of Surviving Corporation Common Stock prior to such rounding down an
amount in cash (without interest) equal to the product obtained by multiplying
(a) the fraction of a share of Surviving Corporation Common Stock to which such
holder would otherwise be entitled and (b) the average of the closing price per
share of Hudson Common Stock for the ten trading days most recently preceding
the Closing Date as reported on the New York Stock Exchange, Inc. (the "NYSE")
Composite Transactions reporting system. Notwithstanding the foregoing,
fractional shares of Surviving Corporation Common Stock that would be issued
into a dividend reinvestment plan, 401(k) plan or other similar stock plan
maintained by Dime prior to the Effective Time shall be issued within such plan
as a fractional share of Surviving Corporation Common Stock at the Effective
Time.
(d) Transfers. At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of the shares
of Hudson Common Stock which were outstanding immediately prior to the Effective
Time.
(e) No Liability. In the event that any Old Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Old Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Old
Certificate, the Surviving Corporation shall, in exchange for such lost, stolen
or destroyed Old Certificate, issue or cause to be issued the shares of
Surviving Corporation
Common Stock and pay or cause to be paid the amounts, if any, deliverable in
respect thereof pursuant to this Article IV.
4.3 Hudson Options and Warrants. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any such option or
warrant, each option or warrant granted by Hudson to purchase shares of Hudson
Common Stock (any such option or warrant being referred to as a "Hudson Option")
that is outstanding and unexercised immediately prior thereto shall constitute
an option or warrant, as the case may be, to purchase Shares of Surviving
Corporation Common Stock, on the same terms and conditions as are in effect
immediately prior to the Effective Time.
4.4 Dime Options and Warrants. At the Effective Time, without any action
on the part of any holder of any such option or warrant, each option or warrant
granted by Dime to purchase shares of Dime Common Stock (any such option or
warrant being referred to as a "Dime Option") that is outstanding and
unexercised immediately prior thereto shall be converted into an option or
warrant, as the case may be, to purchase, on the same terms and conditions as
are in effect for such Dime Option immediately prior to the Effective Time, such
number of shares of Surviving Corporation Common Stock at an exercise price
determined as provided below (and otherwise having the same duration and other
terms as the original Dime Option):
(a) the number of shares of Surviving Corporation Common Stock to be
subject to the new option or warrant shall be equal to the product of (1)
the number of shares of Dime Common Stock purchasable upon exercise of the
original Dime Option and (2) the Exchange Ratio, the product being rounded,
if necessary, up or down, to the nearest whole share; and
(b) the exercise price per share of Surviving Corporation Common Stock
under the new option or warrant shall be equal to (1) the exercise price
per share of Dime Common Stock under the original Dime Option divided by
(2) the Exchange Ratio, the quotient being rounded, if necessary, up or
down to the nearest cent.
The terms of each Dime Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in capitalization of Dime subsequent to the
Closing Date. With respect to any Dime Options that are "incentive stock
options" (as defined in Section 422 of the Internal Revenue Code), the foregoing
adjustments shall be effected in a manner consistent with Section 424(a) of the
Internal Revenue Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Disclosure Schedules. (a) On or prior to the date hereof, Dime has
delivered to Hudson and Hudson has delivered to Dime a schedule (respectively,
its "Disclosure Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 5.3 or to one or more
of its covenants contained in Article VI; provided that (1) no such item is
required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence is not reasonably likely to result in
the related representation or warranty being deemed untrue or incorrect under
the standard established by Section 5.2, and (2) the mere inclusion of an item
in a Disclosure Schedule as an exception to a representation or warranty shall
not be deemed an admission by a party that such item represents a material
exception or fact, event or circumstance or that such item is reasonably likely
to result in a Material Adverse Effect.
(b) "Material Adverse Effect" shall mean with respect to Dime, Hudson or
the Surviving Corporation any effect that (1) is material and adverse to the
financial position, results of operations or business of Dime and its
subsidiaries taken as a whole, Hudson and its subsidiaries taken as a whole or
the Surviving Corporation and its subsidiaries taken as a whole, respectively,
or (2) would materially impair the ability
of either Dime or Hudson to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of the
Merger and the other transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed to include the impact
of (A) changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, (B) changes in
generally accepted accounting principles or regulatory accounting requirements
applicable to depository institutions and their holding companies generally, (C)
actions or omissions of Dime or Hudson taken with the prior written consent of
Hudson or Dime, as applicable, in contemplation of the transactions contemplated
hereby, (D) any modifications or changes to valuation policies and practices in
connection with the Merger or restructuring charges taken in connection with the
Merger, in each case in accordance with generally accepted accounting principles
and (E) the effects of any change attributable to or resulting from changes in
economic conditions applicable to depository institutions or their holding
companies generally or in general levels of interest rates, except to the extent
that the effect of such change is materially more severe for Dime, Hudson or the
Surviving Corporation, as the case may be, than for depository institutions or
their holding companies generally.
(c) "Previously Disclosed" by a party shall mean information set forth on
its Disclosure Schedule corresponding to the provision of this Agreement to
which such information relates; provided that information which, on its face,
reasonably should indicate to the reader that it relates to another provision of
this Agreement shall also be deemed to be Previously Disclosed with respect to
such other provision.
5.2 Standard. No representation or warranty of Dime or Hudson contained
in Section 5.3 shall be deemed untrue or incorrect, and no party hereto shall be
deemed to have breached a representation or warranty, as a consequence of the
existence of any fact, circumstance or event unless such fact, circumstance or
event, individually or taken together with all other facts, circumstances or
events inconsistent with any representation or warranty contained in Section 5.3
has had or is reasonably likely to result in a Material Adverse Effect.
5.3 Representations and Warranties of Dime and Hudson. Except as
Previously Disclosed, Dime hereby represents and warrants to Hudson, and Hudson
hereby represents and warrants to Dime, that:
(a) Recitals True. The statements of fact set forth in Recitals A, B
and F of this Agreement with respect to it are true.
(b) Corporate Organization and Qualification. It is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated or the business conducted by it require such qualification. It has
the requisite corporate power and authority to own or lease its properties
and assets and to carry on its businesses as they are now being conducted.
It has made available to the other party hereto a complete and correct copy
of its certificate of incorporation and by-laws, each as amended to date
and currently in full force and effect.
(c) Subsidiaries. It has Previously Disclosed a list of its
subsidiaries as of the date of this Agreement and the amount and percent of
its ownership thereof. Each of its subsidiaries is duly organized, validly
existing, and in good standing under the laws of the jurisdiction in which
such subsidiary is incorporated or organized, and is duly qualified to do
business and in good standing in each jurisdiction where the property
owned, leased or operated, or the business conducted, by such subsidiary
requires such qualification. Each of its subsidiaries has the requisite
power and authority to own or lease its properties and assets and to carry
on its business as it is now being conducted. Each of its subsidiaries that
is a depository institution is an "insured depository institution" as
defined in the Federal Deposit Insurance Act ("FDIA") and applicable
regulations thereunder.
(d) Capital Stock. (1) In the case of the representations and
warranties made by Dime and in addition to the statements set forth in
Recital A:
As of the date of this Agreement, there were outstanding under the
stock option and other plans Previously Disclosed (the "Dime Stock
Plans"), options or rights to acquire not more than
an aggregate of 8,078,022 shares of Dime Common Stock (subject to
adjustment on the terms set forth in the Dime Stock Plans). As of the
date of this Agreement, Dime has no shares of Dime Common Stock reserved
for issuance, other than 15,954,541 shares reserved for issuance under
the Dime Stock Plans and the shares reserved for issuance under the Dime
Stock Option Agreement, and has no shares of Dime Preferred Stock
reserved for issuance. All the outstanding shares of Dime Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. All the outstanding shares of capital stock of each of
Dime's subsidiaries owned by Dime or a subsidiary of Dime have been duly
authorized and validly issued and are fully paid and nonassessable, and
are owned by Dime or a subsidiary of Dime free and clear of all liens,
pledges, security interests, claims, proxies, preemptive or subscriptive
rights or other encumbrances or restrictions of any kind (collectively,
"Liens"). Except as set forth above (including in Recital A) or in the
Dime Stock Option Agreement or in the Stockholder Protection Rights
Agreement (the "Dime Rights Agreement"), dated as of October 20, 1995,
between Dime and The First National Bank of Boston, as Rights Agent, and
except for Dime Common Stock issued after the date hereof pursuant to
the terms of Dime Stock Plans, there are no shares of capital stock of
Dime authorized, issued or outstanding and there are no preemptive
rights or any outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of Dime or any
of its subsidiaries of any character relating to the issued or unissued
capital stock or other securities of Dime or any of its subsidiaries
(including, without limitation, those relating to the issuance, sale,
purchase, redemption, conversion, exchange, registration, voting or
transfer thereof). Other than pursuant to the Hudson Stock Option
Agreement, as of the date hereof, neither Dime nor any of its
subsidiaries beneficially owns, directly or indirectly, or is party to
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, any shares of Hudson Common
Stock that are, or if owned would be, Exception Shares.
(2) In the case of the representations and warranties made by Hudson
and in addition to the statements set forth in Recital B:
As of the date of this Agreement, there were outstanding under the
stock option and other plans Previously Disclosed (the "Hudson Stock
Plans"), options or rights to acquire not more than an aggregate of
1,141,768 shares of Hudson Common Stock (subject to adjustment on the
terms set forth in the Hudson Stock Plans). As of the date of this
Agreement, Hudson has no shares of Hudson Common Stock reserved for
issuance, other than 13,736,445 shares reserved for issuance under the
Hudson Stock Plans and the shares reserved for issuance under the Hudson
Stock Option Agreement, and has no shares of Hudson Preferred Stock
reserved for issuance. All the outstanding shares of Hudson Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. All the outstanding shares of capital stock of each of
Hudson's subsidiaries owned by Hudson or a subsidiary of Hudson have
been duly authorized and validly issued and are fully paid and
nonassessable and owned by Hudson or a subsidiary of Hudson free and
clear of all Liens. Except as set forth above (including in Recital B)
or in the Hudson Stock Option Agreement and except for Hudson Common
Stock issued after the date hereof pursuant to the terms of the Hudson
Stock Plans, there are no shares of capital stock of Hudson authorized,
issued or outstanding, and there are no preemptive rights or any
outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of Hudson or any of its
subsidiaries of any character relating to the issued or unissued capital
stock or other securities of Hudson or any of its subsidiaries
(including, without limitation, those relating to the issuance, sale,
purchase, redemption, conversion, exchange, registration, voting or
transfer thereof). Other than pursuant to the Dime Stock Option
Agreement, as of the date hereof, neither Hudson nor any of its
subsidiaries beneficially owns, directly or indirectly, or is party to
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, any shares of Dime Common
Stock.
(e) Corporate Authority. (1) In the case of the representations and
warranties made by Dime: It has the requisite corporate power and authority
and has taken all corporate action necessary in order to execute and
deliver this Agreement and the Stock Option Agreements and, subject only to
the adoption by a majority of holders of the outstanding shares of Dime
Common Stock entitled to vote thereon of the agreement of merger (including
the amendments to the Certificate of Incorporation and By-laws contemplated
by Sections 2.1 and 2.2) contained in this Agreement insofar as required by
Sections 251 and 252 of the DGCL, to consummate the transactions
contemplated hereby. This Agreement is a valid and legally binding
agreement of it enforceable in accordance with the terms hereof. Its Board
of Directors (at a meeting duly called and held) has by requisite vote (A)
authorized and approved this Agreement, the Stock Option Agreements and the
transactions, including the Merger, contemplated hereby and thereby, (B)
directed that the agreement of merger (as such term is used in Section 252
of the DGCL) contained in this Agreement be submitted for consideration to,
and adoption by, its stockholders in accordance with Sections 251 and 252
of the DGCL and (C) approved the execution of the Dime Stock Option
Agreement and authorized and approved the Merger (prior to the execution by
Dime of this Agreement and prior to the date of execution of the Dime Stock
Option Agreement) in accordance with Section 203 of the DGCL.
(2) In the case of the representations and warranties made by Hudson:
It has the requisite corporate power and authority and has taken all
corporate action necessary in order to execute and deliver this Agreement
and the Stock Option Agreements and, subject only to the adoption by a
majority of the votes cast by holders of the outstanding shares of Hudson
Common Stock entitled to vote thereon of the plan of merger contained in
this Agreement insofar as required by Section 14A: 10-3 of the NJBCA, to
consummate the transactions contemplated hereby. Article IX of its
certificate of incorporation is not applicable to the Merger or other
transactions contemplated hereby. This Agreement is a valid and legally
binding agreement of it enforceable in accordance with the terms hereof.
Its Board of Directors (at a meeting duly called and held) has by requisite
vote (A) authorized and approved this Agreement, the Stock Option
Agreements and the transactions, including the Merger, contemplated hereby
and thereby, (B) directed that the plan of merger (as such term is used in
Section 14A: 10-7 of the NJBCA) contained in this Agreement be submitted
for consideration to, and adoption by, its stockholders in accordance
Section 14A: 10-3 of the NJBCA and (C) approved the execution of the Hudson
Stock Option Agreement and authorized and approved the Merger (prior to the
execution by Hudson of this Agreement and prior to the date of execution of
the Hudson Stock Option Agreement) in accordance with Section 14A: 10A-5 of
the NJBCA.
(f) Governmental Filings; No Violations. (1) Other than the approvals
Previously Disclosed, and other than as required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the
Securities Exchange Act of 1934, as amended (including the rules and
regulations thereunder, the "Exchange Act"), the Securities Act of 1933, as
amended (including the rules and regulations thereunder, the "Securities
Act"), state securities laws and the rules of the New York Stock Exchange
(the "NYSE") or the National Association of Securities Dealers, Inc. (the
"NASD"), or under any federal or state banking laws or regulations, no
notices, reports or other filings are required to be made by it with, nor
are any consents, registrations, approvals, permits or authorizations
required to be obtained by it from, any governmental or regulatory
authority, agency, court, commission or other entity, domestic or foreign
("Governmental Entity"), in connection with the execution, delivery or
performance of this Agreement by it and the consummation by it of the
transactions contemplated hereby.
(2) The execution, delivery and performance of this Agreement does not
and will not, and the consummation by it of the transactions contemplated
hereby will not, constitute or result in (A) a breach or violation of, or a
default under, its certificate or articles of incorporation or by-laws, or
the comparable governing instruments of any of its subsidiaries, or (B) a
breach or violation of, or a default under, or the acceleration of or the
creation of a Lien (with or without the giving of notice, the lapse of time
or both) pursuant to, any provision of any agreement, lease, contract,
note,
mortgage, indenture, arrangement or other obligation ("Contracts") of it or
any of its subsidiaries or any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit
or license to which it or any of its subsidiaries is subject, or any change
in the rights or obligations of any party under any Contracts. It has
Previously Disclosed a list of all consents of third parties required under
any Contracts to be obtained by it or its subsidiaries prior to
consummation of the Merger.
(g) Reports and Financial Statements. (1) With respect to periods
since January 1, 1997, each of it and its subsidiaries has filed all
reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (A) the Securities
and Exchange Commission (the "SEC"), (B) the Office of Thrift Supervision
(the "OTS"), (C) the Federal Deposit Insurance Corporation (the "FDIC"),
(D) the Federal Home Loan Bank System (the "FHLB"), (E) in the case of
representations and warranties of Hudson, the Federal Reserve (as defined
in Section 5.3(k)(3)) and the New Jersey Department of Banking and
Insurance, (F) any other applicable federal or state banking, insurance,
securities, or other regulatory authorities or (G) the NYSE or the NASD,
and, as of their respective dates (and, in the case of reports or
statements filed prior to the date hereof, without giving effect to any
amendments or modifications filed after the date of this Agreement), each
such report or statement, including the financial statements and exhibits
thereto, complied (or will comply, in the case of reports or statements
filed after the date of this Agreement) as to form in all material respects
with all applicable statutes, rules and regulations.
(2) It has delivered to the other of Dime or Hudson each registration
statement, offering circular, report, definitive proxy statement or
information statement under the Securities Act, the Exchange Act and state
securities laws (collectively, the "Securities Laws") filed, used or
circulated by it with respect to periods since January 1, 1997 through the
date of this Agreement and will promptly deliver each such registration
statement, offering circular, report, definitive proxy statement or
information statement filed, used or circulated after the date hereof
(collectively, its "Reports"), each in the form (including exhibits and any
amendments thereto) filed with the SEC (or if not so filed, in the form
used or circulated).
(3) As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Agreement), each
of the Reports, including the financial statements, exhibits and schedules
thereto, filed, used or circulated prior to the date hereof complied (and
each of the Reports filed after the date of this Agreement, will comply) in
all material respects with the applicable Securities Laws and did not (or
in the case of reports, statements, or circulars filed after the date of
this Agreement, 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 made therein, in the light of the circumstances
under which they were made, not misleading.
(4) Each of its consolidated balance sheets included in or
incorporated by reference into its Reports, including the related notes and
schedules, fairly presents the consolidated financial position of it and
its subsidiaries as of the date of such balance sheet and each of the
consolidated statements of income, cash flows and stockholders' equity
included in or incorporated by reference into its Reports, including any
related notes and schedules, fairly presents the consolidated results of
operations, retained earnings and cash flows, as the case may be, of it and
its subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each case
in accordance with generally accepted accounting principles consistently
applied during the periods involved, except as may be noted therein.
Collectively, its foregoing consolidated balance sheets, statements of
income, cash flows and stockholders' equity are referred to as its
"Financial Statements".
(5) It knows of no reason why the allowance or loan and lease losses
shown in its consolidated balance sheet dated June 30, 1999 included in its
Financial Statements was not adequate as of such
date to provide for estimable and probable losses, net of recoveries
relating to loans previously charged off, inherent in its loan portfolio.
(h) Asset Classification. It has Previously Disclosed a list,
accurate and complete in all material respects, of the aggregate amounts of
loans, extensions of credit and other assets of it and its subsidiaries
that have been criticized or classified as of June 30, 1999 by it,
separated by category of classification or criticism (the "Asset
Classification"); and no amounts of loans, extensions of credit or other
assets that have been classified or criticized as of the date hereof by any
representative of any Governmental Entity as "Other Loans Especially
Mentioned", "Substandard", "Doubtful", "Loss" or words of similar import
are excluded from the amounts disclosed in the Asset Classification, other
than amounts of loans, extensions of credit or other assets that were
charged off by it or its subsidiaries prior to the date hereof.
(i) Absence of Certain Events and Changes. Except as disclosed in its
Reports filed by it with the SEC since December 31, 1998, and, except as
expressly contemplated by this Agreement, it and its subsidiaries have
conducted their respective businesses only in the ordinary and usual course
of such businesses and since that date, without giving effect to the
proviso of Section 5.1(a) or to Section 5.2, there has not been any change
or development or combination of changes or developments which,
individually or in the aggregate, is reasonably likely to result in a
Material Adverse Effect.
(j) Properties. Except as disclosed or reserved against in its
Reports or Financial Statements, it and its subsidiaries have good and
marketable title, free and clear of all Liens (other than Liens for current
taxes not yet delinquent or pledges to secure deposits) to all of the
material properties and assets, tangible or intangible, reflected in its
Reports as being owned by it or its subsidiaries as of the dates thereof.
All leased buildings and all leased fixtures, equipment and other property
and assets that are material to its business on a consolidated basis are
held under valid leases or subleases by it or its subsidiaries enforceable
in accordance with their respective terms (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally or by general equity principles).
(k) Compliance with Laws. It and each of its subsidiaries:
(1) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting such
businesses;
(2) has all permits, licenses, certificates of authority, orders,
and approvals of, and has made all filings, applications, and
registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit it or such
subsidiary to carry on its business as it is presently conducted;
(3) has received since January 1, 1997 no notification or
communication from any Governmental Entity (including the OTS, the FDIC,
the Board of Governors of the Federal Reserve System (the "Federal
Reserve") and any other bank, insurance or securities regulatory
authorities) or the staff thereof (A) asserting that it or any of its
subsidiaries is not in compliance with any of the statutes, regulations
or ordinances that such Governmental Entity enforces; (B) threatening to
revoke any license, franchise, permit or governmental authorization; or
(C) threatening or contemplating revocation or limitation of, or which
would have the effect of revoking or limiting, FDIC deposit insurance
(nor, to its knowledge, do any grounds for any of the foregoing exist);
and
(4) is not required to give prior notice to any federal banking or
thrift agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive.
(l) Litigation. Except as disclosed in its Reports filed with the SEC
prior to the date hereof, there are no criminal or administrative
investigations or hearings of, before or by any Governmental Entity, or
civil, criminal or administrative actions, suits, claims or proceedings of,
before or by any person (including any Governmental Entity) pending or, to
its knowledge, threatened, against it or any of its subsidiaries; and
neither it nor any of its subsidiaries (nor any officer, director,
controlling person or property of it or any of its subsidiaries) is a party
to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, any Governmental Entity charged with the supervision
or regulation of depository institutions or engaged in the insurance of
deposits (including, without limitation, the OTS, the Federal Reserve, the
FHLB and the FDIC) or the supervision or regulation of it or any of its
subsidiaries and neither it nor any of its subsidiaries has been advised by
any such Governmental Entity that such Governmental Entity is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter or similar submission.
(m) Taxes. (1) The term "Tax" or "Taxes" includes any tax or similar
governmental charge, impost or levy (including, without limitation, income
taxes, franchise taxes, transfer taxes or fees, stamp taxes, sales taxes,
use taxes, excise taxes, ad valorem taxes, withholding taxes, employee
withholding taxes, worker's compensation, payroll taxes, unemployment
insurance, social security, minimum taxes or windfall profits taxes),
together with any related liabilities, penalties, fines, additions to tax
or interest, imposed by the United States or any state, county, provincial,
local or foreign government or subdivision or agency thereof.
(2) All federal, state and local Tax returns, including all
information returns, required to be filed by or on behalf of it or any of
its subsidiaries have been timely filed or requests for extensions have
been timely filed and any such extension shall have been granted and not
have expired, and all such filed returns are complete and accurate in all
material respects. Except as disclosed in its Reports, all Taxes
attributable to it or any of its subsidiaries that are or were due or
payable (without regard to whether such Taxes have been assessed) have been
paid in full or have been adequately provided for on its consolidated
balance sheet and consolidated statement of earnings or income (in
accordance with generally accepted accounting principles). Adequate
provision in accordance with generally accepted accounting principles
appropriately and consistently applied has been made in the Reports
relating to all Taxes for the periods covered thereby that were not yet due
and payable as of the dates thereof, regardless of whether the liability
for such Taxes is disputed. As of the date of this Agreement and except as
disclosed in its Reports, there is no outstanding audit examination,
deficiency, refund litigation or outstanding waivers or agreements
extending the applicable statute of limitations for the assessment or
collection of any Taxes for any period with respect to any Taxes of it or
its subsidiaries. All Taxes, interest, additions and penalties due with
respect to completed and settled examinations or concluded litigation
relating to it or any of its subsidiaries have been paid in full or have
been recorded on its or such subsidiary's balance sheet and consolidated
statement of earnings or income (in accordance with generally accepted
accounting principles). Neither it nor any of its subsidiaries is a party
to a tax sharing or similar agreement or any agreement pursuant to which it
or any of its subsidiaries has indemnified any party (other than it or one
of its subsidiaries) with respect to Taxes. The proper and accurate amounts
have been or will be withheld from all employees (and timely paid to the
appropriate Governmental Entity or set aside in an account for such
purposes) for all periods through the Closing Date in compliance with all
Tax withholding provisions of applicable federal, state, local and foreign
laws (including, without limitation, income, social security and employment
tax withholding for all types of compensation).
(n) Insurance. Each of it and its subsidiaries has taken all
requisite action (including without limitation the making of claims and the
giving of notices) pursuant to its directors' and officers' liability
insurance policy or policies in order to preserve all rights thereunder
with respect to all matters (other than matters arising in connection with
this Agreement and the transactions
contemplated hereby) that are known to it. It has Previously Disclosed a
list of all directors' and officers' liability insurance policies
maintained by it or its subsidiaries.
(o) Labor Matters. Neither it nor any of its subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
it or any of its subsidiaries the subject of any material proceeding
asserting that it or any such subsidiary has committed an unfair labor
practice or seeking to compel it or such subsidiary to bargain with any
labor organization as to wages or conditions of employment, nor is there
any strike involving it or any of its subsidiaries pending or, to its
knowledge, threatened, nor is it aware of any activity involving its or any
of its subsidiaries' employees seeking to certify a collective bargaining
unit or engaging in any other organizational activity.
(p) Employee Benefits. (1) As of the date of this Agreement, it has
Previously Disclosed a list of all bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock and stock option plans, all
material employment or severance contracts, consulting agreements and all
other material employee benefit plans that cover employees, former
employees, directors or independent contractors (and their spouses,
dependents or beneficiaries) of it and its subsidiaries (its "Compensation
Plans"). True and complete copies of the Compensation Plans (and, as
applicable, copies of summary plan descriptions, governmental filings (on
Form 5500 series or otherwise), actuarial reports and reports under
Financial Accounting Standards Board Statement No. 106 relating thereto)
and all other benefit plans, contracts or arrangements (regardless of
whether they are funded or unfunded or foreign or domestic) covering
current or former employees, directors or independent contractors (and
their spouses, dependents or beneficiaries) of it or its subsidiaries (its
"Employees"), including, but not limited to, "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all amendments thereto,
have been made available to the other party.
(2) Except as disclosed in its Reports or as provided in this
Agreement, the transactions contemplated by this Agreement and the Stock
Option Agreements will not result in the vesting or acceleration of any
amounts under any Compensation Plan, any material increase in benefits
under any Compensation Plan or payment of any severance or similar
compensation under any Compensation Plan.
(3) All of its and its subsidiaries' employee benefit plans, within
the meaning of Section 3(3) of ERISA, other than "multiemployer plans"
within the meaning of Section 3(37) or 4001(a)(3) of ERISA, covering
Employees (collectively, its "Plans") are in compliance with the applicable
provisions of ERISA and the Internal Revenue Code, and other applicable
laws in all material respects. Each of its Plans which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension
Plan") and which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter from
the Internal Revenue Service, and it is not aware of any circumstances
likely to result in revocation of any such favorable determination letter.
There is no pending or, to its knowledge, threatened litigation relating to
its Plans. Neither it nor any of its subsidiaries has engaged in a
transaction with respect to any Plan that could subject it or any of its
subsidiaries to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA.
(4) No liability under Subtitle C or D of Title IV of ERISA (other
than payment of applicable premiums) has been or is expected to be incurred
by it or any of its subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any of them, or
the single-employer plan of any entity which is considered one employer
with it under Section 4001 of ERISA or Section 414 of the Internal Revenue
Code (an "ERISA Affiliate"). It and its subsidiaries and ERISA Affiliates
have not incurred and do not expect to incur any material withdrawal
liability with respect to a multiemployer plan under Subtitle E of Title IV
of ERISA (regardless of whether based on contributions of an
ERISA Affiliate), nor has it or any of its subsidiaries or ERISA Affiliates
been notified by any multiemployer plan to which it or any of its
subsidiaries or ERISA Affiliates is contributing, or may be obligated to
contribute, that such multiemployer plan is currently in reorganization or
insolvency under and within the meaning of Section 4241 or 4245 of ERISA or
that such multiemployer plan intends to terminate or has been terminated
under Section 4041A of ERISA. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA, for which the 30-day reporting
requirement has not been waived, has been required to be filed for any of
its Pension Plans or by any of its ERISA Affiliates within the 12-month
period ending on the date hereof. Neither it, its subsidiaries nor any of
their respective ERISA Affiliates has incurred or is aware of any facts
that are reasonably likely to result in any liability pursuant to Section
4069 or 4204 of ERISA.
(5) All material contributions required to be made by it and its
subsidiaries under the terms of any of its Plans have been timely made or
have been reflected on its Financial Statements. Neither any of its Pension
Plans nor any single-employer plan of any of its ERISA Affiliates has an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA. None
of it, its subsidiaries or its ERISA Affiliates has provided, or is
required to provide, security to any Pension Plan or to any single-employer
plan of an ERISA Affiliate pursuant to Section 401(a)(29) or 412(f)(3) of
the Internal Revenue Code or Section 306, 307 or 4204 of ERISA.
(6) Under each of its and its ERISA Affiliates' Pension Plans which is
a single-employer plan, as of the last day of the most recent plan year
ended prior to the date of this Agreement, the actuarially determined
present value of all "benefit liabilities", within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the Pension Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such
Pension Plan, and to its knowledge, there has been no change in the
financial condition of such Pension Plan since the last day of the most
recent plan year which reasonably could be expected to change such
conclusion. There would be no withdrawal liability of it and its
subsidiaries under each benefit plan which is a multiemployer plan to which
it, its subsidiaries or its ERISA Affiliates has contributed during the
preceding 12 months, if such withdrawal liability were determined as if a
"complete withdrawal", within the meaning of Section 4203 of ERISA, had
occurred as of the date hereof.
(7) Except as disclosed in its Reports, neither it nor its
subsidiaries have any obligations for retiree health and life benefits.
(8) There are no restrictions on the rights of it or its subsidiaries
to amend or terminate any Plan without incurring any liability thereunder
in addition to normal liabilities for benefits.
(q) Environmental Matters. (1) For purposes of this Section 5.3(q),
the following terms shall have the indicated meaning:
"Business" means the business conducted by it and its subsidiaries.
"Environmental Law" means any federal, state, local or foreign law,
regulation, agency policy, order, decree, judgment or judicial opinion
or any agreement with any Government Entity, presently in effect or
hereinafter adopted relating to (A) the manufacture, generation,
transport, use, treatment, storage, recycling, disposal, release,
threatened release or presence of Hazardous Substances or (B) the
preservation, restoration or protection of the environment, natural
resources or human health.
"Hazardous Substances" means substances which are: (A) listed,
classified or regulated pursuant to any Environmental Law; (B) any
petroleum products or by-products, asbestos containing material,
polychlorinated biphenyls ("PCBs"), radioactive materials or radon gas;
or (C) any other matter to which exposure is prohibited, limited or
regulated by any government authority or Environmental Law.
"Subject Property" means (A) all real property at which the
businesses of it or any of its subsidiaries have been conducted, all
property in which it or any of its subsidiaries holds a security or
other interest (including, without limitation, a fiduciary interest),
and, where required by the context, includes any such property where
under any Environmental Law it or any of its subsidiaries constitutes
the owner or operator of such property, but only with respect to such
property, (B) any facility in which it or any of its subsidiaries
participates in the management, including, where required by the
context, participating in the management of the owner or operator of
such property, and (C) all other real property which for purposes of any
Environmental Law it or any of its subsidiaries otherwise could be
deemed to be an owner or operator or otherwise control.
(2) To its knowledge, it and each of its subsidiaries and the Subject
Property are, and have been, in compliance with all Environmental Laws and
there are no circumstances that with the passage of time or the giving of
notice would be reasonably likely to result in noncompliance.
(3) To its knowledge, there are no pending or threatened claims,
actions, investigations, notices of non-compliance, information requests or
notices of potential responsibility or proceedings involving it or any of
its subsidiaries or any Subject Property relating to:
(A) an asserted liability of it or any of its subsidiaries or any
prior owner, occupier or user of Subject Property under any
Environmental Law or the terms and conditions of any permit, license,
authority, settlement, agreement, decree or other obligation arising
under any Environmental Law;
(B) the handling, storage, use, transportation, removal or disposal
of Hazardous Substances;
(C) the actual or threatened discharge, release or emission of
Hazardous Substances from, on or under or within Subject Property into
the air, water, surface water, ground water, land surface or subsurface
strata; or
(D) personal injuries or damage to property related to or arising
out of exposure to Hazardous Substances;
and, to its knowledge, there is no reasonable basis for any of the
foregoing.
(4) To its knowledge, there are no storage tanks underground or
otherwise present on the Subject Property or, if present, all such tanks
are not leaking and are in full compliance with any Environmental Law. To
its knowledge, with respect to any Subject Property, it and its
subsidiaries do not own, possess or control any PCBs, PCB-contaminated
fluids, wastes or equipment, and it and its subsidiaries do not own,
possess or control any asbestos or asbestos-containing material. To its
knowledge, no Hazardous Substances have been used, handled, stored,
discharged, released or emitted, or are threatened to be discharged,
released or emitted, at or on any Subject Property, except for those types
and quantities of Hazardous Substances typically used in an office
environment and which have not created conditions requiring remediation
under any Environmental Law.
(5) To its knowledge and except for investigation or monitoring by the
Environmental Protection Agency or similar state agencies in the ordinary
course, no part of the Subject Property has been or is scheduled for
investigation or monitoring pursuant to any Environmental Law.
(r) Risk Management Instruments. All swaps, caps, floors, option
agreements, futures and forward contracts and other similar risk management
arrangements, whether entered into for its own account, or for the account
of one or more of its subsidiaries or their customers, were entered into
(1) in accordance with prudent business practices and all applicable laws,
rules, regulations and regulatory policies and (2) with counterparties
believed to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of it or one of its
subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles), and are in full
force and effect. Neither it nor its subsidiaries, nor to its knowledge any
other party thereto, is in breach of any of its obligations under any such
agreement or arrangement.
(s) Material Agreements. (1) As of the date of this Agreement,
without giving effect to the proviso of Section 5.1(a) and to Section 5.2,
except for (A) the Stock Option Agreements, and (B) arrangements made after
the date and in accordance with the terms of this Agreement, it and its
subsidiaries are not bound by any material contract (as defined in Item
601(b)(10) of Regulation S-K under the Securities Act, but without giving
effect to the ordinary course of business exception provided for therein)
to be performed after the date hereof that has not been filed with or
incorporated by reference in its Reports.
(2) None of it nor any of its subsidiaries is in default under any
contract, agreement, commitment, arrangement, indenture, lease, insurance
policy or other instrument.
(t) Knowledge as to Conditions. (1) As of the date of this Agreement,
it knows of no reason why any regulatory approvals and, to the extent
necessary, any other approvals, authorizations, filings, registrations, and
notices should not be obtained without the imposition of any condition or
restriction described in the proviso to Section 7.1(b), or why the
accountants' letters referred to in Section 7.1(g) or the opinions of tax
counsel referred to in Sections 7.2(d) and 7.3(c) cannot be obtained.
(2) In the case of the representations and warranties made by Hudson,
as of the date hereof, Hudson knows of no reason why either of the
transactions (the "Pending Transactions") contemplated by (A) the Agreement
and Plan of Merger, dated June 28, 1999 by and among Hudson, Hudson United
Bank, a New Jersey bank and wholly owned subsidiary of Hudson, JeffBanks,
Inc., a Pennsylvania corporation, Jefferson Bank, a Pennsylvania bank and
wholly owned subsidiary of JeffBanks, and Jefferson Bank of New Jersey, a
New Jersey bank and wholly owned subsidiary of JeffBanks, and (B) the
Agreement and Plan of Merger, dated June 28, 1999, by and among Hudson,
Hudson United Bank and Southern Jersey Bancorp of Delaware, Inc., a
Delaware corporation, and Farmers and Merchants National Bank, a national
banking association, should not be consummated. In case either or both of
the Pending Transactions shall fail to be consummated, such mere failure,
in and of itself, shall not constitute a breach of any provision of this
Agreement or give Dime any right of termination hereunder.
(u) Year 2000 Compliance. (1) All computer software and hardware used
in its businesses is Year 2000 Compliant (as defined below) or is
scheduled, according to an internal plan and budget, to be Year 2000
Compliant prior to December 31, 1999.
(2) It has disclosed to the other party its plans for evaluating
whether the business conducted by it or its subsidiaries is Year 2000
Compliant. Neither it or its subsidiaries has received any written notice
or, to its knowledge, oral notice from any Governmental Entity which
indicates that such Governmental Entity considers or would consider the
businesses conducted by it or its subsidiaries not to be Year 2000
Compliant.
(3) "Year 2000 Compliant" means, with respect to any computer software
or hardware and other processing capabilities of a party, that such
software or hardware and processing capabilities are able, in all material
respects, accurately to process date and time data (including calculating,
comparing, and sequencing) from, into and between the years 1999 and 2000
and leap year calculations, and will not generate erroneous data or cause a
system to fail because of a date of the year 1999 or greater or spanning
the years 1999 and 2000.
(v) Brokers and Finders. None of it, its subsidiaries or any of their
officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees
in connection with the transactions contemplated herein, except that Hudson
has retained Goldman, Sachs & Co. as its financial advisor and Dime has
retained Credit Suisse First Boston as its financial advisor, the
arrangements with which have been disclosed in writing to the other party
prior to the date hereof.
ARTICLE VI
COVENANTS
6.1 Conduct of Business Pending the Effective Time. Each of Dime and
Hudson agrees as to itself and its subsidiaries that, from and after the date
hereof until the Effective Time, except insofar as the other party shall
otherwise consent in writing (such consent not to be unreasonably withheld or
delayed) or except as otherwise expressly contemplated by this Agreement or the
Stock Option Agreements or as Previously Disclosed:
(a) The business of it and its subsidiaries will be conducted only in
the ordinary and usual course and, to the extent consistent therewith, it
and its subsidiaries will use all reasonable efforts to preserve intact
their business organizations and assets and maintain their rights,
franchises and existing relations with customers, suppliers, employees and
business associates and to take no action that would (1) adversely affect
the ability of any of them to obtain any necessary approvals of
Governmental Entities required for the transactions contemplated hereby
without imposition of a condition or restriction of the type referred to in
the proviso to Section 7.1(b), (2) adversely affect its ability to perform
its obligations under this Agreement or the Stock Option Agreements or (3)
be reasonably likely to result in a Material Adverse Effect.
(b) It will not (1) sell or pledge or agree to sell or pledge or
permit any Lien to exist on any stock owned by it of any of its material
subsidiaries; (2) amend its certificate of incorporation or by-laws; (3)
split, combine or reclassify any outstanding capital stock; (4) other than
as permitted by Section 6.2, declare, set aside or pay any dividend payable
in cash, stock or other property with respect to any of its capital stock;
or (5) repurchase, redeem or otherwise acquire, or permit any subsidiary to
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock or any securities convertible into or exercisable for any
shares of its capital stock (other than such capital stock repurchased
pursuant to the Dime Stock Plans and the Hudson Stock Plans, as the case
may be).
(c) Notwithstanding anything to the contrary contained in Section 6.3,
neither it nor any of its subsidiaries will (1) issue, sell, pledge,
dispose of or encumber, or authorize or propose the issuance, sale, pledge,
disposition or encumbrance of, any shares of, or securities convertible or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of its capital stock of any class, with the
exception of Dime Common Stock or Hudson Common Stock issuable as of the
date hereof pursuant to the Dime Stock Plans or Hudson Stock Plans,
respectively, consistent with past practice, and the Stock Option
Agreements; (2) transfer, lease, license, guarantee, sell, mortgage, pledge
or dispose of any other material property or assets or encumber any
property or assets other than to a direct or indirect wholly owned
subsidiary of it; (3) cancel, release, assign or modify any material amount
of indebtedness of any other individual, corporation or other entity
(collectively, a "Person") other than in the ordinary and usual course of
business; or (4) authorize capital expenditures other than in the ordinary
and usual course of business.
(d) Except as expressly contemplated in this Agreement and except for
internal reorganizations involving existing subsidiaries, neither it nor
any of its subsidiaries will make any material acquisition of, or
investment in, assets or stock of any other Person not in the ordinary and
usual course of business.
(e) Other than in the ordinary course of business consistent with past
practice, it will not incur or permit any of its subsidiaries to incur any
indebtedness for borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible for the obligations of any other
Person or make any loan or advance.
(f) Except as required by agreements or arrangements Previously
Disclosed or as provided in Section 6.1(k) or as contemplated by Article
III, neither it nor any of its subsidiaries will (1) grant any increase in
compensation or benefits to its Employees or to its officers, except for
normal increases consistent with past practice or as required by law; (2)
pay any bonus except as consistent
with past practice; (3) grant any severance or termination pay to any
director, officer or other of its Employees except as consistent with past
practice; (4) enter into or amend any employment or severance agreement
with any director, officer or other of its Employees (provided that this
clause (4) shall not prohibit either party from approving a renewal or
other extension of an existing employment or severance agreement in
accordance with its terms and in the ordinary course of business); (5)
grant any increase in fees or other increases in compensation or other
benefits to any of its present or former directors; or (6) effect any
change in retirement benefits for any class of its Employees or officers
(unless such change is required by applicable law or, in the written
opinion of counsel, is necessary or advisable to maintain the tax
qualification of any plan under which the retirement benefits are
provided); provided, however, that nothing in this Section 6.1 shall
prevent Dime from renegotiating, amending or modifying the current
Employment Agreement with Mr. Toal provided that (i) any additional
benefits provided to Mr. Toal thereunder are commensurate with those to be
provided to Mr. Neilson subsequent to the Effective Time under the
Employment Agreement with Mr. Neilson and that such amendment or
modification shall not extend Mr. Toal's employment beyond that permitted
by the provisions of Article III of this Agreement and (ii) such amendment
or modification is approved by the Compensation Committee or other similar
committee of the Board of Directors of Dime.
(g) Except as provided in Section 6.1(k) and as may be required to
satisfy contractual obligations existing as of the date hereof and the
requirements of applicable law, neither it nor any of its subsidiaries will
establish, adopt, enter into or make any new, or amend any existing,
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, employee stock ownership,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees.
(h) Neither it nor any of its subsidiaries will implement or adopt any
change in its accounting principles, practices or methods, other than as
may be required by generally accepted accounting principles.
(i) Neither it nor any of its subsidiaries shall make any tax
election, other than in the ordinary course of business.
(j) Neither it nor any of its subsidiaries will authorize or enter
into an agreement to take any of the actions referred to in paragraphs (a)
through (i) above.
(k) Notwithstanding the provisions of Sections 6.1(f) and (g) herein,
each party hereto shall be permitted to take, or authorize or agree to
take, any of the actions contemplated in such Sections without the consent
of the other party, if such action (1) is reasonably necessary to qualify
for, or preserve, an exemption of certain transactions from the operation
of Section 16(b) of the Exchange Act in accordance with the provisions of
SEC Rule 16b-3, as amended, or (2) is Previously Disclosed.
6.2 Dividends. Unless Dime and Hudson otherwise agree in writing, neither
Dime nor Hudson will declare or pay any dividend or distribution on shares of
their capital stock, whether payable in cash, stock or other property, other
than (a) dividends from subsidiaries of Dime or Hudson to Dime or Hudson or to
another subsidiary of Dime or Hudson, as applicable, consistent with past
practice or (b) regular quarterly dividends or distributions, provided that (1)
such dividends or distributions, and their corresponding record dates and
payment dates, are coordinated between the parties and are in the ordinary
course consistent with past practice and (2) such dividends or distributions are
not in amounts exceeding $0.25 per quarter in the case of Hudson and $0.06 per
quarter in the case of Dime, subject to and consistent with each party's normal
practice for scheduled increases in the rate of dividends paid on its common
stock.
6.3 Acquisition Proposals. Each of Dime and Hudson agrees that neither it
nor any of its subsidiaries nor any of its respective officers and directors or
the officers and directors of its subsidiaries shall, and it shall direct and
use all reasonable efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or any substantial part of
the assets or any equity securities of, it or any of its subsidiaries (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any such person relating to an
Acquisition Proposal. Hudson will notify Dime, and Dime will notify Hudson,
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it.
6.4 Stockholder Approvals; Election of Directors. Each of Dime and Hudson
agrees to take, in accordance with applicable law and its respective certificate
of incorporation and by-laws, all action necessary to convene a meeting of
holders of Dime Common Stock (the "Dime Meeting") and Hudson Common Stock (the
"Hudson Meeting"), respectively, as promptly as practicable after the
Registration Statement (as defined in Section 6.5) is declared effective to
consider and vote upon the adoption of the agreement of merger (within the
meaning of Section 252 of the DGCL) or plan of merger (within the meaning of
Section 14A: 10-3 of the NJBCA) contained in this Agreement. The Board of
Directors of each of Dime and Hudson will recommend such adoption, and each of
Dime and Hudson will take all reasonable action to solicit such adoption by its
respective stockholders, and the Governance and Nominating Committee of the
Board of Directors of Dime will nominate the Former Hudson Directors (as
designated pursuant to Section 3.2(a)) for, and prior to the Effective Time
Dime's Board of Directors will adopt such resolutions necessary for, the
election of such persons as directors of the Surviving Corporation, with such
election to take effect at the Effective Time.
6.5 Filings; Other Actions. (a) Each of Dime and Hudson agrees to
cooperate in the preparation of a registration statement on Form S-4 to be filed
by Dime with the SEC in connection with the issuance of Surviving Corporation
Common Stock in the Merger (including the joint proxy statement and prospectus
and other proxy solicitation materials of Dime and Hudson constituting a part
thereof (the "Joint Proxy Statement"), the "Registration Statement"). Dime
agrees to use all reasonable efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as practicable after
filing thereof. Dime also agrees to use all reasonable efforts to obtain all
necessary state securities law permits and approvals required to carry out the
transactions contemplated by this Agreement, and Hudson agrees to furnish all
information concerning Hudson and the holders of Hudson Common Stock as may be
reasonably requested in connection with any such action.
(b) Each of Dime and Hudson agrees to cooperate and consult with the other
and, on the terms and subject to the conditions set forth in this Agreement, use
reasonable efforts to prepare and file all necessary documentation, to effect
all necessary applications, notices, petitions, filings and other documents, and
to obtain all necessary permits, consents, orders, approvals and authorizations
of, or any exemption by, all third parties and Governmental Entities necessary
or advisable to consummate the transactions contemplated by this Agreement. Each
of Dime and Hudson shall have the right to review in advance, and to the extent
practicable each will consult with the other, in each case subject to applicable
laws relating to the exchange of information, with respect to all the
information relating to the other party, and any of their respective
subsidiaries, which appear in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees to keep the other party apprised of the
status of matters relating to completion of the transactions contemplated
hereby.
(c) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Registration Statement or Joint Proxy Statement or any
other statement, filing, notice or application made by or on behalf of such
other party or any of its subsidiaries
to any Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement.
(d) Each of Dime and Hudson agrees to consult and cooperate with the other
in effecting actions and measures for the purpose of ensuring the orderly
consummation of the transactions contemplated hereby and the efficient conduct
of the combined businesses of Dime and Hudson following the Merger. Without
limiting the foregoing, each of Dime and Hudson agrees, to the extent consistent
with applicable law, to consult and cooperate with the other in (1) developing a
joint business plan for periods beginning at the Effective Time and (2) taking
reasonable steps in an effort to enable the Surviving Corporation to achieve the
objectives stated in such joint business plan.
6.6 Information Supplied. Each of Hudson and Dime agrees, as to itself
and its subsidiaries, that none of the information supplied or to be supplied by
it for inclusion or incorporation by reference in (a) the Registration Statement
will, at the time the Registration Statement and each amendment and supplement
thereto, if any, become effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(b) the Joint Proxy Statement and any amendment or supplement thereto will, at
the date of mailing to stockholders and at the times of the Dime Meeting and the
Hudson Meeting to be held in connection with this Agreement, contain any
statement which, in the light of the circumstances under which such statement is
made, will be false or misleading with respect to any material fact, or which
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any amendment or supplement
thereto. Neither the Joint Proxy Statement nor the Registration Statement shall
be filed, and, prior to the termination of this Agreement, no amendment or
supplement to the Joint Proxy Statement or the Registration Statement shall be
filed, by Dime or Hudson without consultation with the other party and its
counsel.
6.7 Accountants' Letters. Dime agrees to use all reasonable efforts to
cause to be delivered to Hudson a letter of KPMG LLP, independent auditors to
Dime, and Hudson agrees to use all reasonable efforts to cause to be delivered
to Dime a letter of Arthur Andersen, independent auditors to Hudson, each dated
(1) the date on which the Registration Statement shall become effective and (2)
a date shortly prior to or on the Closing Date, and addressed to such other
party in form and substance customary for "comfort" letters delivered by
independent accountants in connection with registration statements similar to
the Registration Statement.
6.8 Access. Upon reasonable notice, each party agrees to (and shall cause
each of its subsidiaries to) afford the other party's officers, employees,
counsel, accountants and other authorized representatives ("Representatives")
access, during normal business hours throughout the period until the Closing
Date, to its properties, books, contracts and records and, during such period,
shall (and shall cause each of its subsidiaries to) furnish promptly to the
other party all information concerning its business, properties and personnel as
may reasonably be requested; provided that no investigation pursuant to this
Section 6.8 shall affect or be deemed to modify any representation or warranty
made by the party furnishing such information. Each party will not, and will
cause its respective Representatives not to, use any information obtained
pursuant to this Section 6.8 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement. Subject to the requirements of
applicable law, pending consummation of the transactions herein contemplated,
each party conducting an investigation hereunder will keep confidential, and
will cause its Representatives to keep confidential, all information and
documents obtained from the other party pursuant to this Section 6.8 or during
the investigation leading up to the execution of this Agreement. The agreements
between Dime and Hudson regarding the confidentiality of such information in
effect at the date hereof (the "Confidentiality Agreements") shall continue and
survive in full force and effect until the Effective Time or, in the event this
Agreement is terminated, shall continue in accordance with the terms thereof.
Upon any termination of this Agreement, each party will collect and deliver to
the other party all nonpublic documents obtained by it or any of its
Representatives and then in their possession and any copies thereof and destroy
or cause to be destroyed all notes, memoranda or other documents in the
possession of it or of its Representatives containing or reflecting any
nonpublic information obtained from the other party, except to the extent that
any such information may be embodied in minutes of the meetings of such party's
Board of Directors or in filings, reports or submissions to or with any
Governmental Entity.
6.9 Notification of Certain Matters. Each of Dime and Hudson will give
prompt notice to the other of any fact, event or circumstance known to it that
(a) is reasonably likely to result in any Material Adverse Effect, (b) would
cause or constitute a material breach of any of the representations, warranties,
covenants or agreements of such party contained herein or (c) is reasonably
likely to result in the failure of a condition to consummation set forth in
Article VII to be satisfied on or prior to June 30, 2000.
6.10 Publicity. The initial press release relating hereto will be a joint
press release and thereafter Hudson and Dime shall consult with each other prior
to issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and prior to making any filings with any
Governmental Entity or with the NYSE or the NASD with respect thereto.
6.11 Benefit Plans. (a) At or as promptly as practicable following the
Effective Time, the Surviving Corporation and its subsidiaries will adopt
employee benefit plans (including, without limitation, severance plans) covering
persons who become and remain employees of the Surviving Corporation or its
subsidiaries and who were immediately prior to the Effective Time employees of
Dime or its subsidiaries (the "Former Dime Employees") or employees of Hudson or
its subsidiaries (the "Former Hudson Employees") or will amend existing plans to
provide coverage for Former Dime Employees and Former Hudson Employees. It is
the express understanding and intention of the parties that no Former Dime
Employee or Former Hudson Employee or other person shall be deemed to be a third
party beneficiary, or have or acquire any right to enforce the provisions, of
this Section 6.11(a), and that nothing in this Agreement shall be deemed to
constitute a Plan or an amendment to a Plan.
(b) Each of Dime and Hudson agrees, with respect to any Pension Plans
maintained by them or any of their subsidiaries with respect to which the
"remedial amendment period" described in Revenue Procedure 99-23, 1999-16 I.R.B.
5 (4/19/99), and any subsequent pronouncement by the Internal Revenue Service
extending or modifying the remedial amendment period as so described, ends prior
to the Closing Date and with respect to any amendments to such plans required to
be adopted before the end of such remedial amendment period, that to the extent
a determination letter with respect to the qualification of such Pension Plan or
Plans under the Internal Revenue Code reflecting such amendments has not been
obtained, an application for such a letter shall be filed with the Internal
Revenue Service on or before the last day of such remedial amendment period.
6.12 Expenses. Each of the parties shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial or
other consultants, investment bankers, accountants and counsel, except that Dime
and Hudson each shall bear and pay one-half of the following expenses: (a) the
costs (excluding the fees and disbursements of counsel, financial advisors and
accountants) incurred in connection with the preparation (including copying and
printing and distribution) of the Registration Statement, the Joint Proxy
Statement and applications to Governmental Entities for the approval of the
Merger and (b) all listing, filing or registration fees, including, without
limitation, fees paid for filing the Registration Statement with the SEC and
fees paid for filings with Governmental Entities.
6.13 Indemnification; Directors' and Officers' Insurance. (a) Each of
Dime and Hudson agrees that, from and after the Effective Time, the Surviving
Corporation will indemnify and hold harmless each present and former director
and officer of Dime, Hudson and their respective subsidiaries, determined as of
the Effective Time (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that
Dime, Hudson or such subsidiary would have been permitted under applicable law
of the jurisdiction of its incorporation and the certificate of incorporation or
by-laws of Dime, Hudson or such subsidiary in effect
on the date hereof to indemnify such person (and the Surviving Corporation shall
also advance expenses as incurred to the fullest extent permitted under
applicable law; provided that the person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
(b) To the extent that paragraph (a) shall not serve to indemnify and hold
harmless an Indemnified Party, for a period of six years after the Effective
Time, each of Dime and Hudson agrees that the Surviving Corporation shall,
subject to the terms set forth herein, indemnify and hold harmless, to the
fullest extent permitted under applicable law (and the Surviving Corporation
shall also advance expenses as incurred to the fullest extent permitted under
applicable law, provided that the person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification), each Indemnified Party against any
Costs incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to the transactions contemplated by this Agreement. In the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until final disposition of any and all such claims.
(c) For a period of six years from the Effective Time, the Surviving
Corporation shall provide that portion of directors' and officers' liability
insurance that serves to reimburse the present and former officers and directors
of Hudson or any of its subsidiaries (determined as of the Effective Time) with
respect to claims against such directors and officers arising from facts or
events which occurred before the Effective Time, which insurance shall contain
at least the same coverage and amounts, and contain terms and conditions no less
advantageous, as that coverage currently provided by Hudson.
(d) Any Indemnified Party wishing to claim indemnification under Section
6.13(a) or (b), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Surviving Corporation thereof, but the
failure to so notify shall not relieve the Surviving Corporation of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice the Surviving Corporation. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), the Surviving Corporation shall have the right to assume the
defense thereof and the Surviving Corporation shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that, if the Surviving Corporation elects not to
assume such defense or counsel for the Indemnified Parties advises that there
are issues which raise conflicts of interest between the Surviving Corporation
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and the Surviving Corporation shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received. If such indemnity is not available with
respect to any Indemnified Party, then the Surviving Corporation and the
Indemnified Party shall contribute to the amount payable in such proportion as
is appropriate to reflect relative faults and benefits.
6.14 Antitakeover Provisions. If any "business combination",
"moratorium", "control share" or other state antitakeover statute or regulation
(collectively, "Antitakeover Provisions") may become applicable to the
transactions contemplated hereby, each of Dime and Hudson and the members of
their respective Boards of Directors will grant such approvals and take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of any Antitakeover
Provision on any of the transactions contemplated by this Agreement.
6.15 Affiliate Agreements. (a) As soon as practicable after the date
hereof, Dime shall identify to Hudson and Hudson shall identify to Dime all
persons who are at the date hereof (or at another reasonably proximate date)
possible "affiliates" of Dime or Hudson, respectively, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act and/or Accounting
Series Releases 130 and 135, as amended, of the SEC ("Affiliates"). Each of Dime
and Hudson shall use their best efforts to obtain a written agreement in the
form of Annex 4(a) (for Affiliates of Hudson) or 4(b) (for Affiliates of
Dime) from each person who is so identified as a possible Affiliate and shall
deliver copies of such written agreements to the other party as soon as
practicable.
(b) As soon as practicable after the date of the Dime Meeting or Hudson
Meeting, as applicable, Dime shall identify to Hudson and Hudson shall identify
to Dime all persons who were, at the time of the Dime Meeting or the Hudson
Meeting, possible Affiliates of Dime and Hudson, respectively, and who were not
previously identified in accordance with Section 6.15(a). Each of Dime and
Hudson shall use their best efforts to obtain a written agreement in the form of
Annex 4(a) or 4(b), as the case may be, from each person who is so identified
and shall deliver copies of such written agreements to the other party as soon
as practicable.
6.16 Stock Exchange Listing. The parties agree to use all reasonable
efforts to cause to be listed on the NYSE, subject to official notice of
issuance, the shares of Surviving Corporation Common Stock to be issued in the
Merger.
6.17 Efforts to Consummate. On the terms and subject to the conditions of
this Agreement, each of Dime and Hudson agrees to use 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 to consummate and make effective, as soon
as practicable after the date of this Agreement, the transactions contemplated
hereby, 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 hereby.
6.18 Reports. Each of Dime and Hudson agrees to file, and to cause its
respective subsidiaries to file, all reports required to be filed with all
Governmental Entities pursuant to the Securities Laws or Federal or state
banking laws between the date of this Agreement and the Effective Time, and to
deliver to the other party copies of all such reports promptly after the same
are filed.
6.19 Accounting and Tax Treatment. Neither Dime nor Hudson will take,
cause or to the best of its ability permit to be taken any action that would
adversely affect the qualification of the Merger for pooling-of-interests
accounting treatment or the qualification of the Merger as a "reorganization"
within the meaning of Section 368 of the Internal Revenue Code; provided, that
nothing in this Section 6.19 shall preclude either party from exercising its
respective rights under the Stock Option Agreements.
6.20 Assumptions. The parties agree to take all reasonable action for the
Surviving Corporation to assume any guaranties or indentures to which Hudson is
currently a party, including, without limitation, guaranties and indentures
associated with the Hudson-guarantied mandatorily redeemable preferred capital
securities, Series B, of Hudson Capital Trust I and Hudson Capital Trust II
which hold solely junior subordinated debentures of Hudson.
6.21 Bank Combination and Governance. The parties agree to take all
reasonable actions necessary prior to the Effective Time to cause the federal
savings bank subsidiary of Dime and New Jersey state-chartered commercial bank
subsidiary of Hudson to be combined, in a manner to be determined, effective as
soon as possible after the Effective Time, as the Subsidiary Bank, so that (a)
the Subsidiary Bank is a New Jersey state-chartered commercial bank, (b) the
Board of Directors and senior executive officers of the Subsidiary Bank shall be
the same persons in the same positions as the Board of Directors and senior
executive officers of the Surviving Corporation and (c) the committees and
composition of committees of the Board of Directors of the Subsidiary Bank shall
be the same as the committees and composition of committees of the Board of
Directors of the Surviving Corporation.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Dime and Hudson to consummate the Merger is
subject to the fulfillment or written waiver by Dime and Hudson prior to the
Effective Time of each of the following conditions:
(a) Stockholder Approval. The agreement of merger contained in this
Agreement shall have been duly adopted by the holders of Dime Common Stock
and the holders of Hudson Common Stock in accordance with Sections 251 and
252 of the DGCL and Section 14A: 10-3 of the NJBCA, as the case may be, and
each such stockholder approval shall be in accordance with other applicable
law.
(b) Governmental and Regulatory Consents. All approvals and
authorizations of, filings and registrations with, and notifications to,
all Governmental Entities required for the consummation of the Merger and
for the prevention of any termination of any material right, privilege,
license or agreement of either Dime or Hudson or their respective
subsidiaries shall have been obtained or made and shall be in full force
and effect and all waiting periods required by law shall have expired;
provided, however, that none of the preceding shall be deemed obtained or
made if it shall be conditioned or restricted in a manner that would result
in a Material Adverse Effect on the Surviving Corporation.
(c) Third Party Consents. All consents or approvals of all persons
(other than Governmental Entities) required for or in connection with the
execution, delivery and performance of this Agreement and the consummation
of the Merger shall have been obtained and shall be in full force and
effect, unless the failure to obtain any such consent or approval is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Surviving Corporation.
(d) Litigation. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) that prohibits consummation of the
transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC. All permits and other authorizations under the Securities Laws and
other authorizations necessary to consummate the transactions contemplated
hereby and to issue the shares of Surviving Corporation Common Stock to be
issued in the Merger shall have been received and be in full force and
effect.
(f) Listing. The shares of Surviving Corporation Common Stock to be
issued in the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(g) Accountants' Pooling Letter. Each of Dime and Hudson shall have
received a letter, dated as of the Effective Time, from KPMG LLP and Arthur
Andersen, their respective independent auditors, to the effect that the
Merger will qualify for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16 and SEC Accounting Series
Releases 130 and 135, as amended, if consummated in accordance with this
Agreement.
(h) Employment Agreements. Unless Mr. Neilson or Mr. Toal is unable
or unwilling to serve in the capacity or capacities described therein, the
Employment Agreement for each of Mr. Neilson and Mr. Toal, respectively,
shall be in full force and effect.
7.2 Conditions to Obligation of Hudson. The obligation of Hudson to
consummate the Merger is also subject to the fulfillment or written waiver by
Hudson prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Dime set forth in this Agreement shall be true and correct as
though made on and as of the Closing Date (except that
representations and warranties that by their terms speak as of the date of
this Agreement or some other date shall be true and correct as of such
date), and Hudson shall have received a certificate, dated the Closing
Date, signed on behalf of Dime by the Chief Executive Officer and the Chief
Financial Officer of Dime to such effect.
(b) Performance of Obligations of Dime. Prior to the Effective Time,
the Board of Directors of Dime shall have adopted resolutions sufficient to
ensure that, at the Effective Time, (1) the composition of the Board of
Directors of the Surviving Corporation (including designation of directors
in particular classes of the Board of Directors of the Surviving
Corporation) shall be as designated under Section 3.2(a), including those
persons whom Hudson shall have designated in writing to Dime pursuant to
Section 3.2(a), (2) the establishment and composition of committees of the
Board of Directors of the Surviving Corporation shall be as set forth in
Annex 3, including those persons whom Hudson shall have designated in
writing to Dime pursuant to Section 3.2(c), and (3) the senior executive
officers of the Surviving Corporation shall be as set forth in Annex 5.
Dime shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date,
and Hudson shall have received a certificate, dated the Closing Date,
signed on behalf of Dime by the Chief Executive Officer and the Chief
Financial Officer of Dime to such effect.
(c) Opinion of Counsel. Hudson shall have received an opinion, dated
the Closing Date, of Sullivan & Cromwell, reasonably satisfactory to
Hudson, to the effect that the shares of Surviving Corporation Common Stock
to be issued in the Merger, when issued in accordance with the terms
hereof, will be duly authorized, validly issued, fully paid and
nonassessable.
(d) Opinion of Tax Counsel. Hudson shall have received an opinion
(based on customary assumptions and representations) of Pitney, Hardin,
Kipp & Szuch, counsel to Hudson, dated the Closing Date, to the effect that
(1) the Merger is a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code, (2) Dime and Hudson are parties to such
"reorganization" and (3) the exchange in the Merger of shares of Hudson
Common Stock for shares of Surviving Corporation Common Stock will not
result in the recognition of income, gain or loss to Dime, Hudson or the
stockholders of Hudson in each case for federal income tax purposes
(subject to customary exceptions and except to the extent of any cash paid
in lieu of fractional shares or any state and local transfer taxes paid on
behalf of a stockholder).
(e) Accountants' Letters. Hudson and its directors and officers who
sign the Registration Statement shall have received the letters referred to
in Section 6.7 from KPMG LLP, as Dime's independent auditors.
7.3 Conditions to Obligation of Dime. The obligation of Dime to
consummate the Merger is also subject to the fulfillment or written waiver by
Dime prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Hudson set forth in this Agreement shall be true and correct
as though made on and as of the Closing Date (except that representations
and warranties that by their terms speak as of the date of this Agreement
or some other date shall be true and correct as of such date) and Dime
shall have received a certificate, dated the Closing Date, signed on behalf
of Hudson by the Chief Executive Officer and the Chief Financial Officer of
Hudson to such effect.
(b) Performance of Obligations of Hudson. Prior to the Effective
Time, Hudson, in its capacity as sole shareholder of Hudson United Bank,
shall have adopted resolutions sufficient to ensure that, at the Effective
Time, the composition of the Board of Directors of the Subsidiary Bank
shall be the same as the composition of the Board of Directors of the
Surviving Corporation at the Effective Time, including those persons whom
Dime shall have designated in writing to Hudson pursuant to Section 3.2(a).
Prior to the Effective Time, the Board of Directors of Hudson United Bank
shall have adopted resolutions, effective at the Effective Time, sufficient
to (1) elect the senior executive officers
of the Subsidiary Bank, as such officers are set forth in Annex 5 and (2)
establish and compose the committees of the Board of Directors of the
Subsidiary Bank in the same manner as the committees of the Board of
Directors of the Surviving Corporation at the Effective Time, pursuant to
Section 6.21, including those persons whom Dime shall have designated in
writing to Hudson pursuant to Section 3.2(c). Hudson shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Dime shall have
received a certificate, dated the Closing Date, signed on behalf of Hudson
by the Chief Executive Officer and the Chief Financial Officer of Hudson to
such effect.
(c) Opinion of Tax Counsel. Dime shall have received an opinion
(based on customary assumptions and representations) of Sullivan &
Cromwell, counsel to Dime, dated the Closing Date, to the effect that (1)
the Merger is a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code and (2) Dime and Hudson are parties to such
"reorganization".
(d) Accountants' Letters. Dime and its directors and officers who
sign the Registration Statement shall have received the letters referred to
in Section 6.7 from Arthur Andersen, as Hudson's independent auditors.
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by the stockholders of Dime and Hudson, respectively, by the
mutual agreement of Dime and Hudson, approved by their respective Boards of
Directors.
8.2 Termination by Either Dime or Hudson. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Dime or Hudson if the Merger shall not have been consummated by June
30, 2000 or any approval or authorization of any Governmental Entity, the lack
of which would result in the failure to satisfy the closing condition set forth
in Section 7.1(b), shall have been denied by such Governmental Entity or such
Governmental Entity shall have requested the withdrawal of any application
therefor or indicated an intention to deny, or impose a condition of a type
referred to in the proviso to Section 7.1(b) with respect to, such approval or
authorization (provided, that the terminating party is not then in material
breach of its obligations under Section 6.4).
8.3 Termination by Hudson. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Hudson (a) before or after the adoption by stockholders of
Hudson referred to in Section 7.1(a), if Dime shall have breached any
representation, warranty, covenant or agreement contained herein that would
result in the failure to satisfy the closing condition set forth in Section
7.2(a) or 7.2(b) and such breach cannot be or has not been cured within 30 days
after the giving of a written notice to Dime of such breach or (b) before the
adoption and approval by stockholders of Hudson referred to in Section 7.1(a),
if the Board of Directors of Dime shall have failed to recommend to its
stockholders the adoption of the plan of merger contained in this Agreement.
8.4 Termination by Dime. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by action of the Board
of Directors of Dime (a) before or after the approval by the stockholders of
Dime referred to in Section 7.1(a), if Hudson shall have breached any
representation, warranty, covenant or agreement contained herein that would
result in the failure to satisfy the closing condition set forth in Section
7.3(a) or 7.3(b) and such breach cannot be or has not been cured within 30 days
after the giving of a written notice to Hudson of such breach or (b) before the
adoption by stockholders of Dime referred to in Section 7.1(a), if the Board of
Directors of Hudson shall have failed to recommend to its stockholders the
adoption of the agreement of merger contained in this Agreement.
8.5 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (a) as set forth in Section 9.1, (b) each of the
Stock Option Agreements shall be governed by its own terms as to termination and
(c) termination will not relieve a breaching party from liability for any breach
directly or indirectly giving rise to such termination.
ARTICLE IX
MISCELLANEOUS
9.1 Survival. Only those agreements and covenants of the parties that by
their express terms apply in whole or in part after the Effective Time shall
survive the Effective Time. All other representations, warranties, agreements
and covenants shall be deemed only to be conditions of the Merger and shall not
survive the Effective Time. If the Merger shall be abandoned and this Agreement
terminated, the provisions of Section 8.5 shall apply and the agreements of the
parties in Sections 6.8 (excluding the first sentence thereof), 6.10 and 6.12
shall survive such abandonment.
9.2 Modification or Amendment. (a) Subject to the applicable provisions
of the DGCL and the NJBCA, at any time prior to the Closing Date, the parties
hereto may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
(b) At any time prior to the Effective Time, Dime and Hudson may enter
into an amendment to this Agreement in accordance with Section 9.2(a) in order
to modify the structure of the Merger or the other transactions contemplated
hereby, or the manner of effecting such transactions; provided that after the
adoption of the agreement of merger contained in this Agreement by the
stockholders of Dime and Hudson referred to in Section 7.1(a), no such amendment
shall adversely affect the consideration to be received by the stockholders of
Dime or Hudson, respectively, unless such amendment is approved by such
stockholders of Dime or Hudson, respectively, prior to the Effective Time.
9.3 Waiver of Conditions. The conditions to each party's obligation to
consummate the Merger are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law. No
waiver shall be effective unless it is in a writing signed by a duly authorized
officer of the waiving party that makes express reference to the provision or
provisions subject to such waiver.
9.4 Counterparts and Facsimile. For the convenience of the parties
hereto, this Agreement may be executed in any number of separate counterparts,
each such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement. Executed signature
pages to this Agreement may be delivered by facsimile and such facsimiles shall
be deemed as sufficient as if actual signature pages had been delivered.
9.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
9.6 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (ii)
on the first business day following the date of dispatch if delivered by a
recognized next-day courier service, or (iii) on the third business day
following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
(a) If to Hudson:
Hudson United Bancorp
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Chairman & Chief Executive Officer
Telecopy: (201) 236-2639
with copies to:
Hudson United Bancorp
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: General Counsel
Telecopy: (201) 236-2649
and
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Attention: Ronald H. Janis, Esq.
Michael W. Zelenty, Esq.
Telecopy: (973) 966-1550
(b) If to Dime:
Dime Bancorp, Inc.
589 Fifth Avenue
New York, New York 10017
Attention: Chief Executive Officer
Telecopy: (212) 326-6194
with copies to:
Dime Bancorp, Inc.
589 Fifth Avenue
New York, New York 10017
Attention: General Counsel
Telecopy: (212) 326-6110
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Mitchell S. Eitel, Esq.
Telecopy: (212) 558-3588
9.7 Entire Agreement, Etc. (a) This Agreement (including the Annexes
hereto and the Disclosure Letters), the Stock Option Agreements and the
Confidentiality Agreements constitute the entire agreement, and supersede all
other prior agreements, understandings, representations and warranties, both
written and oral, between the parties, with respect to the subject matter
hereof, and (b) this Agreement shall not be assignable by operation of law or
otherwise (any attempted assignment in contravention hereof being null and
void).
9.8 Definition of "subsidiary"; Covenants with Respect to
Subsidiaries. (a) When a reference is made in this Agreement to a subsidiary of
a person, the term "subsidiary" means those corporations, banks, savings banks,
associations and other entities of which such person owns or controls 25% or
more of the outstanding equity securities either directly or through an unbroken
chain of entities as to each of which 25% or more of the outstanding equity
securities is owned directly or indirectly by its parent; provided however,
that, except for purposes of Section 5.3(q), there shall not be included any
such entity
to the extent that the equity securities of such entity were acquired in
satisfaction of a debt previously contracted in good faith or are owned or
controlled in a bona fide fiduciary capacity.
(b) Insofar as any provision of this Agreement shall require a subsidiary
to take or omit to take any action, such provision shall be deemed a covenant by
Dime or Hudson, as the case may be, to cause such action or omission to occur.
9.9 Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
9.10 Severability. If any provision of this Agreement or the application
thereof to any person (including, without limitation, the officers and directors
of Dime and Hudson) or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination, the parties shall negotiate in
good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties. Prior to the termination
of this Agreement in accordance with its terms, the absence of adoption by the
stockholders of a party hereto shall not render invalid or inoperative any
provision hereof not required to be contained in the agreement of merger to be
adopted by such stockholders pursuant to Sections 251 and 252 of the DGCL, or
Section 14A: 10-3 of the NJBCA, as the case may be, and the certificate of
incorporation and by-laws of such party.
9.11 No Third Party Beneficiaries. Nothing contained in this Agreement,
expressed or implied, is intended to confer upon any person or entity other than
the parties hereto, any benefit right or remedies except that the provisions of
Section 4.3 shall inure to the benefit of the holders of stock options and
Article III (subject to the limitations set forth in such Article III) and
Section 6.13 shall inure to the benefit of the persons referred to therein.
* * *
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
HUDSON UNITED BANCORP
By: /s/ KENNETH T. NEILSON
------------------------------------
Name: Kenneth T. Neilson
Title: President and Chief
Executive Officer
DIME BANCORP, INC.
By: /s/ LAWRENCE TOAL
------------------------------------
Name: Lawrence Toal
Title: Chief Executive Officer
ANNEX 1
TO THE MERGER AGREEMENT
AMENDMENTS TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SURVIVING CORPORATION
The following amendments shall be made to the Amended and Restated
Certificate of Incorporation of the Surviving Corporation, effective as of the
Effective Time:
1. Article I of the Amended and Restated Certificate of Incorporation of
Dime Bancorp, Inc. shall be amended to read in its entirety as follows:
"The name of the Corporation is Dime United Bancorp, Inc."
2. The following Article XIII shall be added to the Amended and Restated
Certificate of Incorporation of Dime Bancorp, Inc. after Article XII
and shall read in its entirety as follows:
ARTICLE XIII
PROVISIONS RELATED TO MERGER
OF
DIME BANCORP, INC. AND HUDSON UNITED BANCORP
The following provisions in Article XIII of this Amended and Restated
Certificate of Incorporation shall be effective until December 31, 2002 and are
effected by consummation of, and at the Effective Time of, the Agreement and
Plan of Merger, dated as of September 15, 1999, between Dime Bancorp, Inc. and
Hudson United Bancorp, as amended and restated on December 27, 1999 (the "Merger
Agreement"). Capitalized terms used in this Article XIII and not otherwise
defined herein have the meanings ascribed to such terms in the Merger Agreement.
A. Qualifications for Directors. Subject to the provisions of this
Article XIII, until December 31, 2002, (1) in order to qualify for election as a
director of the Corporation at an annual or special meeting of stockholders or
by written consent of stockholders, an individual must be nominated either by
(a) a stockholder entitled to vote in the election of directors who has complied
with all requirements for such nomination provided for in this Amended and
Restated Certificate of Incorporation and the Corporation's bylaws or (b) the
board of directors after having been nominated to the board of directors by a
Nominating Committee (as defined below) provided for in this Section A of this
Article XIII and (2) in order to qualify for election as a director of the
Corporation by the board of directors to fill a vacancy or newly created
directorship, an individual must be nominated to the board of directors by a
Nominating Committee (as defined below) provided for in this Section A of this
Article XIII. The qualification procedures for clauses (1)(b) and (2) of the
previous sentence are known herein as the "Nominating Committee Procedures".
(i) (A) If the Board of Directors shall decide to increase at any time
the number of members of the Board of Directors, the Board of Directors
shall designate such new directorships in such a way as to cause the ratio
of the number of Former Dime Directorships (as defined below) to the number
of Former Hudson Directorships (as defined below) to be equal (or as close
to equal as possible) to the ratio (the "Ratio") of Former Dime Directors
to Former Hudson Directors that existed at the Effective Time.
(B) If the Board of Directors shall decide to decrease the number of
members of the Board of Directors and such decrease coincides with an
annual stockholders' meeting, the Board of Directors shall designate those
directorships that are up for election at such annual stockholders' meeting
in such a way as to cause the ratio of the number of Former Dime
Directorships (as defined below) to
the number of Former Hudson Directorships (as defined below) to be equal
(or as close to equal as possible) to the Ratio.
(C) If the Board of Directors shall decide to decrease, during any
period between consecutive annual stockholders meetings, the number of
members of the Board of Directors, the Former Dime Directors and the Former
Hudson Directors shall use their best efforts, giving due consideration to
the provisions of this Certificate, to cause the ratio of the number of
Former Dime Directorships (as defined below) to the number of Former Hudson
Directorships (as defined below) to be equal (or as close to equal as
possible) to the Ratio.
(ii) The board of directors may decide, on the recommendation of both
a Dime Nominating Committee (as defined below) and a Hudson Nominating
Committee (as defined below), (A) not to designate any one or more
directorships in the manner described in the previous paragraph (i), or (B)
to determine that the Nominating Committee Procedures shall not apply to
any one or more directorships.
(iii) For any directorship occupied by, vacated by, to be occupied by,
or designated for a Former Dime Director (a "Former Dime Directorship"),
the Nominating Committee will consist of two Former Dime Directors and one
Former Hudson Director (a "Dime Nominating Committee"); for any
directorship occupied by, vacated by, to be occupied by, or designated for
a Former Hudson Director (a "Former Hudson Directorship"), the Nominating
Committee will consist of two Former Hudson Directors and one Former Dime
Director (a "Hudson Nominating Committee"). The terms "Former Dime
Director" and "Former Hudson Director" will have the meanings assigned to
such terms in this Article. Either a Dime Nominating Committee or a Hudson
Nominating Committee may be referred to herein by the general term
"Nominating Committee".
(iv) A Nominating Committee shall act by the vote of not less than
two-thirds of the members of the Nominating Committee.
(v) Former Dime Directors on a Nominating Committee shall be appointed
from time to time at the recommendation of Mr. Lawrence J. Toal; Former
Hudson Directors on a Nominating Committee shall be appointed from time to
time at the recommendation of Mr. Kenneth T. Neilson; provided, that,
should Mr. Toal or Mr. Neilson be otherwise unable to recommend for
appointment such members of a Nominating Committee, the Former Dime
Directors will be appointed at the recommendation of the most senior Former
Dime Director then serving on the Board of Directors and the Former Hudson
Directors will be appointed at the recommendation of the most senior Former
Hudson Director then serving on the Board of Directors.
(vi) At the Effective Time, any director who was formerly a director
of Dime Bancorp, Inc. shall be a "Former Dime Director" and any director
who was formerly a director of Hudson United Bancorp shall be a "Former
Hudson Director." Any person filling (by election or appointment) a Former
Dime Directorship and qualified by the Nominating Committee Procedures
shall be considered a "Former Dime Director"; any person filling (by
election or appointment) a Former Hudson Directorship and qualified by the
Nominating Committee Procedures shall be considered a "Former Hudson
Director." Any person who is a Former Dime Director or Former Hudson
Director under this paragraph (vi) shall also be a "Continuing Director".
B. Certain Officers and Actions by Special Majority. (1) As of the
Effective Time, and thereafter until December 31, 2002, subject to this Article
XIII, Mr. Toal will be Chairman of the Board and Chief Executive Officer of the
Corporation and Mr. Neilson will be President and Chief Operating Officer of the
Corporation. On December 31, 2002 or such earlier date (if any) that Mr. Toal
ceases to serve as the Chairman of the Board and Chief Executive Officer of the
Corporation, Mr. Neilson will succeed Mr. Toal in those positions, unless the
Board of Directors, by vote of a Special Majority (as defined below), decides to
the contrary.
(2) In addition, until December 31, 2002, the following actions will also
require the vote of a Special Majority (as defined below):
(a) the removal, as an officer of the Corporation, of the Chairman of
the Board and Chief Executive Officer or the President and Chief Operating
Officer, as such positions are occupied at the Effective Time of the merger
under the Merger Agreement; or
(b) any action to make a material modification or amendment to or to
breach the employment agreements of the Chairman of the Board and Chief
Executive Officer or the President and Chief Operating Officer, as such
positions are occupied at the Effective Time of the merger under the Merger
Agreement.
(3) A "Special Majority" shall mean a majority of the directors voting,
provided that a Special Majority shall also require the vote of at least that
number of Continuing Directors equal to the number of Former Dime Directors then
in office plus three (3) out of the number of Former Hudson Directors then in
office (or if there are less than 3 Former Hudson Directors in office at such
time, then plus that number of Former Hudson Directors then in office).
ANNEX 2
TO THE MERGER AGREEMENT
AMENDMENTS TO
BY-LAWS
OF
SURVIVING CORPORATION
The following amendments shall be made to the By-laws of the Surviving
Corporation by resolution of the Board of Directors of Dime, effective as of the
Effective Time:
1. Article III, Section 2, Subsection (a) of the By-laws of Dime Bancorp,
Inc. shall be amended to read in its entirety as follows:
"SECTION 2. Number and term. (a) The Board of Directors shall
consist of not less than seven nor more than 25 members, such number of
Directors to be determined from time to time by resolution adopted by a
vote of a majority of the Directors then in office."
ANNEX 3
TO THE MERGER AGREEMENT
COMMITTEES
OF THE
BOARD OF DIRECTORS
OF THE
SURVIVING CORPORATION
The following sets forth certain agreements between Dime Bancorp, Inc.
("Dime") and Hudson United Bancorp ("Hudson") as to the composition of board
committees of the Surviving Corporation (as that term is defined in the
Agreement and Plan of Merger between Dime and Hudson, dated as of September 15,
1999). The committees described below are to be made up of Continuing Directors
(as defined in the Agreement and Plan of Merger)
Executive Committee: CEO is Chairman; other members are the six
committee chairpersons (three from each
company, plus Mr. Neilson plus one additional
member from Dime). At present this committee
never meets.
Audit Committee: Dime selects chairperson; total of six members;
three from each company
Compensation Committee: Dime selects chairperson; total of six members;
three from each company
Nominating/Governance
Committee: Dime selects chairperson; total of six members;
three from each company
Investment Committee: Hudson selects chairperson; total of six
members; three from each company; reviews
policies and performance of portfolios
including loan portfolios
Strategic Planning Committee: Hudson selects chairperson; total of six
members; three from each company; establishes
long range strategy and reviews adherence;
reviews acquisitions and oversees progress on
goodwill claim
CRA Committee: Hudson selects chairperson; total of six
members; three from each company; oversight
committee which monitors progress against
goals.
- ---------------
(1) CEO and COO are ex officio on all committees, to the extent permitted
(2) Bank Trust Committee will also be split at three from each
(3) Stated goal for reduction of Board from 25
(4) New Board members through acquisitions not to participate in
responsibilities of Continuing Directors through 2002.
ANNEX 4(a)
TO THE MERGER AGREEMENT
[Form of Hudson Affiliate Agreement]
Dime Bancorp, Inc.
589 Fifth Avenue
New York, New York 10017
Hudson United Bancorp
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Re: Agreement and Plan of Merger between
Dime Bancorp, Inc. and Hudson United Bancorp
----------------------------------------------------------------
Ladies and Gentlemen:
I have been advised that I may be considered an "affiliate" of Hudson
United Bancorp (the "Company") for purposes of (i) Rule 145 of the General Rules
and Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or (ii) SEC Accounting Series Releases 130 and 135, as
amended. Pursuant to the Agreement and Plan of Merger, dated as of the 15th day
of September, 1999 (the "Merger Agreement"), by and between the Company and Dime
Bancorp, Inc. ("Dime"), I may receive securities (the "Shares"), in exchange for
the shares of stock of the Company owned by me at the effective date of the
merger provided for in the Merger Agreement (the "Merger").
I represent and warrant to, and agree with, the Company and Dime (for their
benefit and the benefit of the surviving corporation of the Merger) that:
A. I have carefully read this letter agreement and the Merger
Agreement and have discussed their requirements and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Shares, to the extent I felt necessary, with my counsel or counsel for the
Company.
B. I will not make any sale, transfer or other disposition of my
Shares in violation of the Securities Act or the Rules and Regulations.
C. I have been advised that the offering, sale and delivery of the
Shares to me in the Merger have been registered under the Securities Act on
a Registration Statement on Form S-4. I have also been advised, however,
that, since I may be considered an "affiliate" of the Company at the time
the Merger Agreement is submitted for a vote of the stockholders of the
Company, any public offering or sale by me of any of the Shares will, under
current law, require either (i) the further registration under the
Securities Act of the Shares to be offered and sold, (ii) compliance by me
with SEC Rule 145 under the Securities Act in connection with such offer
and sale or (iii) the availability of another exemption from registration
of such Shares under the Securities Act for such offer and sale.
D. I have been informed by the Company that the Shares have not been
registered under the Securities Act for distribution by me and that the
Shares must be held by me unless (i) such Shares have been registered for
distribution under the Securities Act, (ii) a sale of the Shares is made in
conformity with the volume and other limitations of SEC Rule 145 under the
Securities Act or (iii) in the opinion of counsel reasonably acceptable to
the surviving corporation, some other exemption from registration under the
Securities Act is available with respect to any such proposed sale,
transfer or other disposition of the Shares.
Dime Bancorp, Inc.
Hudson United Bancorp
E. I understand that the surviving corporation is under no obligation
to register the sale, transfer or other disposition of the Shares by me or
on my behalf under the Securities Act or to take any other action necessary
in order to make compliance with an exemption from such registration
available to me.
F. I also understand that stop transfer instructions will be given to
all transfer agents for the Shares and that there will be placed on the
certificates for the Shares issued to me, or any replacements or
substitutes therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933 applies.
The shares represented by this certificate may only be transferred in
accordance with the terms of an agreement, dated [ ], 1999,
between the registered holder hereof and the issuer, a copy of which
agreement will be mailed to the holder hereof without charge promptly
after receipt by the issuer of a written request therefor."
It is understood and agreed that the legend set forth in paragraph F above
shall be removed by the delivery of substitute certificates without such legend
if I shall have delivered to the surviving corporation (1) a copy of a letter
from the staff of the SEC, or an opinion of counsel in form and substance
reasonably satisfactory to the surviving corporation, to the effect that such
legend is not required for purposes of the Act or (2) evidence or
representations satisfactory to the surviving corporation that the Shares
represented by such certificate are being or have been sold in conformity with
the provisions of Rule 145(d).
I further represent to and covenant with each of the Company and Dime (for
their benefit and the benefit of the surviving corporation) that (1) I will not,
within the 30 days prior to the Closing Date (as defined in the Merger
Agreement), sell, transfer or otherwise dispose of any shares of stock of the
Company and (2) I will not sell, transfer or otherwise dispose of any Shares
(whether or not acquired by me in the Merger) until after such time as results
covering at least 30 days of combined operations of the Company and Dime have
been published by the surviving corporation, in the form of a quarterly earnings
report, an effective registration statement filed with the SEC, a report filed
with the SEC on Form 10-K, 10-Q or 8-K or any other public filing or
announcement that includes such combined results of operations. Furthermore, I
understand that the Company and the surviving corporation will give stop
transfer instructions to their respective transfer agents in order to prevent
the breach of the covenants made by me in this paragraph. I also understand that
the Merger is intended to be treated for accounting purposes as a
"pooling-of-interests", and I agree that, if the Company or the surviving
corporation advises me in writing that additional restrictions apply to my
ability to sell, transfer or otherwise dispose of stock of the Company or Shares
in order to be entitled to use the pooling of interests accounting method, I
will abide by such restrictions.
I further understand and agree that this letter agreement shall apply to
all shares of the stock of the Company and all of the Shares that I am deemed to
beneficially own pursuant to applicable federal securities laws.
By its acceptance hereof, Dime Bancorp, Inc. agrees, for a period of two
years after the effective date of the Merger, that it, as the surviving
corporation, will file on a timely basis all reports required to be filed by it
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so
that the public information provisions of SEC Rule 144(c) under the Securities
Act are satisfied and the resale provisions of SEC Rules 145(d)(1) and (2) are
therefore available to me in the event I desire to transfer any Shares issued to
me in the Merger.
Dime Bancorp, Inc.
Hudson United Bancorp
This letter constitutes the complete understanding between the Company,
Dime and me concerning the subject matter hereof. The surviving corporation is
expressly intended to be a beneficiary of this letter agreement. Any notice
required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
letter shall be governed by, and construed and interpreted in accordance with,
the laws of the State of New York applicable to contracts made and to be
performed within such state.
Very truly yours,
--------------------------------------
(Name of Affiliate)
ACCEPTED:
DIME BANCORP, INC.
By:
- -------------------------------------------------
HUDSON UNITED BANCORP
By:
- -------------------------------------------------
ANNEX 4(b)
TO THE MERGER AGREEMENT
[Form of Dime Affiliate Agreement]
Dime Bancorp, Inc.
589 Fifth Avenue
New York, New York 10017
Hudson United Bancorp
1000 MacArthur Boulevard
Mahwah, New Jersey 07430
Re: Agreement and Plan of Merger between
Dime Bancorp, Inc. and Hudson United Bancorp
----------------------------------------------------------------
Ladies and Gentlemen:
I have been advised that, by reason of my beneficial ownership of shares of
common stock in Dime Bancorp, Inc. (the "Shares"), among other things, I may be
considered an "affiliate" of Dime Bancorp, Inc. (the "Company") for purposes of
(i) Rule 145 of the General Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"), and/or (ii) SEC Accounting Series
Releases 130 and 135, as amended. I understand that, pursuant to the Agreement
and Plan of Merger, dated as of the 15th day of September, 1999 (the "Merger
Agreement"), by and between the Company and Hudson United Bancorp ("Hudson"),
Hudson will merge with and into the Company (the "Merger").
I represent and warrant to, and agree with, the Company and the Hudson (for
their benefit and the benefit of the surviving corporation of the Merger) that:
A. I have carefully read this letter agreement and the Merger
Agreement and have discussed their requirements and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Shares, to the extent I felt necessary, with my counsel or counsel for the
Company.
B. I will not make any sale, transfer or other disposition of my
Shares in violation of the Securities Act or the Rules and Regulations.
C. I will not (1) within the 30 days prior to the Closing Date (as
defined in the Merger Agreement), sell, transfer or otherwise dispose of
any shares of stock of the Company and (2) sell, transfer or otherwise
dispose of any Shares (whether or not acquired by me in the Merger) until
after such time as results covering at least 30 days of combined operations
of the Company and the Other Party have been published by the surviving
corporation, in the form of a quarterly earnings report, an effective
registration statement filed with the SEC, a report filed with the SEC on
Form 10-K, 10-Q or 8-K or any other public filing or announcement that
includes such combined results of operations. Furthermore, I understand
that the Company and the surviving corporation will give stop transfer
instructions to their respective transfer agents in order to prevent the
breach of the covenants made by me in this paragraph. I also understand
that the Merger is intended to be treated for accounting purposes as a
"pooling of interests", and I agree that, if the Company or the surviving
corporation advises me in writing that additional restrictions apply to my
ability to sell, transfer or otherwise dispose of stock of the Company or
Shares in order to be entitled to use the pooling of interests accounting
method, I will abide by such restrictions.
Dime Bancorp, Inc.
Hudson United Bancorp
I further understand and agree that this letter agreement shall apply to
all shares of the stock of the Company and all of the Shares that I am deemed to
beneficially own pursuant to applicable federal securities laws.
This letter constitutes the complete understanding between the Company,
Hudson and me concerning the subject matter hereof. The surviving corporation is
expressly intended to be a beneficiary of this letter agreement. Any notice
required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
letter shall be governed by, and construed and interpreted in accordance with,
the laws of the State of New York applicable to contracts made and to be
performed within such state.
Very truly yours,
--------------------------------------
(Name of Affiliate)
ACCEPTED:
DIME BANCORP, INC.
By:
- -------------------------------------------------
HUDSON UNITED BANCORP
By:
- -------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
ANNEX 5
TO THE MERGER AGREEMENT
Senior Executive Officers
of
Surviving Corporation
Position with Surviving Corporation
Name and Current Position and Subsidiary Bank
- ------------------------- -----------------------------------
<S> <C>
Anthony R. Burriesci, current Executive Vice President Chief Financial Officer
and Chief Financial Officer of Dime
John F. McIlwain, current Executive Vice President and Chief Credit & Risk Management Officer
Chief Credit Officer of Hudson
Richard A. Mirro, current Executive Vice President and Mortgage Banking Executive (Chairman and
Chief Executive Officer, Mortgage Banking of Dime Chief Executive Officer of North America
Mortgage Company)
Thomas J. Shara, current Executive Vice President of Commercial Banking General Manager
Commercial Lending and Senior Lending Officer of
Hudson
Susan M. Staudmyer, current Executive Vice President of Chief Marketing Officer
Retail Banking of Hudson
James E. Kelly, current Executive Vice President and General Counsel
General Counsel of Dime
Thomas J. Ducca, current Executive Vice President and Chief Information Officer
Chief Information Officer of Dime
Arthur C. Bennett, current Executive Vice President and Chief Human Resources Officer
Chief Human Resources and Corporate Services Executive
of Dime
Donald P. Schwartz, current Executive Vice President and Consumer Lending General Manager
General Manager, Business Banking of Dime
Murray F. Mascis, current Executive Vice President and Commercial Real Estate General Manager
General Manager, Commercial Real Estate of Dime
Peyton R. Patterson, current Executive Vice President Retail Banking General Manager
and General Manager, Consumer Financial Services of
Dime
Melvin L. Cebrik, current Senior Vice President and Insurance General Manager
General Manager of Dime Insurance Group
Thomas R. Nelson, current President of Shoppers Charge Shoppers Charge President
(private label credit card of Hudson)
Gene C. Brooks, current Executive Vice President, Goodwill Litigation Executive
Director of the Office of the Corporate Secretary and
Senior Legal Advisor of Dime
D. Lynn Van Borkulo-Nuzzo, current Executive Vice Corporate Secretary
President, General Counsel and Corporate Secretary of
Hudson
Franklin L. Wright, current Executive Vice President and Executive Center Executive
Executive Center, External Affairs and Investor
Relations Executive of Dime
</TABLE>
CHANGE IN CONTROL,
SEVERANCE AND EMPLOYMENT AGREEMENT
FOR SUSAN STAUDMYER
THIS CHANGE IN CONTROL SEVERANCE AND EMPLOYMENT AGREEMENT (the
"Agreement"), is made this 16th day of August, 1999, among HUDSON UNITED BANCORP
("Bancorp"), a New Jersey corporation which maintains its principal office at
1000 MacArthur Boulevard., Mahwah, New Jersey, HUDSON UNITED BANK (the "Bank"),
a New Jersey chartered commercial bank, with an office at 1000 MacArthur
Boulevard., Mahwah, New Jersey (Bancorp and the Bank collectively are referred
to herein as the "Company") and Susan Staudmyer (the "Executive").
BACKGROUND
WHEREAS, the Executive has been employed by Bancorp and the Bank for
many years, most recently as Executive Vice President.
WHEREAS, the Executive throughout her tenure has worked
diligently in her position in the business of Bancorp and the Bank;
WHEREAS, the Board of Directors of Bancorp and the Bank believe that
the future services of the Executive are of great value to Bancorp and the Bank
and that it is important for the growth and development of Bancorp and the Bank
that the Executive continue in her position;
WHEREAS, if Bancorp receives any proposal from a third person
concerning a possible business combination with, or acquisition of equities
securities of, the Company, the Board
<PAGE>
of Directors of Bancorp (the "Board") believes it is imperative that Bancorp and
the Bank and the Board be able to rely upon the Executive to continue in her
position, and that they be able to receive and rely upon her advice, if they
request it, as to the best interests of the Company and its shareholders,
without concern that the Executive might be distracted by the personal
uncertainties and risks created by such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's
services prior to any such activity, the Board of Directors and the Executive
have agreed to enter into ther Agreement to provide the Executive with continued
employment or certain termination benefits in the event of a Change in Control,
as hereinafter defined;
WHEREAS, due to the uncertainties created in certain contracts by
the requirement that an executive have "good reason" before any resignation, it
is the intention of the Board that, among other things, the Executive is given
the right hereunder to resign at any time and for any reason and to receive the
payments and benefits provided hereunder if he works for the Company for 90 days
following a Change in Control.
NOW, THEREFORE, to assure the Company that it will have the
continued dedication of the Executive and the availability of her advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Company, and to induce the Executive to remain in the employ
of the Company, and for other good and valuable consideration, the Company and
the Executive, each intending to be legally bound hereby agree as follows:
1. Definitions
a. Cause. For purposes of this Agreement "Cause" with respect
to the termination by the Company of Executive's employment shall mean (i)
willful and continued failure by the Executive to materially perform her duties
for the Company under this Agreement after at
<PAGE>
least one warning in writing from the Company's Board of Directors identifying
specifically any such material failure and offering a reasonable opportunity to
cure such failure; (ii) the willful engaging by the Executive in material
misconduct which causes material injury to the Company as specified in a written
notice to the Executive from the Board of Directors; or (iii) conviction of a
crime (other than a traffic violation), habitual drunkenness, drug abuse, or
excessive absenteeism other than for illness, after a warning (with respect to
drunkenness or absenteeism only) in writing from the Board of Directors to
refrain from such behavior. No act or failure to act on the part of the
Executive shall be considered willful unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action or
omission was in the best interest of the Company. The Company shall have the
burden of proving cause by clear and convincing evidence.
b. Change in Control.
(i) Definition. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any of the following
events with respect to Bancorp:
(A) The acquisition of the beneficial
ownership, as defined under the Exchange Act, of 25% or more of
Bancorp's voting securities or all or substantially all of the
assets of Bancorp by a single person or entity or group of
affiliated persons or entities;
(B) The merger, consolidation or combination
of Bancorp with an unaffiliated corporation in which the directors
of Bancorp as applicable immediately prior to such merger,
consolidation or combination constitute less than a majority of the
board of directors of the surviving, new or combined entity unless
one-half of the board of directors of the surviving, new or
<PAGE>
combined entity were directors of Bancorp immediately prior to such
transaction and Bancorp's chief executive officer immediately prior
to such transaction continues as the chief executive officer of the
surviving, new or combined entity; or
(C) During any period of two consecutive
calendar years, individuals who at the beginning of such period
constitute the Board of Directors of Bancorp cease for any reason to
constitute at least two-thirds thereof, unless the election or
nomination for the election by Bancorp's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of the period; or
(D) The transfer of all or substantially all
of Bancorp's assets or all or substantially all of the assets of its
primary subsidiaries.
(ii) Time of Change in Control. For purposes of this
Agreement, a Change in Control of Bancorp shall be deemed to occur on the
earlier of:
(A) The first date on which a single person
or entity or group of affiliated persons or entities acquire the
beneficial ownership of 25% or more of Bancorp's voting securities;
or
(B) Forty-five (45) days prior to the date
Bancorp enters into a definitive agreement to merge, consolidate,
combine or sell the assets of Bancorp; provided however, that for
purposes of any resignation by the Executive, the Change in Control
shall not be deemed to occur until the consummation of the merger,
consolidation, combination or sale, as the case may
<PAGE>
be, except if this Agreement is not expressly assumed in writing by
the acquiring company, then the Change in Control shall be deemed to
occur the day before the consummation; and further provided that if
any definitive agreement to merge, consolidate, combine or sell
assets is terminated without consummation of the acquisition, then
no Change in Control shall have been deemed to have occurred; or
(C) The date upon which the election of
directors occurs qualifying under Section b(i)(C) above.
c. Contract Period. "Contract Period" shall mean the period
commencing the day immediately preceding a Change in Control and ending on the
earlier of (i) two years after the consummation of any event giving rise to the
Change in Control or (ii) the date the Executive would attain age 65.
d. Exchange Act. "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary
termination by Executive of her employment with the Company, "Good Reason" shall
mean any of the following, if taken without Executive's express written consent:
(i) The assignment to Executive of any duties
inconsistent with, or the reduction of authority, powers or
responsibilities associated with, Executive's position, title, duties,
responsibilities and status with the Company immediately prior to a Change
in Control; any removal of Executive from, or any failure to re-elect
Executive to, any position(s) or office(s) Executive held immediately
prior to such Change in Control. A change in position, title, duties,
responsibilities and status or position(s) or office(s) resulting
<PAGE>
from a Change in Control or from a merger or consolidation of the Company
into or with another bank or company shall not meet the requirements of
this paragraph if, and only if, the Executive's new title, duties and
responsibilities are accepted in writing by the Executive, in the sole
discretion of the Executive.
(ii) A reduction by the Company in Executive's annual
base compensation as in effect immediately prior to a Change in Control or
the failure to award Executive any annual increases in accordance
herewith;
(iii) A failure by the Company to continue any bonus
plan in which Executive participated immediately prior to the Change in
Control or a failure by the Company to continue Executive as a participant
in such plan on at least the same basis as Executive participated in such
plan prior to the Change in Control;
(iv) The Company's transfer of Executive to another
geographic location outside of New Jersey or more than 25 miles from her
present office location, except for required travel on Company's business
to an extent substantially consistent with Executive's business travel
obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect any
employee benefit plan, program or arrangement (including, without
limitation the Company's 401(k) plan, the Company's pension plan, life
insurance plan, health and accident plan, disability plan, or stock option
plan) in which Executive is participating immediately prior to a Change in
Control (except that the Company may institute or continue plans, programs
or arrangements providing Executive with substantially similar benefits);
the taking of any action by the Company which would adversely affect
Executive's participation in or materially reduce Executive's benefits
under, any of such plans, programs or arrangements;
<PAGE>
the failure to continue, or the taking of any action which would deprive
Executive, of any material fringe benefit enjoyed by Executive immediately
prior to such Change in Control; or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive was
entitled immediately prior to such Change in Control;
(vi) The failure by the Company to obtain an assumption
in writing of the obligations of the Company to perform this Agreement by
any successor to the Company and to provide such assumption to the
Executive prior to any Change in Control; or
(vii) Any purported termination of Executive's
employment by the Company during the term of this Agreement which is not
effected pursuant to all of the requirements of this Agreement; and, for
purposes of this Agreement, no such purported termination shall be
effective.
f. Voting Securities. "Voting securities" means Bancorp's
common stock, together with any preferred stock entitled to vote generally in
elections for directors or other matters. With respect to preferred stock, in
determining the percentage of beneficial ownership of voting securities, the
number of votes to which the holder is entitled in the election of directors
with the common holders, and not the number of shares, shall be the basis of the
calculation.
2. Employment. During the Contract Period, the Company hereby agrees
to employ the Executive, and the Executive hereby accepts employment upon the
terms and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be
employed as the Executive Vice President of Bancorp and the Bank, or such other
corporate or divisional profit center as shall then be the principal successor
to the business, assets and properties of the Company,
<PAGE>
with substantially the same title and the same duties and responsibilities as
before the Change in Control. The Executive shall devote her full time and
attention to the business of the Company, and shall not during the Contract
Period be engaged in any other business activity. This paragraph shall not be
construed as preventing the Executive from managing any investments of her which
do not require any substantial service on her part in the operation of such
investments.
4. Cash Compensation. The Company shall pay to the Executive
compensation for her services during the Contract Period as follows:
a. Annual Salary. An annual salary equal to the annual salary
in effect as of the Change in Control. The annual salary shall be payable in
installments in accordance with the Company's usual payroll method. The annual
salary shall not be reduced during the Contract Period.
b. Annual Bonus. An annual cash bonus equal to the highest of
the bonuses paid to the Executive for the three fiscal years prior to the Change
in Control. The bonus shall be payable at the time and in the manner which the
Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during
the Contract Period shall review annually, or at more frequent intervals which
the Board determines is appropriate, the Executive's compensation and shall
award her additional compensation to reflect the Executive's performance, the
performance of the Company and competitive compensation levels, all as
determined in the discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall
be entitled to reimbursement for all business expenses incurred by her with
respect to the business of
<PAGE>
the Company in the same manner and to the same extent as such expenses were
previously reimbursed to her immediately prior to the Change in Control.
b. Supplemental Executive Retirement Plan. During the Contract
Period, if the Executive was entitled to benefits under the Company's
Supplemental Executive Retirement Plan ("SERP") prior to the Change in Control,
the Executive shall be entitled to continued benefits under the SERP after the
Change in Control and such SERP may not be modified to reduce or eliminate the
accrual of or vesting of such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in
Control, the Executive was entitled to membership in a country club and/or the
use of an automobile, she shall be entitled to the same membership and/or use of
an automobile at least comparable to the automobile provided to her prior to the
Change in Control during the Contract Period.
d. Other Benefits. The Executive also shall be entitled to
vacations and sick days, in accordance with the practices and procedures of the
Company, as such existed immediately prior to the Change in Control. During the
Contract Period, the Executive also shall be entitled to hospital, health,
medical and life insurance, and any other benefits enjoyed, from time to time,
by senior officers of the Company, all upon terms as favorable as those enjoyed
by other senior officers of the Company. Notwithstanding anything in this
paragraph 5(d) to the contrary, if the Company adopts any change in the benefits
provided for senior officers of the Company, and such policy is uniformly
applied to all officers of the Company (and any successor or acquirer of the
Company, if any), including the chief executive officer of such entities, then
no such change shall be deemed to be contrary to this paragraph.
<PAGE>
6. Termination for Cause. The Company shall have the right to
terminate the Executive for Cause, upon written notice to her of the termination
which notice shall specify the reasons for the termination and provide, if
practical, an opportunity for the Executive to cure such Cause. In the event of
a valid termination for Cause the Executive shall not be entitled to any further
benefits under this Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform her duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall be entitled to
the payments and benefits provided under Section 9 hereof as if the Executive
had been terminated hereunder without Cause upon such date.
8. Death Benefits. Upon the Executive's death during the Contract
Period, the Executive shall be deemed to terminate without cause as of the date
of death and her estate shall be entitled to the payments and benefits provided
under Section 9 hereof as if the Executive had been terminated without cause
upon such date.
9. Termination Without Cause or Resignation.
a. Termination Without Cause. The Company may terminate the
Executive without Cause during the Contract Period by written notice to the
Executive.
b. Resignation for Good Reason in First 90 Days After a Change
in Control. For the first 90 days after a Change in Control, the Executive may
resign for Good Reason during the Contract Period upon prior written notice to
the Company.
c. Resignation After First 90 Days. Commencing 90 calendar
days after a Change in Control and continuing thereafter during the Contract
Period, the Executive may
<PAGE>
resign for any reason whatsoever and need not specify the reason, upon four
weeks written notice to the Company and, for these purposes, the effective date
of the resignation and not the date of the notice must be 90 calendar days after
the Change in Control.
d. Payments and Benefits. If the Company terminates the
Executive's employment during the Contract Period without Cause or if the
Executive resigns for Good Reason under paragraph 9(b) or for any reason under
paragraph 9(c), the Company shall, as promptly as practical but in no event
later than 10 business days after the termination of employment pay the
Executive a lump sum (the "Lump Sum") equal to 3.0 times the sum of (i) the
annual salary paid to the Executive immediately prior to the Change in Control
plus (ii) the highest annual incentive bonus paid to the Executive for any
fiscal year during each of the three fiscal years immediately prior to the
Change in Control. For these purposes, any deferral of salary or bonus by the
Executive under the Company's 401(k) plan or otherwise shall be included in
salary and bonus. The Company also shall continue to provide the Executive, her
spouse and eligible dependents for a period of three years following the
termination of employment, with health, hospitalization and medical insurance,
as were provided at the time of the Change in Control, at the Company's cost,
subject only to the responsibility of the Executive to continue to pay a portion
of the premium, as well as co-pays or deductibles in such amounts as were paid
by the Executive prior to the termination. The Lump Sum and the benefits
provided hereunder shall be subject to Section 10 hereof.
<PAGE>
e. No Duty to Mitigate. The Executive shall not have a duty to
mitigate the damages suffered by her in connection with the termination by the
Company of her employment without Cause under paragraph 9(a) or a resignation
under paragraphs 9(b) and 9(c) during the Contract Period. The Company shall not
be entitled to offset from the payment due to the Executive hereunder any
amounts due from or claims against the Executive.
f. Legal Fees and Expenses. If the Company fails to pay the
Executive the Lump Sum due him under this Agreement or to provide her with the
health, hospitalization and medical insurance benefits due under this Agreement,
the Executive, after giving 10 days' written notice to the Company identifying
the Company's failure, shall be entitled to recover from the Company, monthly
upon demand, any and all of her legal fees and other expenses incurred in
connection with her enforcement against the Company of the terms of this
Agreement.
10. Certain Reduction of Payments and Benefits.
a. Reduction. Anything in this Agreement to the contrary
notwithstanding, prior to the payment of the Lump Sum or the benefits payable
hereunder in connection with the Executive's termination of employment, the
certified public accountants for the Company immediately prior to a Change in
Control (the "Certified Public Accountants"), shall determine as promptly as
practical and in any event within 20 business days following the termination of
employment of Executive whether any payment or distribution by the Company to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by Bancorp for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and if it is then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant to this
<PAGE>
Agreement in connection with the Executive's termination of employment (such
payments or distributions pursuant to this Agreement are hereinafter referred to
as "Agreement Payments") shall be reduced (but not below zero) to the Reduced
Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present value of
Agreement Payments without causing any Payment to be nondeductible by Bancorp
because of said Section 280G of the Code.
b. Executive Selection of Reductions. If under paragraph (a)
of this section the Certified Public Accountants determine that any payment
would more likely than not be nondeductible by Bancorp because of Section 280G
of the Code, Bancorp shall promptly give the Executive notice to that effect and
a copy of the detailed calculation thereof and of the Reduced Amount, and the
Executive may then elect, in her sole discretion, which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals the
Reduced Amount), and shall advise Bancorp in writing of her election within 5
business days of her receipt of notice. If no such election is made by the
Executive within such 5-day period, Bancorp may elect which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. For
purposes of this paragraph, present value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Certified Public
Accountants shall be binding upon Bancorp and the Executive and shall be made as
promptly as practical but in any event within 20 days of a termination of
employment of the Executive. Bancorp may suspend for a period of up to 30 days
after termination of employment the payment of the Lump Sum and any other
benefits due to the
<PAGE>
Executive under this Agreement until the Certified Public Accounts finish the
determination and the Executive (or Bancorp, as the case may be) elect how to
reduce the Agreement Payments, if necessary. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
to or distribute to or for the benefit of the Executive such amounts as are then
due to the Executive under this Agreement and shall promptly pay to or
distribute for the benefit of the Executive in the future such amounts as they
become due to the Executive under this Agreement.
c. Overpayments and Underpayments. As a result of the
uncertainty in the application of Section 280G of the Code, it is possible that
Agreement Payments may have been made by the Company which should not have been
made ("Overpayment") or that additional Agreement Payments which will have not
been made by Bancorp could have been made ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Certified Public Accountants, based upon the assertion of a deficiency
by the Internal Revenue Service against Bancorp or Executive which said
Certified Public Accountants believe has a high probability of success,
determines that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to Executive which Executive shall repay to
Bancorp together with interest at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be
payable by Executive to Bancorp in and to the extent such payment would not
reduce the amount which is subject to taxation under Section 4999 of the Code.
In the event that the Certified Public Accountants, based upon controlling
precedent, determine that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the benefit of
<PAGE>
the Executive together with interest at the applicable Federal rate provided for
in Section 7872(f)(2)(A) of the Code.
11. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the
course of her employment with the Company and in the pursuit of the business of
the Company or any of its subsidiaries or affiliates, the Executive shall not,
at any time during or following the Contract Period, disclose or use, any
confidential information or proprietary data of the Company or any of its
subsidiaries or affiliates. The Executive agrees that, among other things,
information concerning the identity of and the Company's relations with its
customers is confidential information.
b. Specific Performance. Executive agrees that the Company
does not have an adequate remedy at law for the breach of this section and
agrees that she shall be subject to injunctive relief and equitable remedies as
a result of the breach of this section. The invalidity or unenforceability of
any provision of this Agreement shall not affect the force and effect of the
remaining valid portions. No violation of this Section 11 shall entitle the
Company to withhold any payment or benefit due the Executive hereunder.
c. Survival. This section shall survive the termination of the
Executive's employment hereunder and the expiration of this Agreement.
12. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this
Agreement shall commence on the date hereof and shall remain in effect for a
period of 3 years from the date hereof (the "Initial Term") or until the end of
the Contract Period, whichever is later. The Initial Term shall be automatically
extended for an additional one year period on the anniversary date hereof (so
that the Initial Term is always 3 years) unless on or before such date the Board
of
<PAGE>
Directors of Bancorp by resolution passed by a majority vote of the Directors
then in office, votes not to extend the Initial Term any further. The Company
shall promptly advise the Executive in writing of the passage of such resolution
and if it fails to do so the passage of such resolution shall be ineffective.
b. No Effect Prior to Change in Control. Prior to a Change in
Control, this Agreement shall not affect any rights of the Company to terminate
the Executive or the benefits payable to the Executive. The rights and
liabilities provided hereunder shall only become effective upon a Change in
Control. If the employment of the Executive by the Company is ended for any
reason whatsoever prior to a Change in Control, this Agreement shall thereafter
be of no further force and effect.
13. Compensation and Benefits Provided Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that the
Executive shall not be entitled to the benefits of any other plan or program of
the Company or agreement with the Company expressly providing for severance or
termination pay or post-employment medical benefits. In furtherance of the
foregoing, this Agreement is not in derogation of, but rather supplemental to,
the rights and benefits of the Executive, if any, under any stock option plan,
restricted stock plan, pension plan, 401(k) plan and SERP.
14. Notice. During the Contract Period, any notice of termination of
the employment of the Executive by the Company or by the Executive to the
Company shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this
<PAGE>
Agreement, a "Notice of Termination" shall mean a dated notice which shall (i)
indicate the specific termination provision in this Agreement relied upon; (ii)
set forth, if necessary, in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employment of the Executive or
from the Company under the provision so indicated; (iii) specify a date of
termination, which shall be not less than four weeks nor more than six weeks
after such Notice of Termination is given, except in the case of termination of
employment by the Company of the Executive for Cause pursuant to Section 6
hereof, in which case the Notice of Termination may specify a date of
termination as of the date such Notice of Termination is given; and (iv) be
given by personal delivery or, if the individual is not personally available, by
certified mail to the last known address of the individual. Upon the death of
the Executive, no Notice of Termination need be given.
15. Payroll and Withholding Taxes. All payments to be made or
benefits to be provided hereunder by the Company shall be subject to applicable
federal and state payroll or withholding taxes. Any Gross-Up Payment shall be
made in the form of withholding taxes and shall not be paid to the Executive,
but shall be sent to the IRS in the ordinary course of the Company's payroll
withholding.
16. Miscellaneous. This Agreement is the joint and several
obligation of Bancorp and the Bank. The terms of this Agreement shall be
governed by, and interpreted and construed in accordance with, the laws of New
Jersey. This Agreement supersedes all prior agreements and understandings with
respect to the matters covered hereby. The amendment or termination of this
Agreement may be made only in a writing executed by the Company and the
Executive, and no amendment or termination of this Agreement shall be effective
unless and until made in such a writing. This Agreement shall be binding upon
any successor (whether direct or indirect, by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of
<PAGE>
the assets of the Company. This Agreement is personal to the Executive and the
Executive may not assign any of her rights or duties hereunder but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, Bancorp and Hudson United Bank each have caused
this Agreement to be signed by their duly authorized representatives pursuant to
the authority of their Boards of Directors, and the Executive has personally
executed this Agreement, all as of the day and year first written above.
ATTEST: HUDSON UNITED BANCORP
D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
- ------------------------- ----------------------------
D. Lynn Van Borkulo-Nuzzo Kenneth T. Neilson,
Corporate Secretary Chairman, President & CEO
ATTEST: HUDSON UNITED BANK
D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
- ------------------------- ----------------------------
D. Lynn Van Borkulo-Nuzzo Kenneth T. Neilson,
Corporate Secretary Chairman, President & CEO
WITNESS:
- ------------------------ SUSAN STAUDMYER
---------------------
Susan Staudmyer
CHANGE IN CONTROL,
SEVERANCE AND EMPLOYMENT AGREEMENT
FOR THOMAS R. NELSON
THIS CHANGE IN CONTROL SEVERANCE AND EMPLOYMENT AGREEMENT (the
"Agreement"), is made this 30th day of January, 1998, between HUBCO, Inc. and
Hudson United Bank (collectively "HUBCO"or the ACompany@), a New Jersey
corporation which maintains its principal office at 1000 MacArthur Boulevard.,
Mahwah, New Jersey and Thomas R. Nelson (the "Executive").
BACKGROUND
WHEREAS, the Executive is presently employed by HUBCO as Executive Vice
President and President of the Shoppers Charge Division of Hudson United Bank,
and;
WHEREAS, the Board of Directors of HUBCO believes that the future services
of the Executive are of great value to HUBCO and that it is important for the
growth and development of HUBCO that the Executive continue in his position,
and;
WHEREAS, if HUBCO receives any proposal from a third person concerning a
possible business combination with, or acquisition of equities securities of,
the Company, the Board of Directors of HUBCO (the "Board") believes it is
imperative that HUBCO and the Board
<PAGE>
be able to rely upon the Executive to continue in his position, and that they be
able to receive and rely upon his advice, if they request it, as to the best
interests of the Company and its shareholders, without concern that the
Executive might be distracted by the personal uncertainties and risks created by
such a proposal, and;
WHEREAS, to achieve that goal, and to retain the Executive's services
prior to any such activity, the Board of Directors and the Executive have agreed
to enter into this Agreement to provide the Executive with continued employment
or certain termination benefits in the event of a Change in Control, as
hereinafter defined;
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
1. Definitions
a. Cause. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to materially perform his duties for the
Company under this Agreement after at least one warning in writing from the
Company's Board of Directors identifying specifically any such material failure
and offering a reasonable opportunity to cure such failure; (ii) the willful
engaging by the Executive in material misconduct which causes material injury to
the Company as specified in a written notice to the Executive from the Board of
Directors; or (iii)
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conviction of a crime (other than a traffic violation), habitual drunkenness,
drug abuse, or excessive absenteeism other than for illness, after a warning
(with respect to drunkenness or absenteeism only) in writing from the Board of
Directors to refrain from such behavior. No act or failure to act on the part of
the Executive shall be considered willful unless done, or omitted to be done, by
the Executive not in good faith and without reasonable belief that the action or
omission was in the best interest of the Company. The Company shall have the
burden of proving cause by clear and convincing evidence.
b. Change in Control.
(i) Definition. For purposes of this Agreement, a "Change in
Control" shall mean the occurrence of any of the following
events with respect to HUBCO:
(A) The acquisition of the beneficial ownership, as defined
under the Exchange Act, of 25% or more of HUBCO's voting securities
or all or substantially all of the assets of HUBCO by a single
person or entity or group of affiliated persons or entities;
(B) The merger, consolidation or combination of HUBCO with an
unaffiliated corporation in which the directors of HUBCO as
applicable immediately prior to such merger, consolidation or
combination constitute less than a majority of the board of
directors of the surviving, new or combined entity unless
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one-half of the board of directors of the surviving, new or combined
entity were directors of HUBCO immediately prior to such transaction
and HUBCO's chief executive officer immediately prior to such
transaction continues as the chief executive officer of the
surviving, new or combined entity; or
(C) During any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board
of Directors of HUBCO cease for any reason to constitute at least
two-thirds thereof, unless the election or nomination for the
election by HUBCO's stockholders of each new director was approved
by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(D) The transfer of all or substantially all of HUBCO's assets
or all or substantially all of the assets of its primary
subsidiaries.
(ii) Time of Change in Control. For purposes of this Agreement, a
Change in Control of HUBCO shall be deemed to occur on the earlier of:
(A) The first date on which a single person or entity or group
of affiliated persons or entities acquire the beneficial ownership
of 25% or more of HUBCO's voting securities; or
(B) Forty-five (45) days prior to the date HUBCO enters into a
definitive agreement to merge, consolidate, combine or sell the
assets of HUBCO; provided however, that for purposes of any
resignation by the Executive,
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the Change in Control shall not be deemed to occur until the
consummation of the merger, consolidation, combination or sale, as
the case may be, except if this Agreement is not expressly assumed
in writing by the acquiring company, then the Change in Control
shall be deemed to occur the day before the consummation; and
further provided that if any definitive agreement to merge,
consolidate, combine or sell assets is terminated without
consummation of the acquisition, then no Change in Control shall
have been deemed to have occurred; or
(C) The date upon which the election of directors occurs
qualifying under Section b(i)(C) above.
c. Contract Period. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
two years after the consummation of any event giving rise to the Change in
Control or (ii) the date the Executive would attain age 65.
d. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e. Good Reason. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(i) The assignment to Executive of any duties inconsistent with, or
the reduction of authority, powers or responsibilities associated with,
Executive's position,
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title, duties, responsibilities and status with the Company immediately
prior to a Change in Control; any removal of Executive from, or any
failure to re-elect Executive to, any position(s) or office(s) Executive
held immediately prior to such Change in Control. A change in position,
title, duties, responsibilities and status or position(s) or office(s)
resulting from a Change in Control or from a merger or consolidation of
the Company into or with another bank or company shall not meet the
requirements of this paragraph if, and only if, the Executive's new title,
duties and responsibilities are accepted in writing by the Executive, in
the sole discretion of the Executive.
(ii) A reduction by the Company in Executive's annual base
compensation as in effect immediately prior to a Change in Control or the
failure to award Executive any annual increases in accordance herewith;
(iii) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in Control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control unless the elimination of bonus programs is applied
consistently throughout the Surviving Company following a Change in
Control;
(iv) The Company's transfer of Executive to a geographic location
other than the corporate headquarters of the Company or the main office of
the Bank or more than 25 miles from his present office location, except
for required travel on Company's
<PAGE>
business to an extent substantially consistent with Executive's business
travel obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's 401(k) plan, the Company's pension plan, life insurance plan,
health and accident plan, disability plan, or stock option plan) in which
Executive is participating immediately prior to a Change in Control,
unless the elimination of such programs is applied consistently throughout
the Surviving Company following a Change in Control, (except that the
Company may institute or continue plans, programs or arrangements
providing Executive with substantially similar benefits); the taking of
any action by the Company which would adversely affect Executive's
participation in or materially reduce Executive's benefits under, any of
such plans, programs or arrangements; the failure to continue, or the
taking of any action which would deprive Executive, of any material fringe
benefit enjoyed by Executive immediately prior to such Change in Control;
or the failure by the Company to provide Executive with the number of paid
vacation days to which Executive was entitled immediately prior to such
Change in Control;
(vi) The failure by the Company to obtain an assumption in writing
of the obligations of the Company to perform this Agreement by any
successor to the Company and to provide such assumption to the Executive
prior to any Change in Control; or
<PAGE>
(vii) Any purported termination of Executive's employment by the
Company during the term of this Agreement which is not effected pursuant
to all of the requirements of this Agreement; and, for purposes of this
Agreement, no such purported termination shall be effective.
f. Voting Securities. AVoting securities@ means HUBCO's common stock,
together with any preferred stock entitled to vote generally in elections for
directors or other matters. With respect to preferred stock, in determining the
percentage of beneficial ownership of voting securities, the number of votes to
which the holder is entitled in the election of directors with the common
holders, and not the number of shares, shall be the basis of the calculation.
2. Employment. During the Contract Period, the Company hereby agrees to
employ the Executive, and the Executive hereby accepts employment upon the terms
and conditions set forth herein.
3. Position. During the Contract Period and prior to a Change in Control
the Executive shall be employed as an Executive Vice President and President of
the Shoppers Division of the Company. Upon a Change in Control as herein
defined, the Executive's position shall be governed by his title, position,
status, duties and authority as in effect immediately prior to the Change in
Control. The Executive shall devote his full time and attention to the business
of the Company, and shall not during the Contract Period be engaged in any other
business activity. This paragraph shall not be construed as preventing the
Executive from managing any investments of his which do not require any
substantial service on his part in the operation of such investments.
<PAGE>
4. Cash Compensation. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a. Annual Salary. An annual salary equal to the annual salary in
effect as of the Change in Control. The annual salary shall be payable in
installments in accordance with the Company's usual payroll method. The
annual salary shall not be reduced during the Contract Period.
b. Annual Bonus. An annual cash bonus equal to higher of a) the
highest bonus paid to the Executive during the three fiscal years prior to
the Change in Control or b) the highest full year bonus to which the
Executive would have been entitled during the three fiscal years prior to
the Change in Control. The bonus shall be payable at the time and in the
manner which the Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Company during the Contract Period shall
review annually, or at more frequent intervals which the Company
determines is appropriate, the Executive's compensation and shall award
his additional compensation to reflect the Executive's performance, the
performance of the Company and competitive compensation levels, all as
determined in the discretion of the Company.
5. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall be
entitled to reimbursement for all business expenses incurred by him with
respect to the business of the
<PAGE>
Company in the same manner and to the same extent as such expenses were
previously reimbursed to him immediately prior to the Change in Control.
b. Club Membership and Automobile. If, prior to the Change in
Control, the Executive was entitled to membership in a country club and/or
the use of an automobile, he shall be entitled to the same membership
and/or use of an automobile at least comparable to the automobile provided
to him prior to the Change in Control during the Contract Period.
c. Other Benefits. The Executive also shall be entitled to vacations
and sick days, in accordance with the practices and procedures of the
Company, as such existed immediately prior to the Change in Control.
During the Contract Period, the Executive also shall be entitled to
hospital, health, medical and life insurance, and any other benefits
enjoyed, from time to time, by senior officers of the Company, all upon
terms as favorable as those enjoyed by other senior officers of the
Company. Notwithstanding anything in this paragraph 5(c) to the contrary,
if the Company adopts any change in the benefits provided for senior
officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquirer of the Company, if
any), including the chief executive officer of such entities, then no such
change shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate
the Executive for Cause, upon written notice to him of the termination which
notice shall specify the reasons for the termination and provide, if practical,
an opportunity for the Executive to cure such Cause. In the event of a valid
termination for Cause the Executive shall not be entitled to any further
benefits under this Agreement.
<PAGE>
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall be entitled to
the payments and benefits provided under Section 9 hereof as if the Executive
had been terminated hereunder without Cause upon such date.
8. Death Benefits. Upon the Executive's death during the Contract Period,
the Executive shall be deemed to terminate without cause as of the date of death
and his estate shall be entitled to the payments and benefits provided under
Section 9 hereof as if the Executive had been terminated without cause upon such
date.
9. Termination Without Cause or Resignation.
a. Termination Without Cause. The Company may terminate the
Executive without Cause during the Contract Period by written notice to
the Executive.
b. Resignation for Good Reason. The Executive may resign for Good
Reason during the Contract Period upon prior written notice to the
Company.
c. Payments and Benefits. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive
resigns for Good Reason under paragraph 9(b), the Company shall, as
promptly as practical but in no event later than 10 business days after
the termination of employment pay the Executive a lump sum (the ALump
Sum@) equal to 2.0 times the sum of (i) the annual salary of the Executive
immediately prior to the Change in Control and the higher of, (ii) the
highest bonus paid to the Executive during the three
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fiscal years prior to the Change in Control or, (iii) the highest full
year bonus to which the Executive would have been entitled during the
three fiscal years prior to the Change in Control. For these purposes, any
deferral of salary by the Executive under the Company's 401(k) plan or
otherwise shall be included in salary. The Company also shall continue to
provide the Executive, his spouse and eligible dependents for a period of
one year following the termination of employment, with health,
hospitalization and medical insurance, as were provided at the time of the
Change in Control, at the Company's cost, subject only to the
responsibility of the Executive to continue to pay a portion of the
premium, as well as co-pays or deductibles in such amounts as were paid by
the Executive prior to the termination. The Lump Sum and the benefits
provided hereunder shall be subject to Section 10 hereof.
d. No Duty to Mitigate. The Executive shall not have a duty to
mitigate the damages suffered by him in connection with the termination by
the Company of his employment without Cause under paragraph 9(a) or a
resignation under paragraph 9(b) during the Contract Period. The Company
shall not be entitled to offset from the payment due to the Executive
hereunder any amounts due from or claims against the Executive.
e. Legal Fees and Expenses. If the Company fails to pay the
Executive the Lump Sum due him under this Agreement or to provide him with
the health, hospitalization and medical insurance benefits due under this
Agreement, the Executive, after giving 10 days' written notice to the
Company identifying the Company's failure, shall be entitled to recover
from the Company, monthly upon demand, any and all of his legal fees and
other expenses incurred in connection with his enforcement against the
Company of the terms of this Agreement.
<PAGE>
10. Certain Reduction of Payments and Benefits.
a. Reduction. Anything in this Agreement to the contrary
notwithstanding, prior to the payment of the Lump Sum or the benefits
payable hereunder in connection with the Executive's termination of
employment, the certified public accountants for the Company immediately
prior to a Change in Control (the ACertified Public Accountants@), shall
determine as promptly as practical and in any event within 20 business
days following the termination of employment of Executive whether any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise) (a APayment@) would
more likely than not be nondeductible by HUBCO for Federal income purposes
because of Section 280G of the Internal Revenue Code of 1986, as amended
(the ACode@), and if it is then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant
to this Agreement in connection with the Executive's termination of
employment (such payments or distributions pursuant to this Agreement are
hereinafter referred to as AAgreement Payments@) shall be reduced (but not
below zero) to the Reduced Amount. For purposes of this paragraph, the
AReduced Amount@ shall be an amount expressed in present value which
maximizes the aggregate present value of Agreement Payments without
causing any Payment to be nondeductible by HUBCO because of said Section
280G of the Code.
b. Executive Selection of Reductions. If under paragraph (a) of this
section the Certified Public Accountants determine that any payment would
more likely than not be
<PAGE>
nondeductible by HUBCO because of Section 280G of the Code, HUBCO shall
promptly give the Executive notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Executive
may then elect, in his sole discretion, which and how much of the
Agreement Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Agreement Payments equals the
Reduced Amount), and shall advise HUBCO in writing of his election within
5 business days of his receipt of notice. If no such election is made by
the Executive within such 5-day period, HUBCO may elect which and how much
of the Agreement Payments shall be eliminated or reduced (as long as after
such election the aggregate present value of the Agreement Payments equals
the Reduced Amount) and shall notify the Executive promptly of such
election. For purposes of this paragraph, present value shall be
determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Certified Public Accountants shall be binding
upon HUBCO and the Executive and shall be made as promptly as practical
but in any event within 20 days of a termination of employment of the
Executive. HUBCO may suspend for a period of up to 30 days after
termination of employment the payment of the Lump Sum and any other
benefits due to the Executive under this Agreement until the Certified
Public Accountants finish the determination and the Executive (or HUBCO,
as the case may be) elect how to reduce the Agreement Payments, if
necessary. As promptly as practicable following such determination and the
elections hereunder, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to the Executive
under this Agreement and shall promptly pay to or distribute for the
benefit of the Executive in the future such amounts as they become due to
the Executive under this Agreement.
<PAGE>
c. Overpayments and Underpayments. As a result of the uncertainty in
the application of Section 280G of the Code, it is possible that Agreement
Payments may have been made by the Company which should not have been made
(AOverpayment@) or that additional Agreement Payments which will have not
been made by HUBCO could have been made (AUnderpayment@), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the
event that the Certified Public Accountants, based upon the assertion of a
deficiency by the Internal Revenue Service against HUBCO or Executive
which said Certified Public Accountants believe has a high probability of
success, determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Executive which
Executive shall repay to HUBCO together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that no amount shall be payable by Executive to HUBCO in and to
the extent such payment would not reduce the amount which is subject to
taxation under Section 4999 of the Code. In the event that the Certified
Public Accountants, based upon controlling precedent, determine that an
Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Executive together with interest
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code.
<PAGE>
11. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the course
of his employment with the Company and in the pursuit of the business of
the Company or any of its subsidiaries or affiliates, the Executive shall
not, at any time during or following the Contract Period, disclose or use,
any confidential information or proprietary data of the Company or any of
its subsidiaries or affiliates. The Executive agrees that, among other
things, information concerning the identity of and the Company's relations
with its customers is confidential information.
b. Specific Performance. Executive agrees that the Company does not
have an adequate remedy at law for the breach of this section and agrees
that he shall be subject to injunctive relief and equitable remedies as a
result of the breach of this section. The invalidity or unenforceability
of any provision of this Agreement shall not affect the force and effect
of the remaining valid portions. No violation of this Section 11 shall
entitle the Company to withhold any payment or benefit due the Executive
hereunder.
c. Survival. This section shall survive the termination of the
Executive's employment hereunder and the expiration of this Agreement.
12. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this Agreement
shall commence on the date hereof and shall remain in effect for a period
of two (2) years from the date hereof (the "Initial Term") or until the
end of the Contract Period, whichever is later. The Initial Term shall be
automatically extended for an additional one year period on the
anniversary date hereof (so that the Initial Term is always two (2) years)
unless on or before such date the Board of
<PAGE>
Directors of HUBCO by resolution passed by a majority vote of the
Directors then in office, votes not to extend the Initial Term any
further. The Company shall promptly advise the Executive in writing of the
passage of such resolution and if it fails to do so the passage of such
resolution shall be ineffective.
b. No Effect Prior to Change in Control. Prior to a Change in
Control, this Agreement shall not affect any rights of the Company to
terminate the Executive or the benefits payable to the Executive. The
rights and liabilities provided hereunder shall only become effective upon
a Change in Control. If the employment of the Executive by the Company is
ended for any reason whatsoever prior to a Change in Control, this
Agreement shall thereafter be of no further force and effect.
13. Compensation and Benefits Provided Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that the
Executive shall not be entitled to the benefits of any other plan or program of
the Company or agreement with the Company expressly providing for severance or
termination pay or post-employment medical benefits. In furtherance of the
foregoing, this Agreement is not in derogation of, but rather supplemental to,
the rights and benefits of the Executive, if any, under any stock option plan,
restricted stock plan, pension plan, 401(k) plan and SERP.
<PAGE>
14. Notice. During the Contract Period, any notice of termination of the
employment of the Executive by the Company or by the Executive to the Company
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
dated notice which shall (i) indicate the specific termination provision in this
Agreement relied upon; (ii) set forth, if necessary, in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
employment of the Executive or from the Company under the provision so
indicated; (iii) specify a date of termination, which shall be not less than
four weeks nor more than six weeks after such Notice of Termination is given,
except in the case of termination of employment by the Company of the Executive
for Cause pursuant to Section 6 hereof, in which case the Notice of Termination
may specify a date of termination as of the date such Notice of Termination is
given; and (iv) be given by personal delivery or, if the individual is not
personally available, by certified mail to the last known address of the
individual. Upon the death of the Executive, no Notice of Termination need be
given.
15. Payroll and Withholding Taxes. All payments to be made or benefits to
be provided hereunder by the Company shall be subject to applicable federal and
state payroll or withholding taxes. Any Gross-Up Payment shall be made in the
form of withholding taxes and shall not be paid to the Executive, but shall be
sent to the IRS in the ordinary course of the Company's payroll withholding.
16. Miscellaneous. The terms of this Agreement shall be governed by,
and interpreted and construed in accordance with, the laws of New Jersey. This
Agreement supersedes all prior agreements and understandings with respect to the
matters covered hereby. The amendment
<PAGE>
or termination of this Agreement may be made only in a writing executed by the
Company and the Executive, and no amendment or termination of this Agreement
shall be effective unless and until made in such a writing. This Agreement shall
be binding upon any successor (whether direct or indirect, by purchase, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
assets of the Company. This Agreement is personal to the Executive and the
Executive may not assign any of his rights or duties hereunder but this
Agreement shall be enforceable by the Executive's legal representatives,
executors or administrators. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, HUBCO, Inc. has caused this Agreement to be signed by
its duly authorized representatives pursuant to the authority of their Board of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above. ATTEST: HUBCO, INC.
By: D. LYNN VAN BORKULO-NUZZO By: KENNETH T. NEILSON
------------------------------- ---------------------------------------
D. Lynn Van Borkulo-Nuzzo, Esq. Kenneth T. Neilson,
Corporate Secretary Chairman, President and Chief Executive
Officer
WITNESS:
SUSAN B. WEAVER THOMAS R. NELSON
- ---------------------------------- ---------------------------------------
Susan B. Weaver Thomas R. Nelson
CHANGE IN CONTROL,
SEVERANCE AND EMPLOYMENT AGREEMENT
FOR THOMAS SHARA
THIS CHANGE IN CONTROL SEVERANCE AND EMPLOYMENT AGREEMENT (the
"Agreement"), is made this 1st day of January, 1997, among HUBCO, Inc.
("HUBCO"), a New Jersey corporation which maintains its principal office at 1000
MacArthur Boulevard., Mahwah, New Jersey, HUDSON UNITED BANK (the "Bank"), a New
Jersey chartered commercial bank, with an office at 1000 MacArthur Boulevard.,
Mahwah, New Jersey (HUBCO and the Bank collectively are referred to herein as
the "Company") and THOMAS SHARA (the "Executive").
BACKGROUND
WHEREAS, the Executive has been employed by HUBCO and the Bank for many
years, most recently as Executive Vice President and Senior Loan Officer of the
Bank;
WHEREAS, the Executive throughout his tenure has worked diligently in his
position in the business of HUBCO and the Bank;
WHEREAS, the Board of Directors of HUBCO and the Bank believe that the
future services of the Executive are of great value to HUBCO and the Bank and
that it is important for the growth and development of HUBCO and the Bank that
the Executive continue in his position;
WHEREAS, if HUBCO receives any proposal from a third person concerning a
possible business combination with, or acquisition of equities securities of,
the Company, the Board of Directors of HUBCO (the "Board") believes it is
imperative that HUBCO and the Bank and the
<PAGE>
Board be able to rely upon the Executive to continue in his position, and that
they be able to receive and rely upon his advice, if they request it, as to the
best interests of the Company and its shareholders, without concern that the
Executive might be distracted by the personal uncertainties and risks created by
such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services
prior to any such activity, the Board of Directors and the Executive have agreed
to enter into this Agreement to provide the Executive's with certain termination
benefits in the event of a Change in Control, as hereinafter defined;
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
1. Definitions
a. Cause. For purposes of this Agreement "Cause" with respect
to the termination by the Company of Executive's employment shall mean (i)
willful and continued failure by the Executive to materially perform his duties
for the Company under this Agreement after at least one warning in writing from
the Company's Board of Directors identifying specifically any such material
failure and offering a reasonable opportunity to cure such failure; (ii) the
willful engaging by the Executive in material misconduct which causes material
injury to the Company as specified in a written notice to the Executive from the
Board of Directors; or (iii) conviction of a crime (other than a traffic
violation), habitual drunkenness, drug abuse, or excessive absenteeism other
than for illness, after a warning (with respect to drunkenness or absenteeism
only) in writing
<PAGE>
from the Board of Directors to refrain from such behavior. No act or failure to
act on the part of the Executive shall be considered willful unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the action or omission was in the best interest of the Company. The
Company shall have the burden of proving cause by clear and convincing evidence.
b. Change in Control.
(i) Definition. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any of the following
events with respect to HUBCO:
(A) The acquisition of the beneficial
ownership, as defined under the Exchange Act, of 25% or more of
HUBCO's voting securities or all or substantially all of the assets
of HUBCO by a single person or entity or group of affiliated persons
or entities;
(B) The merger, consolidation or
combination of HUBCO with an unaffiliated corporation in which the
directors of HUBCO as applicable immediately prior to such merger,
consolidation or combination constitute less than a majority of the
board of directors of the surviving, new or combined entity unless
one-half of the board of directors of the surviving, new or combined
entity were directors of HUBCO immediately prior to such transaction
and HUBCO's chief executive officer immediately prior to such
transaction continues as the chief executive officer of the
surviving, new or combined entity; or
(C) During any period of two consecutive
calendar years, individuals who at the beginning of such period
constitute the
<PAGE>
Board of Directors of HUBCO cease for any reason to constitute at
least two-thirds thereof, unless the election or nomination for the
election by HUBCO's stockholders of each new director was approved
by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(D) The transfer of all or substantially
all of HUBCO's assets or all or substantially all of the assets of
its primary subsidiaries.
(ii) Time of Change in Control. For purposes of this
Agreement, a Change in Control of HUBCO shall be deemed to occur on the
earlier of:
(A) The first date on which a single person
or entity or group of affiliated persons or entities acquire the
beneficial ownership of 25% or more of HUBCO's voting securities; or
(B) Forty-five (45) days prior to the date
HUBCO enters into a definitive agreement to merge, consolidate, combine or
sell the assets of HUBCO; provided however, that for purposes of any
resignation by the Executive, the Change in Control shall not be deemed to
occur until the consummation of the merger, consolidation, combination or
sale, as the case may be, except if this Agreement is not expressly
assumed in writing by the acquiring company, then the Change in Control
shall be deemed to occur the day before the consummation; and further
provided that if any definitive agreement to merge, consolidate, combine
or sell assets is terminated without consummation of the acquisition, then
no Change in Control shall have been deemed to have occurred; or
<PAGE>
(C) The date upon which the election of
directors occurs qualifying under Section b(i)(C) above.
c. Contract Period. "Contract Period" shall mean the period
commencing the day immediately preceding a Change in Control and ending on the
earlier of (i) two years after the consummation of any event giving rise to the
Change in Control or (ii) the date the Executive would attain age 65.
d. Exchange Act. "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary
termination by Executive of his employment with the Company, "Good Reason" shall
mean any of the following, if taken without Executive's express written consent:
(i) The assignment to Executive of any duties
inconsistent with, or the reduction of authority, powers or
responsibilities associated with, Executive's position, title, duties,
responsibilities and status with the Company immediately prior to a Change
in Control; any removal of Executive from, or any failure to re-elect
Executive to, any position(s) or office(s) Executive held immediately
prior to such Change in Control. A change in position, title, duties,
responsibilities and status or position(s) or office(s) resulting from a
Change in Control or from a merger or consolidation of the Company into or
with another bank or company shall not meet the requirements of this
paragraph if, and only if, the Executive's new title, duties and
responsibilities are accepted in writing by the Executive, in the sole
discretion of the Executive.
<PAGE>
(ii) A reduction by the Company in Executive's annual
base compensation as in effect immediately prior to a Change in Control or
the failure to award Executive any annual increases in accordance
herewith;
(iii) A failure by the Company to continue any bonus
plan in which Executive participated immediately prior to the Change in
Control or a failure by the Company to continue Executive as a participant
in such plan on at least the same basis as Executive participated in such
plan prior to the Change in Control;
(iv) The Company's transfer of Executive to another
geographic location outside of New Jersey or more than 25 miles from his
present office location, except for required travel on Company's business
to an extent substantially consistent with Executive's business travel
obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect any
employee benefit plan, program or arrangement (including, without
limitation the Company's 401(k) plan, the Company's pension plan, life
insurance plan, health and accident plan, disability plan, or stock option
plan) in which Executive is participating immediately prior to a Change in
Control (except that the Company may institute or continue plans, programs
or arrangements providing Executive with substantially similar benefits);
the taking of any action by the Company which would adversely affect
Executive's participation in or materially reduce Executive's benefits
under, any of such plans, programs or arrangements; the failure to
continue, or the taking of any action which would deprive Executive, of
any material fringe benefit enjoyed by Executive immediately prior to such
Change in Control; or the failure by the Company to provide Executive with
the number of paid vacation days to which Executive was entitled
immediately prior to such Change in Control;
<PAGE>
(vi) The failure by the Company to obtain an assumption
in writing of the obligations of the Company to perform this Agreement by
any successor to the Company and to provide such assumption to the
Executive prior to any Change in Control; or
(vii) Any purported termination of Executive's
employment by the Company during the term of this Agreement which is not
effected pursuant to all of the requirements of this Agreement; and, for
purposes of this Agreement, no such purported termination shall be
effective.
f. Voting Securities. "Voting securities" means HUBCO's common
stock, together with any preferred stock entitled to vote generally in elections
for directors or other matters. With respect to preferred stock, in determining
the percentage of beneficial ownership of voting securities, the number of votes
to which the holder is entitled in the election of directors with the common
holders, and not the number of shares, shall be the basis of the calculation.
2. Employment. During the Contract Period, the Company hereby agrees
to employ the Executive, and the Executive hereby accepts employment upon the
terms and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be
employed as the Executive Vice President and Senior Loan Officer of the Bank, or
such other corporate or divisional profit center as shall then be the principal
successor to the business, assets and properties of the Company, with
substantially the same title and the same duties and responsibilities as before
the Change in Control. The Executive shall devote his full time and attention to
the business of the Company, and shall not during the Contract Period be engaged
in any other business activity. This
<PAGE>
paragraph shall not be construed as preventing the Executive from managing any
investments of his which do not require any substantial service on his part in
the operation of such investments.
4. Cash Compensation. The Company shall pay to the Executive
compensation for his services during the Contract Period as follows:
a. Annual Salary. An annual salary equal to the annual salary
in effect as of the Change in Control. The annual salary shall be payable in
installments in accordance with the Company's usual payroll method. The annual
salary shall not be reduced during the Contract Period.
b. Annual Bonus. An annual cash bonus equal to the highest of
the bonuses paid to the Executive for the three fiscal years prior to the Change
in Control. The bonus shall be payable at the time and in the manner which the
Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during
the Contract Period shall review annually, or at more frequent intervals which
the Board determines is appropriate, the Executive's compensation and shall
award him additional compensation to reflect the Executive's performance, the
performance of the Company and competitive compensation levels, all as
determined in the discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall
be entitled to reimbursement for all business expenses incurred by him with
respect to the business of the Company in the same manner and to the same extent
as such expenses were previously reimbursed to him immediately prior to the
Change in Control.
<PAGE>
b. Supplemental Executive Retirement Plan. During the Contract
Period, if the Executive was entitled to benefits under the Company's
Supplemental Executive Retirement Plan ("SERP") prior to the Change in Control,
the Executive shall be entitled to continued benefits under the SERP after the
Change in Control and such SERP may not be modified to reduce or eliminate the
accrual of or vesting of such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in
Control, the Executive was entitled to membership in a country club and/or the
use of an automobile, he shall be entitled to the same membership and/or use of
an automobile at least comparable to the automobile provided to him prior to the
Change in Control during the Contract Period.
d. Other Benefits. The Executive also shall be entitled to
vacations and sick days, in accordance with the practices and procedures of the
Company, as such existed immediately prior to the Change in Control. During the
Contract Period, the Executive also shall be entitled to hospital, health,
medical and life insurance, and any other benefits enjoyed, from time to time,
by senior officers of the Company, all upon terms as favorable as those enjoyed
by other senior officers of the Company. Notwithstanding anything in this
paragraph 5(d) to the contrary, if the Company adopts any change in the benefits
provided for senior officers of the Company, and such policy is uniformly
applied to all officers of the Company (and any successor or acquirer of the
Company, if any), including the chief executive officer of such entities, then
no such change shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to
terminate the Executive for Cause, upon written notice to him of the termination
which notice shall specify the reasons for the termination and provide, if
practical, an opportunity for the Executive to cure such
<PAGE>
Cause. In the event of a valid termination for Cause the Executive shall not be
entitled to any further benefits under this Agreement.
7. Disability. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall be entitled to
the payments and benefits provided under Section 9 hereof as if the Executive
had been terminated hereunder without Cause upon such date.
8. Death Benefits. Upon the Executive's death during the Contract
Period, the Executive shall be deemed to terminate without cause as of the date
of death and his estate shall be entitled to the payments and benefits provided
under Section 9 hereof as if the Executive had been terminated without cause
upon such date.
9. Termination Without Cause or Resignation.
a. Termination Without Cause. The Company may terminate the
Executive without Cause during the Contract Period by written notice to the
Executive.
b. Resignation For Good Reason. The Executive may resign for
Good Reason during the Contract Period upon prior written notice to the Company.
c. Payments and Benefits. If the Company terminates the
Executive's employment during the Contract Period without Cause or if the
Executive resigns for Good Reason under paragraph 9(b), the Company shall, as
promptly as practical but in no event later than 10 business days after the
termination of employment pay the Executive a lump sum (the "Lump Sum") equal to
3.0 times the sum of (i) the annual salary paid to the Executive immediately
prior to the Change in Control plus (ii) the highest annual incentive bonus paid
to the Executive for any fiscal year during each of the three fiscal years
immediately prior to the Change in Control. For
<PAGE>
these purposes, any deferral of salary or bonus by the Executive under the
Company's 401(k) plan or otherwise shall be included in salary and bonus. The
Company shall at the time of such payment also make any Gross-Up Payment due
under Section 10 hereof for the calendar year of the termination. The Company
also shall continue to provide the Executive, his spouse and eligible dependents
for a period of three years following the termination of employment, with
health, hospitalization and medical insurance, as were provided at the time of
the Change in Control, at the Company's cost, subject only to the responsibility
of the Executive to continue to pay a portion of the premium, as well as co-pays
or deductibles in such amounts as were paid by the Executive prior to the
termination.
d. No Duty to Mitigate. The Executive shall not have a duty to
mitigate the damages suffered by him in connection with the termination by the
Company of his employment without Cause under paragraph 9(a) or a resignation
under paragraph 9(b) during the Contract Period. The Company shall not be
entitled to offset from the payment due to the Executive hereunder any amounts
due from or claims against the Executive.
e. Legal Fees and Expenses. If the Company fails to pay the
Executive the Lump Sum due him under this Agreement or to provide him with the
health, hospitalization and medical insurance benefits due under this Agreement
or the Gross-Up Payment due under Section 10 hereof, the Executive, after giving
10 days' written notice to the Company identifying the Company's failure, shall
be entitled to recover from the Company, monthly upon demand, any and all of his
legal fees and other expenses incurred in connection with his enforcement
against the Company of the terms of this Agreement.
<PAGE>
10. Gross Up for Taxes.
a. Additional Payments. If, for any taxable year, Executive
shall be liable for the payment of an excise tax under Section 4999 or other
substitute or similar tax assessment (the "Excise Tax") of the Internal Revenue
Code of 1986, as amended (the "Code"), including the corresponding provisions of
any succeeding law, with respect to any payments under this Section 10 or any
payments and/or benefits under this Agreement or under any benefit plan of the
Company applicable to Executive individually or generally to executives or
employees of the Company, then, notwithstanding any other provisions of this
Agreement, the Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on such payments and benefits and any federal, state
and local income tax and Excise Tax upon payments provided for in this Section
10, shall be equal to the payments due to the Executive hereunder and the
payments and/or benefits due to the Executive under any benefit plan of the
Company. Each Gross-Up Payment shall be made by domestic cashier's or
treasurer's check, certified check or wire transfer, upon the later of (i) five
(5) days after the date the Executive notifies the Company of its need to make
such Gross-Up Payment, or (ii) the date of any payment causing the liability for
such Excise Tax. The amount of any Gross-Up Payment under this section shall be
computed by a nationally recognized certified public accounting firm designated
jointly by the Company and the Executive. The cost of such services by the
accounting firm shall be paid by the Company. If the Company and the Executive
are unable to designate jointly the accounting firm, then the firm shall be the
accounting firm used by the Company immediately prior to the Change in Control.
b. IRS Disputed Claims. The Executive shall notify the company
in writing of any claim by the Internal Revenue Service ("IRS") that, if
successful, would require the
<PAGE>
payment by the Company of a Gross-Up Payment in addition to that payment
previously paid by the Company pursuant to this section. Such notification shall
be given an soon as practicable but no later than fifteen (15) business days
after the Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim, the date on which such claim is requested
to be paid, and attach a copy of the IRS notice. The Executive shall not pay
such claim prior to the expiration of the thirty (30) day period following the
date on which the Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) Give the Company any information reasonably
requested by the Company relating to such claim;
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) Permit the Company to participate in any
proceedings relating to such claim;
provided, however that the Company shall pay directly all costs and expenses
(including legal and accounting fees, as well as other expenses and any
additional interest and penalties) incurred by the Executive and the Company in
connection with an IRS levy, contest or claim and provided further that the
Company shall not take any action or fail to make any Gross-Up Payment so as to
cause the
<PAGE>
assessment of any IRS levy and the Company shall cause any levy so assessed to
be immediately released by payment of the Gross-Up Amount, together with all
costs, interest and penalties.
11. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the
course of his employment with the Company and in the pursuit of the business of
the Company or any of its subsidiaries or affiliates, the Executive shall not,
at any time during or following the Contract Period, disclose or use, any
confidential information or proprietary data of the Company or any of its
subsidiaries or affiliates. The Executive agrees that, among other things,
information concerning the identity of and the Company's relations with its
customers is confidential information.
b. Specific Performance. Executive agrees that the Company
does not have an adequate remedy at law for the breach of this section and
agrees that he shall be subject to injunctive relief and equitable remedies as a
result of the breach of this section. The invalidity or unenforceability of any
provision of this Agreement shall not affect the force and effect of the
remaining valid portions.
c. Survival. This section shall survive the termination of the
Executive's employment hereunder and the expiration of this Agreement.
12. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this
Agreement shall commence on the date hereof and shall remain in effect for a
period of 3 years from the date hereof (the "Initial Term") or until the end of
the Contract Period, whichever is later. The Initial Term shall be automatically
extended for an additional one year period on the anniversary date hereof (so
that the Initial Term is always 3 years) unless on or before such date the Board
of Directors of HUBCO by resolution passed by a majority vote of the Directors
then in office, votes
<PAGE>
not to extend the Initial Term any further. The Company shall promptly advise
the Executive in writing of the passage of such resolution and if it fails to do
so, the passage of such resolution shall be ineffective.
b. No Effect Prior to Change in Control. Prior to a Change in
Control, this Agreement shall not affect any rights of the Company to terminate
the Executive or the benefits payable to the Executive. The rights and
liabilities provided hereunder shall only become effective upon a Change in
Control. If the employment of the Executive by the Company is ended for any
reason whatsoever prior to a Change in Control, this Agreement shall thereafter
be of no further force and effect.
13. Compensation and Benefits Provided Not in Derogation of Other
Benefits. Anything to the contrary herein contained notwithstanding, the payment
or obligation to pay any monies, or granting of any benefits, rights or
privileges to Executive as provided in this Agreement shall not be in lieu or
derogation of the rights and privileges that the Executive now has or will have
under any plans or programs of or agreements with the Company, except that the
Executive shall not be entitled to the benefits of any other plan or program of
the Company or agreement with the Company expressly providing for severance or
termination pay or post-employment medical benefits. In furtherance of the
foregoing, this Agreement is not in derogation of, but rather supplemental to,
the rights and benefits of the Executive, if any, under any stock option plan,
restricted stock plan, pension plan, 401(k) plan and SERP.
14. Notice. During the Contract Period, any notice of termination of
the employment of the Executive by the Company or by the Executive to the
Company shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a dated notice which shall (i) indicate the specific
<PAGE>
termination provision in this Agreement relied upon; (ii) set forth, if
necessary, in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the employment of the Executive or from the Company
under the provision so indicated; (iii) specify a date of termination, which
shall be not less than two weeks nor more than six weeks after such Notice of
Termination is given, except in the case of termination of employment by the
Company of the Executive for Cause pursuant to Section 6 hereof, in which case
the Notice of Termination may specify a date of termination as of the date such
Notice of Termination is given; and (iv) be given by personal delivery or, if
the individual is not personally available, by certified mail to the last known
address of the individual. Upon the death of the Executive, no Notice of
Termination need be given.
15. Payroll and Withholding Taxes. All payments to be made or
benefits to be provided hereunder by the Company shall be subject to applicable
federal and state payroll or withholding taxes. Any Gross-Up Payment shall be
made in the form of withholding taxes and shall not be paid to the Executive,
but shall be sent to the IRS in the ordinary course of the Company's payroll
withholding.
16. Miscellaneous. This Agreement is the joint and several
obligation of HUBCO and the Bank. The terms of this Agreement shall be governed
by, and interpreted and construed in accordance with, the laws of New Jersey.
This Agreement supersedes all prior agreements and understandings with respect
to the matters covered hereby, including expressly the Change in Control
Agreement among HUBCO and the Bank and the Executive, dated November 13, 1990,
most recently amended January 1, 1995. The amendment or termination of this
Agreement may be made only in a writing executed by the Company and the
Executive, and no amendment or termination of this Agreement shall be effective
unless and until made in such a writing. This Agreement shall be binding upon
any successor (whether direct or indirect, by
<PAGE>
purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all of the assets of the Company. This Agreement is personal to
the Executive and the Executive may not assign any of his rights or duties
hereunder but this Agreement shall be enforceable by the Executive's legal
representatives, executors or administrators. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
IN WITNESS WHEREOF, HUBCO, Inc. and Hudson United Bank each have
caused this Agreement to be signed by their duly authorized representatives
pursuant to the authority of their Boards of Directors, and the Executive has
personally executed this Agreement, all as of the day and year first written
above.
ATTEST: HUBCO, INC.
D. LYNN VAN BORKULO-NUZZO CHARLES F.X. POGGI
- -------------------------- ---------------------
D. Lynn Van Borkulo-Nuzzo Charles F.X. Poggi,
Corporate Secretary Chairman of the Compensation
Committee
ATTEST: HUDSON UNITED BANK
D. LYNN VAN BORKULO-NUZZO CHARLES F.X. POGGI
- -------------------------- ---------------------
D. Lynn Van Borkulo-Nuzzo Charles F.X. Poggi,
Corporate Secretary Chairman of the Compensation
Committee
WITNESS:
KENNETH T. NEILSON THOMAS J. SHARA
- -------------------------- ---------------------
Kenneth T. Neilson Thomas Shara
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of September 14, 1999 among HUDSON UNITED
BANCORP, a New Jersey Corporation (the "Company"), HUDSON UNITED BANK, a New
Jersey chartered commercial bank (the "Bank") and KENNETH T. NEILSON (the
"Officer").
A. The Officer is currently Chairman of the Board, President and Chief
Executive Officer, and a director, of the Company and of the Bank.
B. The Company and Dime Bancorp, Inc. ("Bancorp") are concurrently
herewith entering into an Agreement and Plan of Merger dated as of the date
hereof (the "Merger Agreement"), which contemplates the merger or business
combination of the Company and Bancorp (the "Holding Company Combination") at
the Effective Time (as defined in the Merger Agreement) as well as the merger or
business combination of the Bank and The Dime Savings Bank of New York, FSB (the
"Bank Combination").
C. The Company and the Bank are desirous of employing the Officer prior to
the Holding Company Combination and, pursuant to the Merger Agreement, of
providing for the continued employment of the Officer by the Surviving
Corporation (as defined in the Merger Agreement) and of the entity resulting
from the Bank Combination (the "Surviving Bank") on and subsequent to the
Effective Time and upon the terms and conditions set forth in this Agreement.
D. The Officer is desirous of being so employed upon the terms and
conditions set forth in this Agreement.
Therefore, the Company, the Bank and the Officer, intending to be legally
bound, agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement, the
Company hereby employs the Officer, and the Officer hereby accepts such
employment. In addition, subject to the terms and conditions of this Agreement,
the Bank hereby employs the Officer and the Officer hereby accepts such
employment. Except as otherwise limited by Sections 9(c) and 11 hereof, the
Company and the Bank shall be jointly and severally liable for all of the
Company's and the Bank's obligations hereunder.
2. Term of Employment. (a) The term of the Officer's employment under this
Agreement shall be deemed to have commenced on the date of this Agreement and
shall continue until December 31, 2004 (the "Term"). The expiration of the Term
of this Agreement shall not be deemed to be a termination of the Officer's
employment by the Company.
(b) The Officer's employment may be terminated during the Term of
this Agreement by the Company or the Officer in the manner specified in this
Agreement. Any such
<PAGE>
termination of employment shall result in a termination of this Agreement on the
Effective Date of Termination (as defined in Section 14); provided that,
notwithstanding anything to the contrary in the foregoing, any right of the
Officer to any payments or benefits as a result of a termination of the
Officer's employment or to enforce such rights (in each case as provided in this
Agreement) shall survive the termination of this Agreement.
3. Offices. (a)(i) During the Term and until the Effective Time, the
Officer shall serve as Chairman of the Board and Chief Executive Officer of the
Company, and (ii) during the Term and until the Bank Combination is effected,
the Officer shall serve as Chairman of the Board and Chief Executive Officer of
the Bank.
(b)(i) During the portion of the Term that commences at the
Effective Time and until the Officer becomes Chairman of the Board and Chief
Executive Officer of the Company in accordance with Section 3(c) below (the
"Initial Post-Merger Period"), the Officer shall serve as President and Chief
Operating Officer of the Surviving Corporation, and (ii) during the portion of
the Term that commences on the date the Bank Combination is effected and until
the Officer becomes Chairman of the Board and Chief Executive Officer of the
Bank in accordance with Section 3(c) below, the Officer shall serve as President
and Chief Operating Officer of the Surviving Bank. Upon and following the
respective effective times of the Holding Company Combination and the Bank
Combination, all references in this Agreement to the "Company" and the "Bank"
shall be deemed to refer to the Surviving Corporation and the Surviving Bank,
respectively.
(c) The Officer shall become Chairman of the Board and Chief
Executive Officer of each of the Company and the Bank in accordance with the
procedures specified in the Merger Agreement, with service in such positions to
commence on December 31, 2002 (or on such earlier date after the Effective Time
on which Lawrence J. Toal (the "Present CEO") shall cease to be the Chairman of
the Board and Chief Executive Officer of the Company and the Bank, at which time
the provisions of the first sentence of paragraph (3)(b) shall cease to apply),
unless a Special Majority (as defined in the Merger Agreement) of the Board of
Directors shall decide to the contrary. The portion of the Term beginning with
the Officer becoming Chairman of the Board and Chief Executive Officer of each
of the Company and the Bank in accordance with the provisions of this Section
3(c) is referred to hereafter as the "Remaining Post-Merger Period" (the Initial
Post-Merger Period and the Remaining Post-Merger Period are together referred to
hereafter as the "Post-Merger Period").
(d) At all times during the Term, the Officer shall serve as a
director of each of the Company (subject to election by the stockholders of the
Company) and the Bank and a member of the Executive Committee of the Board of
Directors of each of the Company and the Bank.
(e) In addition, during the Term the Officer shall serve, for the
period for which he may from time to time be elected, as an officer or director
of any Affiliate of the Company.
4. Duties. The Officer shall perform such duties as reasonably and
customarily pertain to the offices set forth in Section 3 and such other duties
as are set forth in the Bylaws of the Company and the Bank or as may be agreed
to from time to time by the Officer. During the
2
<PAGE>
Term (except for periods of illness and vacation), substantially all of the
Officer's business time, attention, skill and efforts shall be devoted to the
performance of the Officer's duties under this Agreement. Notwithstanding the
foregoing, the Officer may (a) continue to serve on the boards of directors of,
and hold any other offices or positions in, companies or organizations
previously approved by the Board of Directors of the Company and (b) with the
approval of the Board of Directors of the Company, from time to time serve on
the board of directors of, and hold any other offices or positions in, companies
or organizations engaged in activities that present no conflict of interest with
the Company or the Bank and that will not materially and adversely affect the
performance of his obligations under this Agreement.
5. Compensation; Certain Benefits; Reimbursement. (a) The annual salary of
the Officer during the Term for all services performed for the Company and the
Bank shall be (i) until the Effective Time, the Officer's annual salary as of
the date hereof; (ii) during the Initial Post-Merger Period, the greater of (x)
$750,000 and (y) during any period for which the salary of the Present CEO
exceeds $937,500, 80% of such Present CEO's salary as then in effect and (iii)
during the Remaining Post-Merger Period, $1,000,000. The Board of Directors of
the Company (or a duly authorized committee of the Board) may increase the
Officer's annual salary from time to time following the Effective Time, and
prior to the Effective Time may provide the Officer with a normal increase in
annual salary, and may continue all existing bonus, incentive and employee
benefit arrangements, including, without limitation, the making of normal stock
option and restricted stock plan grants, on a basis consistent with past
practice. In no event shall the Officer's annual salary be decreased below his
annual salary specified in the first sentence of this Section 5(a) plus all
subsequent increases in his annual salary. As used in this Agreement, "annual
salary" shall mean, at any time, the annual rate of salary then payable to the
Officer pursuant to this Section 5(a) (before deduction of any amounts deferred
under any deferred compensation plan of the Company or the Bank, any voluntary
contributions to a 401(k) plan of the Company or the Bank, or any other
deductions from income) and shall be exclusive of bonuses, incentive
compensation or other compensation or benefits paid to or accrued for the
Officer other than pursuant to this Section 5(a). Amounts payable to the Officer
under this Section 5(a) shall, subject to the provisions of Section 5(e), be
payable in installments (pro rata with respect to the period during a year to
which it relates) in accordance with the prevailing general payroll practice of
the Company as it may exist from time to time.
(b) During the Post-Merger Period the Company shall (i) at the
Company's expense, provide the Officer with the exclusive use of a Company-owned
or Company-leased automobile (at any time not to be more than three years old)
and, if the principal executive offices of the Company where the Officer is
required to provide the services hereunder are located in New York, to employ
for the use of the Officer a driver for such automobile, (ii) reimburse the
Officer for the annual (or less frequent) membership fees for two country,
social, business, luncheon or fitness clubs and (iii) reimburse the Officer for
tax planning and financial consulting services to be provided by Clarfeld &
Company, P.C. (or other provider agreed to by the Company and the Officer) in an
amount not to exceed $12,000 per annum.
(c) The Officer shall not have or acquire by virtue of this
Agreement any rights to participate in, or receive benefits with respect to, any
compensation or benefit plan or program of the Company or the Bank, except (i)
that during the Post-Merger Period and while employed by the Company, the
Officer shall (subject to the approval of the Compensation Committee or other
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appropriate committee of the Board of Directors) participate in the Company's
Senior Officer Incentive Plan, as in effect from time to time, with a target
bonus (the "Target Bonus") of at least 100% of the Officer's then effective
annual salary (or such higher target bonus amount as the Board of Directors of
the Company may establish from time to time), (ii) during the Initial
Post-Merger Period and while employed by the Company, the Officer shall (at the
discretion of the Compensation Committee and the Board of Directors or other
appropriate committee of the Board of Directors) receive annual stock incentive
awards at the same time as and equal to 80% of the base annual stock incentive
award of the Present CEO for such year, and during the Remaining Post-Merger
Period and while employed by the Company, the Officer shall receive annual stock
incentive awards (at the discretion of the Compensation Committee and the Board
of Directors or other appropriate committee of the Board of Directors) on a
basis commensurate with the awards for which the Present CEO was eligible during
the Initial Post-Merger Period; (iii) that while employed by the Company, the
Officer may participate in plans or programs of the Company and the Bank to the
extent provided in such plans and programs and on the same basis as if the
Officer's employment were not subject to the terms and conditions of this
Agreement; provided that, during the Initial Post-Merger Period, the Officer
shall, subject to the terms thereof, be eligible to participate in all plans and
programs in which the Present CEO is eligible to participate and shall be
considered for any awards that may be made thereunder at the same time as the
Present CEO, or (iv) as otherwise specifically provided in this Agreement,
including without limitation Section 7 hereof. For purposes of this Section
5(c), it is the intention of the parties that the Officer's bonus opportunity
and all other grant opportunities under this Agreement shall at all times during
the Initial Post-Merger Period be: (i) at least 80% (in dollar value) of the
Present CEO's bonus and other grant opportunities; (ii) awarded on the same
terms and conditions as awards to the Present CEO regarding exercise price, pre-
and post-termination exercise rights, vesting and term, and (iii) to the extent
the Officer's opportunities are based on corporate-wide performance goals,
subject to the same corporate-wide performance goals as apply to the
opportunities provided to the Present CEO.
(d) The Officer is authorized to incur reasonable expenses for
promoting the businesses of the Company and its Affiliates, including expenses
for travel, entertainment and similar items. The Company shall pay, or reimburse
the Officer for, all such expenses upon presentation by the Officer from time to
time of an itemized account (in reasonable detail) of such expenditures.
(e) Notwithstanding anything to the contrary in the foregoing
provisions, following the Effective Time the payment (but not the grant or
award) of any amounts that would otherwise be payable to the Officer but which
would be in excess of the amount which the Company or the Bank could deduct for
federal income tax purposes if then paid on account of the operation of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), shall be
deferred to the extent such deferral is required pursuant to a policy adopted by
the Compensation Committee of the Company or the Bank and, to the extent so
deferred, shall be payable pursuant to the relevant terms of the Company's
Voluntary Deferred Compensation Plan; provided, however, that, if a Change in
Control (as defined in Section 12(a)) has occurred, deferral of amounts payable
hereunder to the Officer on or after the date of such Change in Control will
only be required if and to the extent such policy in effect immediately prior to
the Change in Control (without taking into consideration any changes therein
made in contemplation of the occurrence of the Change in Control) requires or
would have required such deferral.
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(f) The Company and the Bank may from time to time enter into
arrangements for the sharing of costs and provision of benefits to the Officer
hereunder; provided, that each of the Company and the Bank shall remain jointly
and severally liable for fulfillment of all obligations hereunder; provided,
further, that any compensation, benefits, reimbursements or other payments made
to the Officer, whether paid by the Company or the Bank (or any other Affiliate
of the Company) shall be deemed made and received in satisfaction of the
Company's and the Bank's obligations hereunder, regardless of whether an
obligation is herein stated to be an obligation of the Company only or of the
Bank only; and provided further, that where any notice is required or permitted,
to be given or action taken by the Company or the Bank, such condition shall be
deemed fulfilled if such notice is given or action taken by either of the
Company or the Bank.
(g) Immediately following the Effective Time, subject to the
discretion and approval of the Compensation Committee, the Board of Directors or
other appropriate Committee of the Board of Directors, the Company shall grant
to the Officer options to purchase 120,000 shares of the Company's common stock
at the market price thereof on such date; provided, that such options shall vest
in accordance with the following schedule: (i) one-third on the date on which
the Officer becomes Chairman of the Board and Chief Executive Officer of the
Company; (ii) one-third on the first anniversary of the date described in clause
(i) (provided the Officer continues to hold such offices on such anniversary
date); and (iii) one-third on December 31, 2004 (provided the Officer continues
to hold such offices on such anniversary date). Such options shall be granted
subject to the terms and conditions (including accelerated vesting) of the
Company's stock incentive plan under which they are issued, and such other terms
as are set by the granting committee in accordance with such Plan.
(h) Immediately following the Effective Time, subject to the
discretion and approval of the Compensation Committee, the Board of Directors or
other appropriate Committee of the Board of Directors, the Company shall offer
to sell to the Officer 100,000 shares of common stock of the Company subject to
vesting restrictions ("Restricted Stock") at a price equal to the par value of
such shares, with the grant of such shares to vest, and the restrictions on such
stock (if so purchased) to lapse in accordance with the following schedule: (i)
one-third on the first anniversary of the date of grant (provided the Officer
continues to be employed hereunder on such date); (ii) one-third on the second
anniversary of the date of grant (provided the Officer continues to be employed
hereunder on such date); and (iii) one-third on the third anniversary of the
date of grant (provided the Officer continues to be employed hereunder on such
date). The Restricted Stock shall be granted subject to the terms and conditions
(including accelerated vesting) of the Company's stock incentive plan under
which it is issued, and such other terms as are set by the granting committee in
accordance with such plan.
6. Disability. (a) The Company may terminate the Officer's employment
under this Agreement for "permanent disability" if (i) the Officer shall become
physically or mentally disabled or incapacitated to the extent that the Officer
has been absent from the Officer's duties with the Company on account of such
disabilities or incapacitation, as determined in a manner consistent with the
policy which applies generally to employees of the Company, on a full-time basis
for a period of six consecutive months, and (ii) within 30 days after written
notice of
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proposed termination for permanent disability is given by the Company to the
Officer, the Officer shall not have returned to full-time performance of the
Officer's duties.
(b) In the event of termination for "permanent disability" following
the Effective Time, the Company shall provide the Officer with a benefit equal
to (i) his annual salary (as in effect immediately prior to the occurrence of
such disability) for a period commencing on the Effective Date of Termination
and ending on the day immediately prior to the first anniversary thereof and
(ii) 75% of his annual salary (as in effect immediately prior to the occurrence
of such disability) from the date of the first anniversary of the Effective Date
of Termination and continuing through the duration of his disability (but in no
event beyond the Officer's attainment of age 65). Notwithstanding the first
sentence of this Section 6(b), any such payment shall terminate upon the
earliest to occur of (A) the date the Officer returns to full-time employment
with the Company, (B) the date of the Officer's full time employment by another
employer (including full-time service as a sole proprietor or owner of an
unincorporated business), or (C) the date of the Officer's death. In the event
of termination for "permanent disability," the Company also shall continue to
provide until the Officer's death or, if earlier, the first to occur of (aa) the
date the Officer returns to full-time employment with the Company, (bb) the date
of the Officer's full-time employment by another employer, or (cc) the date of
the Officer's attainment of age 65, all life, medical and dental insurance
coverage as is maintained by the Company for full-time employees, provided that
the Officer shall continue to pay all amounts in respect of such coverage that
other employees receiving the same level of coverage are required to pay. In the
event of termination for "permanent disability" following the Effective Time,
the Company shall also provide the Officer with the benefits set forth in
Section 12(d)(ii) hereof (notwithstanding that no Change in Control shall have
occurred).
(c) There shall be no reduction in the compensation payable to the
Officer or the Officer's other rights under this Agreement during any period
when the Officer is incapable of performing some or all of the Officer's duties
by reason of temporary or partial disability.
(d) The obligations of the Company to provide the benefits described
in Section 6(b) may be satisfied, in whole or in part, by payments under
disability insurance policies covering the Officer and obtained and maintained
in force (with respect to the benefit described in the first sentence of Section
6(b) solely at the Company's expense) by the Company. In connection therewith,
the Company may require the Officer to elect the maximum disability insurance
coverage available under the Bank's or the Company's group disability policy,
provided that the Company shall pay on the Officer's behalf all amounts required
to be paid by the Officer as a result of such election. The Officer shall
cooperate with the Company in all reasonable ways to obtain any such disability
or key person insurance coverage.
7. Supplemental Executive Retirement Benefits. (a) During the Post-Merger
Period, the Officer shall participate in the Supplemental Executive Retirement
Plan of the Company (the "SERP") and shall have a "Pension Goal" under such plan
of not less than 50%. The Company acknowledges that in light of the Officer's
years of service with the Company, he will following the Effective Time be fully
vested in the Surviving Corporation's SERP. For purposes of calculating benefits
payable to the Officer under the SERP, any benefit plans, programs or
arrangements of the Company or any predecessor or Affiliate of the Company that
are in effect prior to the Effective Time shall be treated under the SERP in the
same manner as
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plans of the Surviving Corporation, but no amount of gross up tax payments made
pursuant to Section 12(g) hereof or otherwise shall be considered "Compensation"
thereunder.
(b) Notwithstanding anything in paragraph (a) of this Section 7 to
the contrary, if the Officer's employment hereunder is terminated by the Company
for any reason (other than a termination by the Company for "cause"), or the
Officer terminates his employment hereunder at any time after a Material Change
has occurred (determined without regard to whether or not a Change in Control
has occurred), at any time during the Term following the Effective Time, then
the Company shall pay to the Officer, for each calendar year or portion thereof
during the Officer's remaining life following the later of the Effective Date of
Termination or the date the Officer attains age 55, an amount equal to the
difference, if any, between (i) $741,000 (prorated for any applicable periods of
less than one year) less (ii) the sum of (A) all benefits payable to the Officer
under the SERP with respect to such year or period, presuming an effective
election to commence SERP benefits at the same time as benefits under this
paragraph (b) had been made (whether or not such SERP benefits are actually
being paid on such date), plus (B) the amount of any benefits which the Officer
is entitled to receive for such year or period under any defined benefit plan
qualified under Section 401(a) of the Code sponsored by the Company, any
Affiliate (as defined in Section 12(a)) or any predecessor or successor to any
of them (the "Retirement Plans") plus (C) the amount of any benefits which the
Officer is entitled to receive for such year or period under any defined benefit
excess benefit or benefit restoration plan of the Company, any Affiliate or any
predecessor or successor to any of them, plus (D) the amount of any benefits
which the Officer is entitled to receive for such year or period under any other
plan, agreement or arrangement maintained by the Company, any Affiliate or any
predecessor or successor to any of them that determines benefit amounts with
relation to one or more Retirement Plans, plus (E) the amount of any benefits
which the Officer is then entitled to receive for such year (or, if the amount
specified in clause (i) is to be prorated for a specified period, for the same
period) under Section 6 of this Agreement. In determining the amount so payable,
any benefits described in clause (ii) of the preceding sentence (other than
subclause (E) thereof) that are not payable in the form of a single life annuity
commencing at the same time as benefits hereunder shall, solely for purposes of
the preceding sentence, be converted, on an actuarial equivalent basis, to a
single life annuity form of payment commencing on the same date as the benefits
pursuant to this paragraph (b) with actuarial equivalence to be determined based
on the factors used to determine actuarial equivalence under the SERP. The
amount so determined to be payable pursuant to this paragraph (b) shall be paid
on the same basis as payments under the SERP (including actuarial reductions
with respect to alternative forms of benefit thereunder, and the SERP's
provisions regarding preretirement survivor benefits), and the Officer shall
have the same election rights with respect thereto, regardless of whether or not
any amounts are then being paid under the SERP.
8. Death. In the event of the Officer's death during the Term, this
Agreement and all of the Company's obligations under this Agreement shall
terminate (except as otherwise provided in this Section 8, Section 12(f) or with
respect to the obligations of the Company under Section 7). In the event of the
Officer's death during the Term, the Company or the Bank shall, during the
remainder of the life of the Officer's surviving spouse, continue to provide
such spouse the same level of medical and dental insurance as is maintained from
time to time by the Company or the Bank for spouses of full-time employees (or,
as appropriate, retirees) of the Company or the Bank or, in lieu of providing
any such coverage, the Company or the Bank may
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pay such spouse the cash equivalent of the cost of such coverage), provided that
such surviving spouse shall continue to pay any amounts in respect of such
coverage that is otherwise required to be paid by employees (or, as appropriate,
retirees) for such coverage and provided, further, that any such medical
coverage may be modified so that Medicare (or other governmental) coverage is
primary, with coverage provided by the Company or the Bank supplementary, to the
extent permitted by law. In the event of the Officer's death during the Term,
the Company shall provide the Officer's beneficiaries with the benefits set
forth in Section 12(d)(ii) hereof (notwithstanding that no Change in Control
shall have occurred).
9. Termination by the Company. (a)(i) The Company may terminate the
Officer's employment under this Agreement at any time by giving the Officer
written notice of such termination, provided that, except where termination is
for "cause" (as defined in Section 9(b)), such notice shall be provided at least
30 days prior to the Effective Date of Termination. In the event of a
termination by the Company of the Officer's employment, other than a termination
for "cause" (as defined in Section 9(b)), then except as otherwise provided in
this Section 9 and in Sections 2(b), 7 and 12 hereof, all of the Company's
obligations under this Agreement shall terminate, except that the Officer shall
remain entitled to any compensation or benefits earned prior to the Effective
Date of Termination and shall not be precluded from receiving a bonus as
provided in Section 5(c) hereof as a result of his termination of employment
prior to the payment date for such bonus and except that the Company shall
(subject to the provisions of Section 9(c)): (A) pay to the Officer, as a
severance payment for services previously rendered to the Company and the Bank,
a lump sum equal to the sum of (1) the Officer's annual salary (as defined in
Section 5(a)) at the Effective Date of Termination plus (2) the amount of the
target bonus which the officer is eligible to earn for the year in which the
Effective Date of Termination occurs and (B) provide the Officer with the
benefits set forth in Section 12(d)(ii) hereof (notwithstanding that no Change
in Control shall have occurred) and (C) maintain, until the later to occur of
(1) the 18-month anniversary of the Effective Date of Termination and (2) the
end of the Term, all life, medical and dental insurance coverage as is
maintained by the Company or the Bank for full-time employees (or, in lieu of
providing any such coverage, the Company or the Bank may pay the Officer the
cash equivalent of the cost of such coverage), provided that the Officer shall
continue to pay all amounts in respect of such coverage that other employees
receiving the same level of coverage are required to pay. If the Effective Date
of Termination by the Company of the Officer's employment occurs at any time
following a Change in Control, the provisions of Section 12 shall apply in lieu
of the provisions of the immediately preceding sentence of this Section 9(a).
The lump sum payment referred to in section 9(a)(i)(A) shall be made to the
Officer as soon as practicable after the Effective Date of Termination, but in
no event later than 90 days thereafter.
(ii) If the Merger Agreement is terminated and the Merger (as
defined therein) abandoned, then this Agreement shall be void ab initio,
neither party shall have any further rights or obligations hereunder, and,
all prior agreements between the Officer and the Company and/or the Bank
shall remain and continue in full force and effect in accordance with
their terms, as if this Agreement had not been adopted.
(b) The Officer shall have no right to receive compensation or other
benefits under this Agreement for any period after the Effective Date of
Termination if the Officer's employment is terminated for "cause." As used in
this Agreement, "termination for cause" shall
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mean a termination for "cause" by either the Company or the Bank and "cause"
shall mean (i) willful and continued failure by the Officer to materially
perform his duties under this Agreement after at least one warning in writing
from the Company's Board of Directors identifying specifically any such material
failure and offering a reasonable opportunity to cure such failure (provided,
that failure to achieve performance goals shall in no event be grounds for
termination for "cause" hereunder); (ii) the willful engaging by the Officer in
material misconduct which causes material injury to the Company or the Bank as
specified in a written notice to the Officer from the Board of Directors of the
Company; (iii) material breach of fiduciary duty involving personal profit; or
(iv) conviction of a crime (other than a traffic violation), habitual
drunkenness, drug abuse, or excessive absenteeism other than for illness, after
a warning (with respect to drunkenness or absenteeism only) in writing from the
Board of Directors of the Company to refrain from such behavior. No act or
failure to act on the part of the Officer shall be considered willful unless
done, or omitted to be done, by the Officer not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Company. Any termination of the Officer for "cause" shall be based upon a
finding of a Special Majority of the Board of Directors, with notice thereof
given to the Officer in accordance with Section 9(d).
(c) Notwithstanding any other provision of this Section 9 or of
Section 12, if at the Effective Date of Termination any statute, regulation,
order, agreement, or regulatory interpretation thereof that is valid and binding
upon the Company or the Bank (excluding Sections 280G and 4999 of the Code and
regulations promulgated thereunder) (a "Regulatory Restriction") shall restrict,
prohibit or limit the amount of any payment or the provision of any benefit that
the Company or the Bank would otherwise be liable for under this Section 9 or
under Section 12, then the amount that the Company or the Bank shall pay to the
Officer hereunder shall not exceed the maximum amount permissible under such
Regulatory Restriction; provided that, if such Regulatory Restriction shall
subsequently be rescinded, superseded, amended or otherwise determined not to
restrict, limit or prohibit payment by the Company or the Bank of amounts
otherwise due the Officer hereunder, then the Company or the Bank shall promptly
thereafter pay to such Officer any amounts (or the value of any benefit)
previously withheld from such Officer as a result of such Regulatory
Restriction, and provided further that, if any Regulatory Restriction restricts,
prohibits or limits one of the Company or the Bank to a lesser extent than it
restricts, prohibits or limits the other of the two, then the entity least
restricted shall be obligated hereunder to perform any of the obligations of the
other hereunder to the fullest extent permitted by the Regulatory Restriction.
(d) If subsequent to the Effective Time, the Officer's employment is
proposed to be terminated by the Company (whether or not for "cause" (as defined
in Section 9(b)), the Company shall deliver to the Officer a Notice of
Termination (as defined in Section 14) accompanied by a copy of a resolution
duly adopted by the affirmative vote of not less than a Special Majority of the
entire Board of Directors of the Company at a meeting called and held for that
purpose (after reasonable notice to the Officer and an opportunity for him,
together with counsel, to be heard before the Board of Directors), and if such
termination is for cause it shall include a finding that in the good faith
opinion of a Special Majority of the Board of Directors the Officer's conduct
constituted cause for termination and specifying the particulars thereof in
reasonable detail.
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10. Voluntary Termination by the Officer. (a) The Officer shall have the
right to terminate the Officer's employment under this Agreement at any time
following the Effective Time, whether for Material Change or any other reason,
upon at least 60 but not more than 90 days' prior written notice to the Company
(an "Officer's Termination Notice"). If this Agreement is terminated pursuant to
the immediately preceding sentence, then except as otherwise provided in
Sections 2(b), 7, 10(b) and 12 hereof, all of the Company's obligations under
this Agreement shall terminate, except that the Officer shall remain entitled to
any compensation or benefits earned prior to the Effective Date of Termination.
(b) If the Officer shall terminate his employment pursuant to
Section 10(a) at any time when a Material Change (determined without regard to
whether a Change in Control has occurred) has occurred, then in addition to the
benefits provided in Section 10(a), the Officer shall also be entitled to the
benefits provided in Sections 7 and 9(a)(i) hereof; provided that, if such
termination occurs after a Change in Control has occurred, then the Officer
shall be entitled to the benefits of Section 12 in lieu of the provisions of
Section 9(a)(i). For purposes of this Section 10, the term "Material Change"
shall have the same meaning as set forth in Section 12(c)(ii) hereof, except
that in determining whether a Material Change has occurred, (i) the fact that no
Change in Control shall have occurred shall be disregarded, (ii) the failure to
provide compensation or benefits required to be provided under this Agreement
shall be treated as a material breach of this Agreement, and (iii) whether there
has been a Material Change in the Officer's functions, duties or
responsibilities, as provided in clause (C) of such Section, shall be made by
reference to the functions, duties and responsibilities required to be provided
under Section 4 hereof.
11. Additional Termination and Suspension Provisions. There are hereby
included by reference any provisions that are required by applicable law or
regulation binding on the Company or the Bank to be included in an employment
agreement entered into by the Company or the Bank. If any such provision is a
Regulatory Restriction that restricts, prohibits or limits one of the Company or
the Bank to a lesser extent than it restricts, prohibits or limits the other of
the two, then the entity least restricted shall be obligated hereunder to
perform any of the obligations of the other hereunder to the fullest extent
permitted by the Regulatory Restriction.
12. Change in Control. The provisions of this Section 12 shall only be
applicable during the Post-Merger Period; provided, that neither the Holding
Company Combination nor the Bank Combination (nor any other event or transaction
contemplated by or reasonably necessary to effectuate the purposes of the Merger
Agreement or between or among the Company, the Holding Company and their
respective Affiliates) shall be deemed to constitute a Change in Control for any
purpose of this Agreement. 1. As used in this Agreement, a "Change in Control"
shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from
the Company or its Affiliates) representing 35% or more of the combined
voting power of the Company's then outstanding securities; or
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(II) the following individuals cease for any reason to constitute a
majority of the number of directors then serving as directors of the
Company: individuals who, immediately following the Effective Time,
constitute the Board of Directors of the Company and any new director
(other than a director whose initial assumption of office is in connection
with the settlement of an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board of
Directors of the Company or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors
immediately following the Effective Time or whose appointment, election or
nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any other
corporation or entity, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any Parent thereof), in combination
with the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any subsidiary of the
Company, at least 65% of the combined voting power of the securities of
the Company, such surviving entity or any Parent thereof outstanding
immediately after such merger or consolidation or (ii) a merger or
consolidation effected solely to implement a recapitalization of the
Company or the Bank (or similar transaction) in which no Person is or
becomes the Beneficial Owner, directly or indirectly, of securities of the
Company or the Bank (not including in the securities beneficially owned by
such Person any securities acquired directly from the Company or its
Affiliates) representing 35% or more of the combined voting power of the
Company's or the Bank's then outstanding securities; or
(IV) the stockholders of the Company or the Bank approve a plan of
complete liquidation or dissolution of the Company or the Bank,
respectively, or there is consummated a sale or disposition by the Company
or any of its subsidiaries of any assets which individually or as part of
a series of related transactions constitute all or substantially all of
the Company's consolidated assets (provided that, for these purposes, a
sale of all or substantially all of the voting securities of the Bank or a
Parent of the Bank shall be deemed to constitute a sale of substantially
all of the Company's consolidated assets), other than any such sale or
disposition to an entity at least 65% of the combined voting power of the
voting securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the voting
securities of the Company immediately prior to such sale or disposition;
or
(V) the execution of a binding agreement that if consummated would
result in a Change in Control of a type specified in clause (I) or (III)
of this Section 12(a) (an "Acquisition Agreement") or of a binding
agreement for the sale or disposition of assets that, if consummated,
would result in a Change in Control of a type specified in clause (IV) of
this Section 12(a) (an "Asset Sale Agreement") or the adoption by the
Board of Directors of the Company or the Bank of a plan of complete
liquidation or dissolution of
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the Company or the Bank that, if consummated, would result in a Change in
Control of a type specified in clause (IV) of this Section 12(a) (a "Plan
of Liquidation"), provided however, that a Change in Control of the type
specified in this clause (V) shall not be deemed to exist or have occurred
as a result of the execution of such Acquisition Agreement or Asset Sale
Agreement, or the adoption of such a Plan of Liquidation, from and after
the Abandonment Date if the Effective Date of Termination of the Officer's
employment has not occurred on or prior to the Abandonment Date. As used
in this Section, the term "Abandonment Date" shall mean the date on which
(A) an Acquisition Agreement, Asset Sale Agreement or Plan of Liquidation
is terminated (pursuant to its terms or otherwise) without having been
consummated, (B) the parties to an Acquisition Agreement or Asset Sale
Agreement abandon the transactions contemplated thereby, (C) the Bank or
the Company abandons a Plan of Liquidation or (D) a court or regulatory
body having competent jurisdiction enjoins or issues a cease and desist or
stop order with respect to or otherwise prevents the consummation of, or a
regulatory body notifies the Bank or the Company that it will not approve,
an Acquisition Agreement, Asset Sale Agreement or Plan of Liquidation or
the transactions contemplated thereby and such injunction, order or notice
has become final and not subject to appeal.
As used in connection with the foregoing definition of Change in Control,
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under
Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act; "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time; "Parent" shall
mean any entity that becomes the Beneficial Owner of at least 80% of the voting
power of the outstanding voting securities of the Company or of an entity that
survives any merger or consolidation of the Company or any direct or indirect
subsidiary of the Company; and "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (a) the Company or any of its
subsidiaries, (a) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (a) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (a) a corporation or entity owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(b) If the Company shall relocate its principal executive offices
after a Change in Control, and if the Officer is required, as a result, to
change the Officer's principal residence, the Company shall (i) promptly pay (or
reimburse the Officer for) all reasonable moving expenses incurred by the
Officer as a result of such change in the Officer's principal residence, and
(ii) indemnify the Officer against, and reimburse the Officer for, any loss
incurred as the result of the sale of the Officer's principal residence (which
loss shall be computed for the purpose of this Agreement as the difference
between the actual sales price (net of closing costs and brokerage fees) of such
residence and the fair market value of such residence (computed as of the time
the Company relocates its principal executive offices) as determined by an
independent real estate appraiser designated and paid by the Company and
acceptable to the Officer), provided that such sale of the Officer's principal
residence occurs within six months after the Company relocates its principal
executive offices.
12
<PAGE>
(c)(i) If a Change in Control shall occur, the Officer shall be
entitled to the compensation and benefits provided in paragraphs (d), (e),
(f) and (g) of this Section 12 upon the subsequent termination by the
Company of the Officer's employment at any time during the remaining Term
in effect at the time of the Change in Control, other than a termination
for cause (as defined in Section 9(b)), provided that the rights to any
such compensation and benefits shall be subject to the limitations and
provisions set forth in Section 9(c).
(ii) If a Change in Control shall occur, and thereafter the Board of
Directors of the Company or the Bank or, if the Company or the Bank is not
the surviving entity in the transaction giving rise to such Change in
Control, the Board of Directors of the ultimate parent entity surviving
such Change in Control, either (A) fails to elect or re-elect or appoint
or reappoint the Officer to the offices or positions specified in Section
3 with the Company and the Bank or, if the Company or the Bank is not the
surviving ultimate parent entity in the transaction giving rise to such
Change in Control, with the ultimate parent entity surviving such Change
in Control, (B) materially breaches this Agreement, (C) makes a material
change in the Officer's functions, duties or responsibilities, which
change would cause the Officer's position with the Company or the Bank or,
if the Company or the Bank is not the surviving entity in the transaction
giving rise to such Change in Control, with the entity surviving such
Change in Control to become one of lesser responsibility, importance or
scope from that in effect immediately prior to the time of the Change in
Control, (D) requires that the Officer's services be rendered primarily at
a location or locations outside of the New York metropolitan area or (E)
during the Initial Post-Merger Period, adopts a resolution approved by at
least a simple majority of the Board of Directors providing that the
Officer shall not become Chairman of the Board and Chief Executive Officer
of the Company and the Bank (an event specified in clause (A), (B), (C),
(D) or (E) is hereafter referred to as a "Material Change"), the Officer
shall be entitled to the compensation and benefits provided in paragraphs
(d), (e), (f) and (g) of this Section 12 (subject to the limitations and
provisions set forth in Section 9(c)) upon the subsequent termination of
the Officer's employment, at any time during the remaining Term in effect
at the time of the Change in Control, by the Officer. Any good faith
determination by the Officer that a Material Change has taken place shall
be presumed to be correct and therefore shall be controlling for all
purposes of this Agreement, unless, within 30 days after receipt of the
Officer's Termination Notice a Special Majority of the Board of Directors
of the Company shall determine that no such Material Change has occurred,
in which event no such presumption shall be made, and the determination of
whether a Material Change has occurred shall be resolved in accordance
with Section 22 hereof.
(iii) If the Officer's employment is terminated by the Officer
during the remaining Term in effect at the time of the Change in Control
and no Material Change shall have occurred, then the provisions of Section
10 shall apply in lieu of the provisions of paragraphs (d), (e) and (f) of
this Section 12.
(iv) Only for purposes of determining whether there has been a
termination of the Officer's employment during the remaining Term in
effect at the time of a Change in Control (as specified in paragraphs
(c)(i) or (c)(ii) of this Section 12) so as to entitle the
13
<PAGE>
Officer to the compensation and benefits provided in paragraphs (d), (e),
(f) and (g) of this Section 12, a termination of the Officer's employment
following a Change in Control shall be deemed to have occurred on such
date during the remaining Term that (A) Notice of Termination (as defined
in Section 14(b)) is given by the Company to the Officer (regardless of
the Effective Date of Termination specified therein), or (B) an Officer's
Termination Notice (as defined in Section 10) is given by the Officer to
the Company (regardless of the Effective Date of Termination specified
therein). Notwithstanding the immediately preceding sentence, the Officer
shall continue to be employed by the Company and the Bank pursuant to this
Agreement until the Effective Date of Termination specified in the Notice
of Termination or Officer's Termination Notice, as the case may be.
(d)(i) Upon the occurrence of a Change in Control followed by any
termination of the Officer's employment pursuant to Section 12(c)(i) or
(c)(ii), the Bank shall pay to the Officer, as a severance payment for
services previously rendered to the Bank, a lump sum equal to three times
the Officer's Deemed Annual Compensation, as in effect immediately prior
to the Effective Date of Termination (without regard to any decrease in
the Officer's Deemed Annual Compensation made after the Change in
Control). As used in this Section 12(d)(i), the term "Deemed Annual
Compensation" shall mean, at any time, an amount equal to the sum of (A)
the Officer's annual salary (as defined in Section 5(a)) at such time,
plus (B) the higher of (y) the amount of the target bonus which the
Officer is eligible to earn for the year which includes the day
immediately prior to the Change in Control, or (z) the amount of the
average bonus or other cash incentive earned by the Officer with respect
to the two most recently completed fiscal years.
(ii) Upon the occurrence of a Change in Control followed by any
termination of the Officer's employment pursuant to Section 12(c)(i) or
(c)(ii), to the extent not otherwise limited pursuant to Section 9(c), (x)
each option granted after the date hereof under a stock incentive or stock
option plan of the Company and held by the Officer shall (to the extent
permitted by the plan under which such option was granted),
notwithstanding anything to the contrary in the grant letter related to
such option and regardless of the actual Effective Date of Termination,
immediately vest and remain exercisable for the term specified in such
grant letter as if there had been no termination of the Officer's
employment and the Officer remained in the employment of the Company for
the entire term of such option and (y) each share of Restricted Stock
granted pursuant to Section 5(h) shall (to the extent permitted by the
plan under which such Restricted Stock was granted), notwithstanding
anything to the contrary in the grant letter related to such Restricted
Stock and regardless of the actual Effective Date of Termination, vest and
the restrictions thereon shall lapse at such time as they would have
otherwise vested, and the restrictions thereon would have otherwise
lapsed, as if there had been no termination of the Officer's employment
and the Officer remained in the employment of the Company through the
period required for the vesting of and lapsing of the restrictions on such
stock.
(e) Any payment pursuant to Section 12(d)(i) shall be made to the
Officer within 30 days after the Effective Date of Termination.
14
<PAGE>
(f) Upon the occurrence of a Change in Control followed by any
termination of the Officer's employment pursuant to Section 12(c)(i) or (c)(ii),
to the extent not otherwise limited pursuant to Section 9(c), the Company or the
Bank shall, for the remainder of the Officer's life, and for the remainder of
the life of the Officer's spouse (to whom the Officer was married as of the
Effective Date of Termination), continue to provide to the Officer and such
spouse the same level of disability, medical and dental insurance coverage as is
maintained from time to time by the Company or the Bank for full-time employees
and their spouses, provided that (x) the Officer (and, after the Officer's
death, the Officer's surviving spouse) shall continue to pay all amounts in
respect of such coverage that the other employees, retirees, or surviving
spouses, as applicable, receiving the same levels of coverage are required to
pay, (y) any medical coverage may be modified so that Medicare (or other
governmental coverage) is primary, with coverage provided by the Company or the
Bank supplementary, to the extent permitted by law, and (z) in lieu of providing
any benefit hereunder, the Company or the Bank may pay the Officer (and after
the Officer's death, the Officer's surviving spouse) the cash equivalent of the
cost of such coverage.
(g)(i) If, on account of events described in Sections 12(c)(i) or
12(c)(ii) following a Change in Control, any payment or other benefit paid
or to be paid or any property transferred or to be transferred with
respect to one or more calendar years by or on behalf of the Company (or
any affiliate of the Company) to the Officer pursuant to this Agreement or
pursuant to the terms of any other plan, arrangement or agreement of the
Company (or any of its subsidiaries) (collectively, a "Severance Payment")
shall constitute an "excess parachute payment" within the meaning of
Section 280G(b) of the Code subject to the tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to the Officer an
additional amount (the "Gross Up Payment") such that the amount paid or
transferred to the Officer, after deduction of any Excise Tax on the
Severance Payment, and any federal, state and local income tax, employment
tax and Excise Tax upon the Gross Up Payment, shall be equal to the
Severance Payment. In addition, if, absent a Change in Control or in other
circumstances following a Change in Control, notwithstanding the
reductions mandated by Section 9(c), the benefits described in Section 7
and any other benefits payable in connection with the Holding Company
Combination (the "Section 7 Benefits") shall constitute "excess parachute
payments" within the meaning of Section 280G(b) of the Code subject to the
Excise Tax, then the Company shall pay to the Officer one or more Gross Up
Payments such that the amount of such Gross Up Payments, when combined
with such Section 7 Benefits, after deduction of any Excise Tax on the
Section 7 Benefits, and any federal, state and local income tax,
employment tax and Excise Tax upon the Gross Up Payments, shall be equal
to such Section 7 Benefits.
(ii) For purposes of determining under Section 12(g)(i) whether any
portion of a Severance Payment or Section 7 Benefit will be subject to the
Excise Tax and the amount of such Excise Tax, (A) the Severance Payment or
Section 7 Benefit and payments provided for in Section 12(g)(i) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the meaning of
Section 280(G)(b)(1) of the Code shall be treated as subject to the Excise
Tax, unless and to the extent that tax counsel selected by the Company's
independent auditors and acceptable to the Officer is of the opinion that
the Severance
15
<PAGE>
Payment or Section 7 Benefit (in whole or in part) does not constitute a
"parachute payment" or such "excess parachute payment" (in whole or in
part) represents reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
allocable base amount within the meaning of Section 280G(b)(3) of the
Code, or the Severance Payment or Section 7 Benefit is otherwise not
subject to the Excise Tax, (B) the amount of the Severance Payment or
Section 7 Benefit that is treated as subject to the Excise Tax shall be
equal to the lesser of (X) the total amount of the Severance Payment or
Section 7 Benefit, as applicable, and (Y) the amount of "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code (after
applying clause (A) above), (C) any Gross Up Payment pursuant to Section
12(g)(i) shall be treated as subject to the Excise Tax in its entirety and
(D) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
(iii) If in circumstances described in Section 12(g)(i), by reason
of the filing by the Officer of an amended tax return, an audit by the
Internal Revenue Service or other taxing authority, or a final
determination by a court of competent jurisdiction, it is determined that
"excess parachute payments" exceeding those previously reported in his tax
returns were received by the Officer and as a result an additional Excise
Tax (the "Additional Excise Tax") shall become due, the Company shall pay
the Officer an additional amount (the "Subsequent Gross Up Payment") such
that the amount paid or transferred to the Officer, after deduction of (A)
any Additional Excise Tax and (B) on an after tax basis, any interest,
additions and penalties with respect to the Additional Excise Tax and (C)
any federal, state and local income tax, employment tax and Excise Tax
upon the Subsequent Gross Up Payment and (D) the payments provided for in
Section 12(g)(i), shall be equal to the Severance Payment or Section 7
Benefits, as appropriate.
(iv) Any Gross Up Payment required hereunder shall be made at least
ten days prior to the due date (without regard to extensions) of the
Officer's federal income tax return for the year with respect to which the
"excess parachute payment" is deemed made under the Code. Any Subsequent
Gross Up Payment required hereunder shall be made to the Officer within 30
days after the amount thereof is determined. Notwithstanding the two
immediately preceding sentences, the Company shall pay any federal, state
and local tax or taxes and employment taxes required to be withheld from
the Officer's wages (within the meaning of Section 3121 and 3402 of the
Code) with respect to the "excess parachute payment" and any such tax or
taxes paid by the Company to the Internal Revenue Service or state or
local taxing authority shall constitute payment to the Officer.
(v) If the Excise Tax is finally determined (whether by the filing
of an amended tax return by the Officer, by audit of the Internal Revenue
Service or other taxing authority, or by a final determination of a court
of competent jurisdiction) to be less than the amount paid to or on behalf
of the Officer under the provisions of Sections 12(g)(i)-(iv) and the
overpayment is refunded to the Officer, the Officer shall repay to the
Company, promptly following the receipt of the refund, the portion of the
Gross Up Payment (and/or Subsequent Gross Up Payment) attributable to such
reduction of the
16
<PAGE>
Excise Tax (plus the portion attributable to federal, state and local
income tax and employment taxes imposed on the portion being repaid by the
Officer but only to the extent that the repayment may result in a tax
benefit to the Officer under Section 1341 of the Code and similar
provisions of applicable state and local law).
(vi) The provisions of this Section 12(g) shall inure to the benefit
of the Officer during the Term of this Agreement regardless of whether or
not his employment is terminated, and if the Officer's employment is
terminated, the rights and obligations of the Officer and the Company
under this Section 12(g) shall survive the termination of this Agreement.
13. Post-Termination Obligations of the Officer. (a) In addition to any
related requirements that may apply pursuant to the terms of the Consulting
Agreement, upon any termination of the Officer's employment during the Term of
this Agreement or upon termination of the Officer's employment after the
expiration of the Term of this Agreement or upon retirement, the Officer agrees
(i) not to make any disclosure in violation of Section 13(b), (ii) to return to
the Company and the Bank all material documents relating to the business of the
Company and the Bank that are in the Officer's possession or under the Officer's
control, and (iii) except if the termination or retirement occurs after a Change
in Control, not to solicit (directly or indirectly), for one year following the
Effective Date of Termination (or date of termination after the expiration of
the Term) or retirement, the employment of any person who is an employee of the
Company or the Bank on the Effective Date of Termination (or date of termination
after the expiration of the Term) or retirement or who, within six months prior
to the Effective Date of Termination (or date of termination after the
expiration of the Term) or retirement, was an employee of the Company, unless
the Officer receives written permission from the Company to engage in the
activities proscribed by this Section 13(a) or by Section 13(b) or to be
relieved of any obligation under Section 13(a)(ii).
(b) The Officer recognizes and acknowledges that the confidential
business activities and plans for business activities of the Company and its
Affiliates, as they may exist from time to time, are valuable, special and
unique assets of the Company. The Officer shall not, during or at any time after
the Officer's employment, disclose any knowledge of the past, present or planned
business activities of the Company or its Affiliates that are of a confidential
nature (collectively, the "Company's Confidential Activities") to any person,
firm, corporation, company, thrift institution or other entity for any reason or
purposes whatsoever. Notwithstanding anything in this Section 13(b) to the
contrary, the Officer (i) may disclose any knowledge of banking, financial
and/or economic principles, concepts or ideas that are not derived from the
Company's Confidential Activities, and (ii) shall not be precluded from
disclosures respecting the Company's Confidential Activities that are (A) made
pursuant to compulsory legal process or when required by an appropriate
governmental agency; (B) public knowledge or become public without the Officer's
breach of this Section 13(b); (C) already known to the party to whom the Officer
makes such disclosures; or (D) approved by the Company for disclosure.
(c) The parties, recognizing that irreparable injury will result to
the Company, its business and property in the event of the Officer's breach or
threatened breach of Section 13(a) or (b), agree that in the event of such
breach or threatened breach by the Officer,
17
<PAGE>
the Company will be entitled, in addition to any other remedies and damages that
may be available, to seek and obtain an injunction to restrain the violation of
Section 13(a) or (b) by the Officer.
14. Notices. (a) All notices under this Agreement shall be in writing and
shall be delivered personally, sent by registered or certified mail, return
receipt requested or sent by recognized next-day courier service, (a) to the
Company, at Hudson United Bancorp, 1000 MacArthur Boulevard, Mahwah, New Jersey
07430 (attention: General Counsel), (b) to the Bank at Hudson United Bank, 1000
MacArthur Boulevard, Mahwah, New Jersey 07430 (attention: General Counsel) and
(C) to the Officer, at his address as it appears on the books and records of the
Company or to such other address as either party may hereafter designate in
writing in the manner provided in this Section 14. All notices under this
Agreement shall be deemed given (i) upon receipt if delivered personally, (ii)
on the third business day after deposit in a facility of the U.S. Postal Service
with postage prepaid, if delivered by registered or certified mail, or (iii) on
the first business day following the date of dispatch if delivered by a
recognized next-day courier service.
(b) Any purported termination of the Officer's employment with the
Company and the Bank pursuant to Sections 6 or 9 shall be communicated to the
Officer by means of a written notice (a "Notice of Termination"). The Notice of
Termination shall (i) indicate a specific termination provision relied upon,
(ii) set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Officer's employment under the provision
so indicated, and (iii) specify the Effective Date of Termination; provided,
however, that no such Notice of Termination shall specify an Effective Date of
Termination that is prior to the date on which any such Notice of Termination is
given.
(c) As used in this Agreement, the term "Effective Date of
Termination" shall mean (i) the date on which the Officer's employment with the
Company and the Bank is to terminate, as specified in a Notice of Termination
given by the Company or the Bank, or (ii) the date on which the Officer's
employment with the Company and the Bank is to terminate, as specified in an
Officer's Termination Notice given by the Officer.
15. No Duty to Mitigate. Except as otherwise expressly provided herein, if
the Officer shall continue to receive compensation or benefits or severance pay
pursuant to this Agreement after its termination, (a) the Officer shall have no
duty to mitigate such payments by seeking or obtaining other employment or
otherwise, and (b) in the event the Officer does obtain other employment, such
payments from the Company shall not be reduced by compensation received from
such other employment.
16. Complete Understanding. This Agreement constitutes the complete
understanding between the parties with respect to its subject matter and merges
and supersedes all prior oral and written agreements and understandings and all
contemporaneous oral agreements and understandings, including, without
limitation, that certain agreement (the "Prior Agreement") dated January 1, 1997
between the Officer and the Company (and the Officer by entering into this
Agreement specifically disclaims any right to receive any payments or any other
benefits under that agreement) and any other employment agreement heretofore
executed by the Officer and the Company or any of its predecessors or
Affiliates. Notwithstanding the
18
<PAGE>
foregoing, if any Regulatory Restriction shall prevent this Agreement from going
into effect, shall void this Agreement in its entirety, or shall prohibit the
Company and the Bank from carrying out all of the provisions of Sections 7, 9,
10 or 12 hereof, then the Officer shall be entitled to the benefits of Sections
9 and 10 of the Prior Agreement to the extent that such benefits exceed the
benefits, after application of any Regulatory Restriction, available under this
Agreement. This Agreement may not be amended, terminated or rescinded except in
a writing signed by all the parties hereto; provided, that no amendment or other
modification to this Agreement made prior to the Effective Time shall be valid
or binding unless agreed to by all parties hereto and also consented to by
Bancorp; and provided further that any amendment or modification to this
Agreement agreed to on behalf of the Company shall be approved by a Special
Majority of the Board of Directors. Notwithstanding the foregoing or any other
provision in this Agreement to the contrary, any provision in this Agreement
requiring or permitting any action, determination or decision to be taken or
made by a Special Majority of the Board of Directors shall terminate on December
31, 2002, after which any such action, determination or decision may be taken or
made by a simple majority of the Board of Directors.
17. No Waiver. The failure of any party at any time to require performance
by any other party of a provision of this Agreement or to resort to a remedy at
law or in equity or otherwise shall in no way affect the right of such party to
require full performance or to resort to such remedy at any time thereafter nor
shall a waiver by any party of the breach of any provision of this Agreement be
taken or held to be a waiver of any subsequent breach of such provision unless
expressly so stated in writing. No waiver of any of the provisions of this
Agreement shall be effective unless in writing and signed by the party to be
charged.
18. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without regard to conflict of laws principles applied in the
State of New York.
19. Headings. The headings to the Sections of this Agreement are for
convenience of reference only and shall not be given any effect in the
construction or interpretation of this Agreement.
20. Severability. If any provision of this Agreement is held by a court or
other authority having competent jurisdiction to be invalid, void or otherwise
unenforceable, in whole or in part, by reason of any applicable law, statute or
regulation or any interpretation thereof, then (a) the remainder of the
provisions of this Agreement shall remain in full force and effect and in no way
affected, impaired or invalidated and (b) the provision so held to be invalid,
void or otherwise unenforceable shall be deemed modified in amount, duration,
scope or otherwise to the minimum extent necessary so that such provision shall
not be invalid, void or otherwise unenforceable by reason of such law, statute,
regulation or interpretation and such provision, as so modified, shall remain in
full force and effect.
21. Payment of Legal Fees. If any legal action or proceeding is commenced
to enforce or interpret the provisions of this Agreement, or any plan, agreement
or arrangement referenced in this Agreement, or to recover damages for breach
thereof, including without limitation any proceeding commenced under Section 22
hereof, all reasonable legal fees, disbursements and court or arbitration costs
paid or incurred by the Officer arising out of or resulting from such action or
proceeding shall be paid or reimbursed to the Officer by the
19
<PAGE>
Company, provided that the action or proceeding is not dismissed or summarily
decided against the Officer.
22. Dispute Resolution. Any dispute or controversy arising under, in
connection with or relating to this Agreement or the transactions contemplated
hereby shall be subject to compulsory mediation in New York City in accordance
with the National Rules for the Resolution of Employment Disputes of the
American Arbitration Association then in effect. In the event that such
compulsory mediation does not result in a resolution of such dispute or
controversy which is acceptable to both the Company and the Officer, such
dispute or controversy shall be resolved exclusively by arbitration in New York
City in accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association then in effect. The parties
hereto agree that the decision of such arbitration shall be final and binding
upon the parties and upon confirmation of the decision resulting from such
arbitration, judgment may be entered on the arbitrators' award in any court
having jurisdiction.
23. Taxes. Any payments due to the Officer pursuant to this Agreement
shall be reduced by all applicable federal, state, city or other taxes required
by law to be withheld with respect to such payments.
24. Limitation on Payments. Any payments made to the Officer pursuant to
this Agreement, or otherwise, are subject to and conditioned upon their
compliance with, or the non-applicability thereto of, 12 USC ss. 1828(k) and any
regulations promulgated thereunder.
HUDSON UNITED BANCORP
Dated: September 14, 1999 By: /s/ Charles F.X. Poggi
---------------------------
Charles F.X. Poggi
Chairman, Compensation
Committee
HUDSON UNITED BANK
Dated: September 14, 1999 By: /s/ Charles F.X. Poggi
---------------------------
Charles F.X. Poggi
Chairman, Compensation
Committee
Dated: September 14, 1999 /s/ Kenneth T. Neilson
--------------------------
Kenneth T. Neilson
20
Exhibit 21
LIST OF SUBSIDIARIES
SUBSIDIARIES OF HUDSON UNITED BANCORP:
Hudson United Bank, organized under New Jersey business laws
HUBCO Capital Trust I, a statutory business trust
HUBCO Capital Trust II, a statutory business trust
JBI Capital Trust I, a statutory business trust
Jefferson Delaware Inc., a service corporation for payment of JBI Capital Trust
I
AMFDCM, Inc., organized under New Jersey business laws
SUBSIDIARIES OF HUDSON UNITED BANK:
Hendrick Hudson Corp. of New Jersey, organized under New Jersey business laws
Lafayette Development Corp., organized under New Jersey business laws
HUB Investment Services, Inc., organized under New Jersey business laws
HUB Mortgage Investments, Inc., organized under New Jersey business laws
NJ Investments of Delaware, Inc., organized under Delaware business laws
AMBA Realty Corporation, organized under the Connecticut business laws
Hudson Trader Brokerage Services, organized under New York business laws
Fair Street Associates, Inc., organized under New York business laws
Markgard Realty, Inc., organized under New York business laws
Marmet Apartments of West Virginia, Inc., organized under New York business laws
Plural Realty of Chappaqua, Inc., organized under New York business laws
Riverdale Timber Ridge, Inc., organized under New York business laws
<PAGE>
Plural Realty, Inc., organized under New York business laws
Posabk, Inc., organized under New York business laws
PSB Building Corp., organized under New York business laws
PSB Associates, organized under New York business laws
Atlantic Company, Inc., organized under Delaware business laws
Woulf Asset Holdings, organized under New Jersey business laws
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<ALLOWANCE-DOMESTIC> 98,749
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
