MIDLAND BANCORPORATION, INC.
80 East Ridgewood Avenue
Paramus, New Jersey 07652
December 26, 1996
Dear Shareholder:
On behalf of the Board of Directors, I want to extend to you a cordial
invitation to attend a special meeting of shareholders (the "Meeting") of
Midland Bancorporation, Inc. ("Midland") to be held at 550 Kinderkamack Road,
Oradell, New Jersey on Tuesday, January 28, 1997 at 3:00 p.m.
At the Meeting, you will be asked to approve an Agreement and Plan of
Merger dated as of September 13, 1996 (the "Merger Agreement"), by and among
Valley National Bancorp ("Valley"), Valley's national bank subsidiary, Valley
National Bank ("VNB"), Midland and Midland's New Jersey bank subsidiary, The
Midland Bank and Trust Company ("Midland Bank"), pursuant to which Midland will
merge into Valley (the "Merger") and Midland Bank will merge into VNB. If the
Merger is approved and becomes effective, each outstanding share of Midland
Common Stock (except for fractional shares) will be converted into 30.00 shares
of Valley Common Stock, subject to adjustment, as more fully set forth in the
Merger Agreement.
In the accompanying material, you will find the Notice of Meeting of
Shareholders of Midland and a Proxy Statement-Prospectus setting forth actions
to be taken at the Meeting, a Proxy Card, the details of the proposed Merger,
the conditions to consummation of the Merger and information concerning Valley,
VNB, Midland and Midland Bank.
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares at a meeting at which a quorum is present.
THE BOARD OF DIRECTORS OF MIDLAND HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE IN FAVOR OF THE MERGER AGREEMENT. The executive officers and
directors of Midland intend to vote all of their shares in favor of the Merger
Agreement.
Because of the importance of the Merger to the shareholders of Midland,
we urge you to complete and sign the enclosed proxy card and return it as soon
as possible in the enclosed postage-prepaid return envelope so that your shares
will be represented. You may nevertheless attend the Meeting and vote in person
if you wish to do so.
The enclosed also constitutes a Prospectus of Valley with respect to
the shares of Valley Common Stock to be issued to the shareholders of Midland if
the Merger is consummated.
Sincerely,
ROBERT M. MEYER
President and Chief Executive Officer
<PAGE>
MIDLAND BANCORPORATION, INC.
80 East Ridgewood Avenue
Paramus, New Jersey 07652
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 28, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Midland Bancorporation, Inc. ("Midland") will be held at 550
Kinderkamack Road, Oradell, New Jersey on Tuesday, January 28, 1997 at 3:00
p.m., for the purpose of considering and voting upon the following matters:
1. A proposal to approve an Agreement and Plan of
Merger, dated as of September 13, 1996 (the "Merger
Agreement"), by and among Valley National Bancorp ("Valley"),
Valley's national bank subsidiary, Valley National Bank
("VNB"), Midland and Midland's New Jersey bank subsidiary, The
Midland Bank and Trust Company ("Midland Bank"), pursuant to
which Midland will merge into Valley (the "Merger"), and each
share of Midland Common Stock outstanding on the effective
date of the Merger will be converted into 30.00 shares of
Valley Common Stock, subject to adjustment, as more fully set
forth in the Merger Agreement.
2. Such other business as may properly come before the
Meeting or any adjournment thereof.
Only those shareholders of record as of the close of business on
December 13, 1996 will be entitled to notice of, and to vote at, the Meeting.
A list of such shareholders will be available at the Meeting.
Consummation of the Merger is subject to certain conditions, including
approval of the Merger Agreement by the affirmative vote at the Meeting of at
least a majority of the outstanding shares of Midland common stock, whether in
person or by proxy. Your vote is important regardless of the number of shares
that you own. Whether or not you plan to attend the Meeting, please mark, date
and sign the enclosed proxy and return it as soon as possible in the enclosed
stamped envelope. You may revoke the proxy at any time prior to its exercise.
By Order of the Board of Directors,
ROBERT M. MEYER
President and Chief Executive Officer
Paramus, New Jersey
December 26, 1996
THE MERGER IS OF MAJOR IMPORTANCE TO THE SHAREHOLDERS OF MIDLAND.
ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS.
<PAGE>
MIDLAND BANCORPORATION, INC. VALLEY NATIONAL BANCORP
PROXY STATEMENT PROSPECTUS
for the Special Meeting of Shareholders for the Common Stock of Valley
of Midland Bancorporation, Inc. National Bancorp to be issued
to be held on in connection with the Merger of
January 28, 1997 Midland Bancorporation, Inc.
with and into Valley National Bancorp
----------------------------------------------
This Proxy Statement-Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Midland Bancorporation,
Inc. ("Midland") to be used at a special meeting of its shareholders (the
"Meeting") to be held on January 28, 1997, and at any adjournments or
postponements thereof. The purpose of the Meeting is to consider and vote upon
an Agreement and Plan of Merger dated as of September 13, 1996 (the "Merger
Agreement"), by and among Valley National Bancorp ("Valley"), Valley's national
bank subsidiary, Valley National Bank ("VNB"), Midland and Midland's New Jersey
bank subsidiary, The Midland Bank and Trust Company ("Midland Bank"). A copy of
the Merger Agreement is attached as Appendix A to this Proxy
Statement-Prospectus.
In accordance with the terms of the Merger Agreement, upon approval of
the Merger Agreement by the shareholders of Midland, receipt of all requisite
regulatory approvals and satisfaction or waiver of all conditions, Midland will
merge with and into Valley (the "Merger") and Midland Bank will merge with and
into VNB (the "Bank Merger"). Upon consummation of the Merger, each share of
common stock of Midland, $15.00 par value per share ("Midland Common Stock"),
issued and outstanding immediately prior to the effective time of the Merger
(except for fractional shares), will be converted into 30.00 shares (the
"Exchange Ratio") of common stock of Valley, no par value ("Valley Common
Stock"), subject to certain adjustments more fully described in this Proxy
Statement-Prospectus.
Valley has filed a Registration Statement pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering the shares of Valley
Common Stock which will be issued in connection with the Merger. In addition to
constituting the Midland Proxy Statement for the Meeting, this document
constitutes a Prospectus of Valley with respect to the Valley Common Stock to be
issued if the Merger is consummated.
Midland stock certificates should not be returned to Midland with the
enclosed proxy and should not be forwarded until after receipt of a letter of
transmittal which will be provided to Midland shareholders upon consummation of
the Merger.
THE SHARES OF VALLEY COMMON STOCK DESCRIBED IN THE ATTACHED PROXY
STATEMENT-PROSPECTUS ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO SELL, TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS AT ANY TIME, NOR ANY
DISTRIBUTION OF SHARES OF VALLEY COMMON STOCK, SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
The date of this Proxy Statement-Prospectus is December 26, 1996.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................1
INFORMATION INCORPORATED BY REFERENCE........................................2
SUMMARY......................................................................3
The Meeting............................................................3
The Companies..........................................................4
The Merger.............................................................4
Selected Financial Data of Valley......................................9
Selected Financial Data of Midland....................................10
Comparative Per Share Data............................................11
Summary Pro Forma Financial Information...............................14
INTRODUCTORY STATEMENT......................................................14
CERTAIN INFORMATION REGARDING VALLEY........................................14
General...............................................................15
Valley National Bank..................................................15
CERTAIN INFORMATION REGARDING MIDLAND.......................................15
General...............................................................15
The Midland Bank and Trust Company....................................15
THE MEETING.................................................................15
General...............................................................15
Purpose of the Meeting................................................15
Vote Required; Shares Entitled to Vote................................16
Solicitation, Voting and Revocation of Proxies........................16
THE PROPOSED MERGER.........................................................18
General Description...................................................18
Consideration.........................................................18
Cash in Lieu of Fractional Shares.....................................18
Exchange of Certificates..............................................18
Conversion of Stock Options...........................................18
No Dissenters' Rights.................................................18
Background and Reasons for the Merger.................................18
Opinion of Midland's Financial Advisor................................20
Effective Time; Conditions to Consummation of the Merger..............24
Regulatory Approvals..................................................24
Termination of the Merger Agreement...................................24
Amendment of the Merger Agreement.....................................25
Accounting Treatment of the Merger....................................25
Federal Income Tax Consequences.......................................25
Interests of Certain Persons in the Merger............................26
Resale Considerations With Respect to the Valley Common Stock.........27
Business Pending Consummation.........................................27
Management and Operations After the Merger............................28
Stock Option for Shares of Midland Common Stock.......................28
PRO FORMA COMBINED FINANCIAL INFORMATION....................................29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MIDLAND..............38
BUSINESS OF MIDLAND.........................................................47
SUPERVISION AND REGULATION OF MIDLAND.......................................52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF MIDLAND.............................................55
CERTAIN TRANSACTIONS OF MIDLAND.............................................56
DESCRIPTION OF VALLEY COMMON STOCK..........................................57
General...............................................................57
Dividend Rights.......................................................57
Voting Rights.........................................................57
Liquidation Rights....................................................58
Assessment and Redemption.............................................58
Other Matters.........................................................58
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF VALLEY AND MIDLAND..............58
Voting Requirements...................................................58
Cumulative Voting.....................................................58
Shareholder Consent to Corporate Action...............................58
Dividends.............................................................59
By-laws...............................................................59
Limitations of Liability of Directors and Officers....................59
LEGAL OPINION...............................................................59
EXPERTS.....................................................................59
Appendix A - Merger Agreement..............................................A-1
Appendix B - Stock Option Agreement........................................B-1
Appendix C - Fairness Opinion of Capital Consultants.......................C-1
Financial Statements of Midland............................................F-1
<PAGE>
AVAILABLE INFORMATION
Valley is subject to the information requirements of the Securities
Exchange Act of 1934, as amended and the rules and regulations thereunder (the
"Exchange Act") and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission (such as
Valley). The address of the Commission's web site is http://www.sec.gov. In
addition, Valley Common Stock is traded on the New York Stock Exchange ("NYSE"),
and reports, proxy statements and other information relating to Valley may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Valley has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act (together with all amendments and supplements
thereto, the "Registration Statement"), with respect to the shares of Valley
Common Stock to be issued upon consummation of the Merger. This Proxy
Statement-Prospectus does not contain all of the information set forth in the
Registration Statement and exhibits thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Copies of
the Registration Statement are available for inspection and copying as set forth
above. Statements contained in this Proxy Statement-Prospectus or in any
document incorporated by reference in this Proxy Statement-Prospectus relating
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF SUCH DOCUMENTS
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) IS AVAILABLE WITHOUT CHARGE TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT-PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: ALAN ESKOW,
CORPORATE SECRETARY, VALLEY NATIONAL BANCORP, 1455 VALLEY ROAD, WAYNE, NEW
JERSEY 07470; TELEPHONE NUMBER (201) 305-8800. IN ORDER TO ENSURE TIMELY
DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY JANUARY 21,1997.
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by Valley with the Commission (Company
File No. 0-11179) are hereby incorporated by reference in this Proxy
Statement-Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1995.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1996.
3. Current Reports on Form 8-K filed with the Commission on February
22, April 9, June 12 and September 20, 1996.
4. The description of Valley Common Stock set forth in Valley's
Registration Statement on Form 8-A filed by Valley pursuant to Section
12 of the Exchange Act, and any amendment or report filed for the
purpose of updating such description.
All documents filed by Valley pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement-Prospectus and prior to the Meeting shall be deemed incorporated by
reference into this Proxy Statement-Prospectus and a part hereof from the date
of filing of such documents.
All information contained or incorporated by reference in this Proxy
Statement-Prospectus with respect to Valley and VNB was supplied by Valley and
all information contained or incorporated by reference in this Proxy
Statement-Prospectus with respect to Midland was supplied by Midland. Although
neither Valley nor Midland have any knowledge that would indicate that any
statements or information relating to the other party contained or incorporated
herein are inaccurate or incomplete, neither Valley nor Midland can warrant the
accuracy or completeness of such information or statements as they relate to the
other entity or its subsidiaries.
Any statement contained herein, in any supplement hereto or in a
document incorporated by reference or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement-Prospectus to the extent that a statement contained herein, in any
supplement hereto or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement-Prospectus or any supplement hereto.
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement-Prospectus. This summary is necessarily
incomplete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement-Prospectus, including the Appendixes
hereto and the documents incorporated by reference herein. A copy of the Merger
Agreement is set forth as Appendix A to this Proxy Statement-Prospectus. Midland
shareholders are urged to read carefully the entire Proxy Statement-Prospectus,
including the Appendixes.
THE MEETING
Date, Time and Place of
Meeting..................... The special meeting of shareholders (the
"Meeting") of Midland Bancorporation, Inc.
("Midland") will be held on Tuesday, January
28, 1997, 3:00 p.m. at 550 Kinderkamack Road,
Oradell New Jersey.
Record Date................ December 13, 1996 (the "Record Date").
Shares Entitled to Vote.... 129,220 shares of common stock, $15.00 par
value per share, of Midland ("Midland Common
Stock") were outstanding on the Record Date and
are entitled to vote at the Meeting.
Purpose of Meeting......... To consider and vote upon an Agreement and Plan of
Merger dated as of September 13, 1996 (the "Merger
Agreement"), by and among Valley National Bancorp
("Valley"), Valley's national bank subsidiary,
Valley National Bank ("VNB"), Midland and
Midland's New Jersey bank subsidiary, The Midland
Bank and Trust Company ("Midland Bank").
Vote Required................ The affirmative vote, in person or by proxy, of a
majority of the outstanding shares of Midland
Common Stock is required to approve the Merger
Agreement. In connection with the execution of the
Merger Agreement, each owner of Norwood Associates
II, a partnership in which Walter H. Jones, III
and Graham O. Jones, directors of Midland, and
their two sisters are partners, agreed to vote in
favor of the Merger Agreement all shares of
Midland Common Stock which he or she holds, or
over which he or she exercises voting control. As
of the Record Date, such persons held or had
voting control over 50.9% of the issued and
outstanding shares of Midland Common Stock. The
directors and executive officers of Midland other
than Messrs. Graham and Walter Jones have also
indicated their intention to vote in favor of the
Merger Agreement the shares of Midland Common
Stock which they beneficially own (9.9% of the
issued and outstanding shares of Midland Common
Stock as of the Record Date). Consequently, the
affirmative vote of other shareholders will not be
required for approval of the Merger.
Recommendation
of the Midland
Board of Directors........... The Midland Board of Directors has unanimously
approved the Merger Agreement and unanimously
recommends that holders of Midland Common Stock
vote "FOR" approval of the Merger Agreement.
<PAGE>
THE COMPANIES
Valley...................... Valley is a bank holding company organized under
the laws of the State of New Jersey and registered
under the Bank Holding Company Act of 1956, as
amended (the "Bank Holding Company Act"). Valley
has one banking subsidiary, VNB, which operates 80
branches located in northern New Jersey. At
September 30, 1996, Valley had consolidated assets
of approximately $4.6 billion. Valley's principal
executive offices are located at 1455 Valley Road,
Wayne, New Jersey 07474, and its telephone number
is (201) 305-8800. See "Certain Information
Regarding Valley;" "Available Information" and
"Information Incorporated by Reference."
Midland...................... Midland is a bank holding company organized under
the laws of the State of New Jersey and registered
under the Bank Holding Company Act. Midland has
one banking subsidiary, Midland Bank, which
operates 13 full service branches and 1 limited
service facility in Bergen County, New Jersey. At
September 30, 1996, Midland had total assets of
$426 million. Midland's principal executive
offices are located at 80 East Ridgewood Avenue,
Paramus, New Jersey 07652 and its telephone number
is (201) 265-5555. See "Certain Information
Regarding Midland;" "Management's Discussion
and Analysis of Financial Condition and Results of
Operations of Midland;" "Business of Midland;"
"Supervision and Regulation of Midland;" "Security
Ownership of Certain Beneficial Owners and
Management of Midland" and "Certain Transactions
of Midland."
THE MERGER
General Description of
the Merger; Effective Time... In accordance with the terms of the Merger
Agreement, upon approval of the Merger Agreement
by the shareholders of Midland, receipt of all
requisite regulatory approvals and satisfaction or
waiver of all other conditions, Midland will merge
with and into Valley (the "Merger"), with Valley
as the surviving entity. The Merger will become
effective at the time (the "Effective Time")
specified in a certificate of merger which will be
filed with the New Jersey Secretary of State. A
closing under the Merger Agreement (the "Closing")
will occur prior to the Effective Time. The
Closing will take place on February 28, 1997 or,
if later than February 28, 1997, on the tenth
business day following the receipt of all
necessary regulatory and governmental approvals
and satisfaction of all other conditions to
closing (other than the delivery of documents to
be delivered at the Closing), or on such other
date as Valley and Midland agree upon. Immediately
following consummation of the Merger, or as soon
thereafter as VNB may deem appropriate, Midland
Bank will merge with and into VNB (the "Bank
Merger"), with VNB as the surviving entity,
pursuant to a separate merger agreement between
VNB and Midland Bank (the "Bank Merger
Agreement"). See "The Proposed Merger -- General
Description" and the full text of the Merger
Agreement, which is attached as Appendix A to this
Proxy Statement-Prospectus.
Consideration.............. Upon consummation of the Merger, each share of
Midland Common Stock issued and outstanding
immediately prior to the Effective Time will be
converted into 30.00 shares (the "Exchange Ratio")
of common stock of Valley, no par value per share
("Valley Common Stock"). The Exchange Ratio is
subject to adjustment to take into account any
stock split, stock dividend, stock combination,
reclassification, or similar transaction by Valley
with respect to the Valley Common Stock. See "The
Proposed Merger -- Consideration."
<PAGE>
Conversion of Stock
Options...................... At the Effective Time,
each outstanding option to purchase Midland Common
Stock (a "Midland Option") granted under the stock
option plans of Midland will be converted into an
option to purchase Valley Common Stock. See "The
Proposed Merger -- Conversion of Stock Options."
No Fractional Shares........ In lieu of fractional
shares of Valley Common Stock, Midland
shareholders would be entitled to receive, without
interest, a cash payment equal to the value of any
fractional share interest to which they would
otherwise be entitled in the Merger. Since the
Exchange Ratio is a whole number and there are no
fractional shares of Midland Common Stock
outstanding, it is not anticipated that there will
be any cash issued in lieu of fractional shares in
the Merger.
Certain Federal Income
Tax Consequences........... Consummation of the Merger is conditioned upon the
receipt of an opinion of Pitney, Hardin, Kipp &
Szuch, counsel to Valley, to the effect that the
Merger will constitute a tax-free reorganization
as defined in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Assuming the applicability of Section 368(a) of
the Code, the conversion of Midland Common Stock
into Valley Common Stock will be a nontaxable
event for Valley, Midland and the Midland
shareholders. No taxable gain or loss will have to
be recognized by Midland shareholders until they
sell the Valley Common Stock received by them in
the Merger. The basis of the Valley Common Stock
received by each Midland shareholder will be the
basis of the Midland Common Stock converted in
connection with the Merger and the holding period
of the Valley Common Stock will include the
holding period of the Midland Common Stock
converted. See "The Proposed Merger -- Federal
Income Tax Consequences."
Midland shareholders are urged to consult their
own tax advisors as to the specific tax
consequences to them of the Merger under
applicable tax laws.
No Dissenters Rights....... Consistent with the provisions of the New Jersey
Business Corporation Act (the "NJBCA"), no
shareholder of Midland will have the right to
dissent from the Merger. See "The Proposed Merger
-- No Dissenters' Rights."
Opinion of Midland's
Financial Advisor.......... The Board of Directors of
Midland has retained Capital Consultants of
Princeton, Inc. ("Capital Consultants") to
evaluate the terms of the Merger. Capital
Consultants has delivered written opinions dated
September 12, 1996 and the date of this Proxy
Statement-Prospectus to the Board of Directors of
Midland to the effect that the consideration to be
received by the Midland shareholders pursuant to
the Merger Agreement is, as of the date of such
opinions, fair to such shareholders from a
financial point of view. For information
concerning the matters reviewed, assumptions made
and factors considered by Capital Consultants, see
"The Proposed Merger -- Opinion of Midland's
Financial Advisor" and Appendix C to this Proxy
Statement-Prospectus, which sets forth Capital
Consultants' updated fairness opinion in its
entirety.
<PAGE>
Conditions to the Merger..... Consummation of
the Merger is contingent upon a number of
conditions, including receiving all necessary
regulatory approvals; the approval of the Merger
by the requisite vote of the shareholders of
Midland Common Stock; an opinion of Pitney,
Hardin, Kipp & Szuch, counsel to Valley, to the
effect that the Merger will result in a tax free
reorganization; a letter from KPMG Peat Marwick,
LLP, Valley's independent public accountants, to
the effect that the Merger will qualify for
pooling-of-interests accounting treatment; and an
opinion of Capital Consultants, advisors to
Midland, that the Merger is fair to the
shareholders of Midland from a financial point of
view. Capital Consultant's opinion is included as
Appendix C. See "The Proposed Merger -- Opinion of
Midland's Financial Advisor; -- and -- Effective
Time; Conditions to Consummation of the Merger."
Regulatory Approvals....... Consummation of the
Merger and the Bank Merger requires the approval
of the Comptroller of the Currency (the "OCC").
OCC approval does not constitute an endorsement of
the Merger or a determination by the OCC that the
terms of the Merger are fair to the shareholders
of Midland. An application for OCC approval was
filed on October 31, 1996 and approval was granted
on December 13, 1996. Also on October 31, 1996,
Valley submitted a draft application to the
Federal Reserve Board seeking a waiver of the
requirement for approval of the Merger under
Regulation Y promulgated under the Bank Holding
Company Act. The Federal Reserve Board waiver was
granted on December 6, 1996. See "The Proposed
Merger -- Regulatory Approvals."
Termination Rights.......... The Merger Agreement
may be terminated by Midland if the Average
Closing Price of Valley Common Stock is $19.50 or
less, unless Valley unilaterally agrees to
increase the Exchange Ratio so that the value
(measured by the Average Closing Price) of the
number of shares of Valley Common Stock into which
one share of Midland Common Stock is to be
converted in the Merger, based on the new Exchange
Ratio, is at least as high as the value would have
been if the Exchange Ratio were unchanged and the
Average Closing Price were $19.50. The "Average
Closing Price" of Valley Common Stock is defined
as the average of the closing prices of Valley
Common Stock as reported on the New York Stock
Exchange ("NYSE") and published in the Wall Street
Journal during the first 10 of the 15 consecutive
trading days immediately preceding the Effective
Time. The Average Closing Price is subject to
adjustment to take into account any stock split,
stock dividend, stock combination,
reclassification, or similar transaction by Valley
with respect to Valley Common Stock. Valley has
the right to terminate the Merger Agreement if at
the Closing the shareholders' equity of Midland is
below a level set forth in a formula in the Merger
Agreement. The Merger Agreement may be terminated
by either Midland or Valley if the Effective Time
has not occurred by April 30, 1997. For a more
complete description of these and other
termination rights available to Midland and
Valley, see "The Proposed Merger -- Termination of
the Merger Agreement."
Amendment of the
Merger Agreement........... The terms of the Merger
Agreement may be amended, modified or supplemented
by the written consent of Valley and Midland at
any time prior to the Effective Time. However,
following Midland shareholder approval of the
Merger Agreement, Midland shareholders must
approve any amendment reducing or changing the
amount or form of consideration to be received by
them in the Merger. See "The Proposed Merger --
Amendment of the Merger Agreement."
Accounting Treatment
of the Merger............. The Merger is expected to be accounted for as a
pooling of interests for financial reporting
purposes, and it is a condition to Valley's and
Midland's respective obligations to close the
Merger that Valley receive a letter from KPMG Peat
Marwick LLP, Valley's independent certified public
accountants, to the effect that the Merger will
qualify for pooling-of-interests accounting
treatment. Under the pooling-of-interests method
of accounting, Midland's historical basis of
assets, liabilities and shareholders equity will
be retained by Valley as the surviving entity. For
a discussion of the effects of
pooling-of-interests accounting, see "Pro Forma
Combined Financial Information" and "The Proposed
Merger -- Accounting Treatment of the Merger."
Stock Option to Valley
for Midland Shares......... In connection with the negotiation of the Merger
Agreement, Valley and Midland entered into a Stock
Option Agreement (the "Stock Option Agreement")
dated September 13, 1996. Pursuant to the Stock
Option Agreement, Midland granted Valley an option
(the "Option"), exercisable only under certain
limited and specifically defined circumstances, to
purchase up to 35,000 authorized but unissued
shares of Midland Common Stock, representing
approximately 21.8% of the shares of Midland
Common Stock which would be outstanding
immediately following the exercise of the Option,
for an exercise price of $301.00 per share. Valley
does not have any voting rights with respect to
the shares of Midland Common Stock subject to the
Option prior to exercise of the Option. A copy of
the Stock Option Agreement is attached as Appendix
B to this Proxy Statement-Prospectus.
If certain Triggering Events specifically
enumerated in the Stock Option Agreement occur and
the Merger is not consummated, Valley would
recognize a gain on the sale of the shares of
Midland Common Stock received pursuant to the
exercise of the Option if such shares of Midland
Common Stock were sold at prices exceeding $301.00
per share. The ability of Valley to exercise the
Option and to cause up to an additional 35,000
shares of Midland Common Stock to be issued may be
considered a deterrent to other potential
acquirors of control of Midland, as it is likely
to increase the cost of an acquisition of all of
the shares of Midland Common Stock which would
then be outstanding. The exercise of the Option by
Valley may also make pooling-of-interests
accounting treatment unavailable to a subsequent
acquiror. See "The Proposed Merger -- Stock Option
for Shares of Midland Common Stock."
Interests of Certain
Persons in the Merger...... The Merger Agreement provides that, as of the
Effective Time, Valley and VNB will appoint Walter
H. Jones III, currently the Chairman of the Board
of Directors of Midland and Midland Bank, and
Graham O. Jones, currently a director of Midland
and Midland Bank, as directors of Valley and VNB.
In addition, the Merger Agreement provides that,
as of the Effective Time, VNB will appoint Robert
M. Meyer, currently the President and Chief
Executive Officer of Midland, as a member of VNB's
senior management team, and Valley will assume in
writing Mr. Meyer's employment contract.
Under Midland's Long-Term Incentive Plan (the
"Plan") payment to certain of Midland Bank's
officers would be due and payable upon
consummation of the Merger. Midland's Board of
Directors has determined to terminate the Plan and
accelerate payment of such benefits under the Plan
as if the Merger had occurred in December 1996. As
a result of the acceleration and termination.
Robert M. Meyer, President of Midland, will
receive a payment of $407,997 and four other
officers of Midland will receive payments in the
aggregate amount of $407,997. These amounts were
calculated based upon the current market value of
Valley Common Stock multiplied by the Exchange
Ratio. Certain assumptions were also made about
Midland's performance for the calender year ended
December 31, 1996. One effect of the acceleration
is that these five persons will receive the
benefits of early payment of the amounts due under
the Plan and elimination of the risk that the
Merger will not be consummated.
The Merger Agreement further provides that for a
six-year period following the Effective Time,
Valley will indemnify the directors and officers
of Midland against certain liabilities to the
extent such persons were indemnified under
Midland's Certificate of Incorporation and Bylaws.
As of the Record Date, the directors and
executive officers of Midland and their affiliates
beneficially owned in the aggregate 60.8% of the
issued and outstanding shares of Midland Common
Stock.
Resale Considerations
with Respect to Valley
Common Stock............... The shares of Valley Common Stock to be issued in
the Merger will be registered under the Securities
Act of 1933, as amended (the "Securities Act"),
and will be freely transferable, except for shares
received by persons, including directors and
executive officers of Midland, who may be deemed
to be "affiliates" of Midland under Rule 145
promulgated under the Securities Act. See "The
Proposed Merger -- Resale Considerations with
Respect to the Valley Common Stock."
Differences in
Shareholders' Rights....... At the Effective Time, the holders of Midland
Common Stock will become holders of Valley Common
Stock. Valley and Midland are both New Jersey
general business corporations governed by the
NJBCA. Therefore, there are no material
differences in the legal rights of holders of
Midland Common Stock and Valley Common Stock under
the NJBCA. For a description of Valley Common
Stock, see "Description of Valley Common Stock."
For a comparison of the Certificates of
Incorporation and the Bylaws of Valley and
Midland, see "Comparison of the Rights of
Shareholders of Valley and Midland."
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA OF VALLEY
The following table sets forth certain selected historical consolidated financial data for Valley. This data is derived from,
and should be read in conjunction with, the consolidated financial statements of Valley, including the notes thereto,
incorporated by reference herein. See "Information Incorporated by Reference." The data for the years ended December 31, 1995
through December 31, 1991 are derived from Valley's consolidated financial statements, which have been audited. Interim
unaudited data for the nine months ended September 30, 1996 and 1995 reflect, in the opinion of the management of Valley, all
adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of such data. Results for the nine
months ended September 30, 1996 are not necessarily indicative of results which may be expected for any other interim period or
for the year as a whole.
For Nine Months Ended September 30, For Years Ended December 31,
----------------------------------- -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in thousands, except for per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 243,943 $ 237,563 $ 316,650 $ 292,583 $ 280,693 $ 273,923 $ 245,383
Interest expense 108,100 107,491 143,271 117,465 114,021 133,690 135,582
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net interest income 135,843 130,072 173,379 175,118 166,672 140,233 109,801
Provision for possible loan losses 2,095 2,069 2,669 5,197 7,966 18,855 13,551
---------- ---------- ---------- ---------- ---------- ---------- --------
Net interest income after provision
forpossible loan losses 133,748 128,003 170,710 169,921 158,706 121,378 96,250
Non-interest income 17,252 15,776 20,968 23,967 27,990 32,592 15,437
Non-interest expense 76,706 67,845 90,203 90,594 85,671 79,947 61,296
---------- ---------- ---------- ---------- ---------- ---------- --------
Income before income taxes
and cumulative effect of
accounting change 74,294 75,934 101,475 103,294 101,025 74,023 50,391
Income taxes 24,747 29,877 38,879 38,723 35,638 25,272 15,716
---------- ---------- ---------- ---------- --------- ---------- --------
Income before cumulative effect of
accounting change 49,547 46,057 62,596 64,571 65,387 48,751 34,675
Cumulative effect of accounting change - - - - (402) 473 -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 49,547 $ 46,057 $ 62,596 $ 64,571 $ 64,985 $ 49,224 $ 34,675
========== ========== ========== ========== ========== ========== =========
PER COMMON SHARE DATA: (1)
Income before cumulative effect of
accounting change $ 1.35 $ 1.23 $ 1.67 $ 1.74 $ 1.79 $ 1.36 $ 0.97
Cumulative effect of accounting change - - - - (0.01) 0.01 -
Net income 1.35 1.23 1.67 1.74 1.78 1.37 0.97
Book Value 10.52 10.39 10.66 9.43 9.19 7.90 7.13
Dividends 0.74 0.70 0.94 0.90 0.70 0.64 0.60
RATIOS:
Return on Average Assets 1.45% 1.38% 1.40% 1.48% 1.58% 1.33% 1.22%
Return on Average Equity 17.06% 16.41% 16.60% 18.66% 20.95% 18.33% 14.11%
FINANCIAL CONDITION DATA:
Total assets $4,605,051 $4,417,042 $4,585,811 $4,418,586 $4,257,739 $3,937,660 $3,461,638
Investment securities held to maturity 222,005 782,461 266,354 853,983 1,228,339 1,351,385 1,369,547
Investment securities available for sale 1,049,069 654,611 1,146,285 696,438 463,857 335,807 9,239
Loans (net of unearned income) 3,085,213 2,701,196 2,793,175 2,592,756 2,271,991 1,935,978 1,761,486
Allowance for possible loan losses 41,798 40,205 39,670 42,024 41,344 34,852 25,904
Deposits 4,070,621 3,893,869 4,083,873 3,880,002 3,770,228 3,532,996 3,075,479
Shareholders' equity 382,417 390,110 400,237 350,616 333,240 280,376 251,924
(1) The per share data has been restated to give retroactive effect to stock splits and dividends.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA OF MIDLAND
The following table sets forth certain selected historical consolidated financial data for Midland. This data is derived from,
and should be read in conjunction with, the consolidated financial statements of Midland, including the notes thereto, included
elsewhere herein. The data for the years ended December 31, 1995 through December 31, 1991 are derived from Midland's
consolidated financial statements, which have been audited. Interim unaudited data for the nine months ended September 30, 1996
and 1995 reflect, in the opinion of the management of Midland, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the nine months ended September 30, 1996 are not necessarily
indicative of results which may be expected for any other interim period or for the year as a whole.
For Nine Months Ended September 30, For Years Ended December 31,
------------------------------------ ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in thousands, except for per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 21,982 $ 21,751 $ 29,242 $ 25,500 $ 24,620 $ 26,473 $ 30,328
Interest expense 6,975 7,510 10,055 7,365 8,504 10,616 15,805
--------- -------- --------- --------- --------- --------- ---------
Net interest income 15,007 14,241 19,187 18,135 16,116 15,857 14,523
Provision for possible loan losses 190 400 500 787 1,036 2,345 1,410
-------- -------- --------- --------- --------- --------- ---------
Net interest income after provision
for possible loan losses 14,817 13,841 18,687 17,348 15,080 13,512 13,113
Non-interest income 1,977 2,222 2,934 2,979 3,379 2,822 2,609
Non-interest expense 11,318 11,137 14,520 14,487 14,502 13,880 14,547
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes
and cumulative effect of
accounting change 5,476 4,926 7,101 5,840 3,957 2,454 1,175
Income taxes 2,114 1,847 2,664 2,137 1,256 701 120
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of
accounting change 3,362 3,079 4,437 3,703 2,701 1,753 1,055
Cumulative effect of accounting change - - - - 151 - -
--------- --------- --------- --------- --------- ---------- ---------
Net income $ 3,362 $ 3.079 $ 4,437 $ 3,703 $ 2,852 $ 1,753 $ 1,055
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
Income before cumulative effect of
accounting change $ 26.79 $ 24.26 $ 34.99 $ 29.16 $ 21.26 $ 13.80 $ 8.31
Cumulative effect of accounting change - - - - 1.19 - -
Net income 26.79 24.26 34.99 29.16 22.45 13.80 8.31
Book Value 272.73 251.75 257.45 222.86 219.80 203.85 195.05
Dividends 11.50 6.00 13.00 12.00 6.50 5.00 7.00
RATIOS:
Return on Average Assets 1.09% 1.02% 1.09% 0.94% 0.75% 0.49% 0.30%
Return on Average Equity 13.34% 13.58% 14.42% 13.24% 10.54% 6.87% 4.29%
FINANCIAL CONDITION DATA:
Total assets $ 426,233 $ 408,662 $ 424,092 $ 401,730 $ 407,961 $ 375,135 $ 362,492
Investment securities held to maturity 50,532 58,879 58,225 64,184 63,162 118,223 95,697
Investment securities available for sale 40,183 42,517 39,811 51,238 77,704 - -
Loans (net of unearned income) 289,479 258,544 258,665 242,061 218,012 211,440 219,271
Allowance for possible loan losses 4,208 4,218 4,321 3,881 3,211 2,903 2,601
Deposits 388,951 374,323 388,260 370,235 377,303 346,453 334,143
Shareholders' equity 34,171 31,945 32,372 28,279 27,920 25,894 24,776
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE PER SHARE DATA
The following table sets forth the earnings per share, period-end book value per share and cash dividends per share of
Valley Common Stock and Midland Common Stock for the nine months ended September 30, 1996 and for each of the years in the
three-year period ended December 31, 1995, on an historical and pro forma basis, as well as pro forma equivalent per share data
for Midland. The historical per share data have been derived from the financial statements of Valley and Midland which are
contained herein or incorporated by reference herein. The pro forma combined share data have been derived after giving effect
to the Merger as if it occurred at the beginning of the period presented using the pooling-of-interest method of accounting.
The historical per share data for Valley has been restated to retroactively reflect the effect of stock dividends and a
stock split. See "Pro Forma Combined Financial Information;" "Summary -- Selected Financial Data of Valley" and "Summary -- Selected
Financial Data of Midland."
Pro Forma
Equivalent per
Historical Historical Pro Forma Midland
Valley Midland Combined Share(1)
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Nine Months Ended
September 30, 1996
Earnings Per Share $ 1.35 $ 26.79 $ 1.31 $ 39.30
Book Value Per Share 10.52 272.73 10.38 311.40
Cash Dividends Per Share (2) 0.74 11.50 0.74 22.20
Year Ended December 31, 1995
Earnings Per Share 1.67 34.99 1.63 48.90
Book Value Per Share 10.66 257.45 10.46 313.80
Cash Dividends Per Share (2) 0.94 13.00 0.94 28.20
Year Ended December 31, 1994
Earnings Per Share 1.74 29.16 1.67 50.10
Book Value Per Share 9.43 222.86 9.24 277.20
Cash Dividends Per Share (2) 0.90 12.00 0.90 27.00
Year Ended December 31, 1993
Earnings Per Share 1.78 22.45 1.68 50.40
Book Value Per Share 9.19 219.80 9.01 270.30
Cash Dividends Per Share (2) 0.70 6.50 0.70 21.00
- -------------------------------
(1) Midland pro forma equivalent per share data is computed by multiplying the pro forma combined per share data (giving effect to
the Merger) by the Exchange Ratio of 30.00.
(2) The amount of future dividends payable by Valley, if any, is subject to the discretion of Valley's Board of Directors. The
Directors normally consider Valley's and VNB's cash needs, general business conditions, dividends from subsidiaries and
applicable governmental regulations and policies. Pro forma amounts assume that Valley would have declared cash dividends per
share on Valley Common Stock equal to its historical cash dividends per share on Valley Common Stock declared.
The first table below presents, for the periods indicated, the high and low closing prices per share of
Valley Common Stock and the high and low bid prices per share of Midland Common Stock. The second table below
presents information concerning the last sale price of Valley Common Stock on September 12, 1996 (the last
business day preceding the announcement of the Merger Agreement), the last bid price of Midland Common Stock on
September 9, 1996 (the last day for which a bid price was published prior to the announcement of the Merger
Agreement), and the last sale price of Valley Common Stock and the last bid price of Midland Common Stock on
December 20, 1996, a date shortly prior to the date of this Proxy Statement-Prospectus. The tables also present
the equivalent value of Valley Common Stock per Midland share which has been calculated by multiplying the last
sale price of Valley Common Stock on the dates indicated by the Exchange Ratio of 30.00. Valley Common Stock is
traded on the NYSE. Midland Common Stock is not listed for trading on any securities exchange or any automated
dealer quotation system. There is no established public trading market for Midland Common Stock and its trading
has been extremely limited. The bid quotations for Midland Common Stock listed below are those reported in The
Star Ledger as having been obtained from Ryan Beck & Co. These bid prices represent interdealer quotations,
without mark-up, mark-down or commission and, to Midland's knowledge, do not reflect actual transactions. Midland
shareholders are urged to obtain current market quotations for Valley Common Stock. Because the Exchange Ratio is
fixed, Midland shareholders are not assured of receiving any specific market value of Valley Common Stock. The
price of Valley Common Stock at the Effective Time may be higher or lower than the sale price at the time of
entering into the Merger Agreement, the time of mailing this Proxy Statement-Prospectus or at the time of the
Meeting.
Equivalent
Closing Sale Closing Bid Value of Valley
Price Per Share Price Per Share Common Stock Per
of Valley of Midland Share of Midland
Common Stock Common Stock Common Stock
High Low High Low High Low
1994:
First Quarter................. $27.20 $19.69 $178.00 $ 176.50 $ 816.09 $ 590.63
Second Quarter............... 28.55 23.70 202.00 177.00 856.41 711.09
Third Quarter................ 24.83 23.25 210.00 202.00 744.84 697.50
Fourth Quarter............... 24.48 22.45 225.00 210.00 734.53 673.59
1995:
First Quarter................ 26.29 22.80 236.00 225.00 788.90 683.91
Second Quarter............... 24.88 21.91 241.00 236.00 746.25 657.19
Third Quarter................ 24.77 22.14 261.00 241.00 742.97 664.22
Fourth Quarter............... 24.05 22.63 275.00 261.00 721.41 678.75
1996:
First Quarter................ 26.42 22.63 282.00 275.00 792.66 678.75
Second Quarter............... 29.63 25.50 290.00 282.00 888.75 765.00
Third Quarter................ 27.88 24.38 707.00 290.00 836.25 731.25
Fourth Quarter (through
December 20, 1996............ 27.25 24.75 715.00 670.00 817.50 742.50
Equivalent
Closing Sale Closing Bid Value of Valley
Price Per Share Price Per Share Common Stock Per
of Valley of Midland Share of Midland
Common Stock Common Stock Common Stock
DATE
September 9, 1996............ $291.00
September 12, 1996........... $25.63 $768.90
December 20, 1996............ 26.00 705.00 780.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following tables present certain unaudited combined condensed financial information from the Pro Forma Unaudited Combined
Condensed Statements of Income for the nine month period ended September 30, 1996 and for the years ended December 31, 1995, 1994
and 1993, and the Pro Forma Unaudited Combined Condensed Balance Sheet at September 30, 1996. The Pro Forma combined financial
information gives effect to the proposed Merger accounted for as a pooling of interests, as if such transaction had been consummated
for statement of income purposes on the first day of the applicable periods and for balance sheet purposes on September 30, 1996.
See "PRO FORMA FINANCIAL INFORMATION". The Summary Pro Forma financial information is based on the historical financial statements
of Valley and Midland included or incorporated by reference herein. See "INFORMATION INCORPORATED BY REFERENCE". The Pro Forma
financial information assumes an Exchange Ratio of 30.00 shares of Valley Common Stock for each share of Midland Common Stock
outstanding.
The summary unaudited Pro Forma financial information should be read in conjunction with the Pro Forma Financial Information
and the related notes thereto presented elsewhere in this Proxy Statement-Prospectus and the consolidated financial statements and
related notes included or incorporated by reference in this Proxy Statement-Prospectus. The Pro Forma financial information is not
necessarily indicative of the results of operations which would have been achieved had the Merger been consummated as of the
beginning of the periods for which such data are presented and should not be construed as being representative of future periods.
Pro Forma Unaudited Combined Financial Information
(In thousands, except for per share data)
For the Nine
Months
Ended
September 30, For the Years Ended December 31,
---------------------------------------------------------
1996 1995 1994 1993
---- ---- ----- -----
<S> <C> <C> <C> <C>
Results of Operations:
Net interest income before provision for possible loan losses $ 150,841 $ 192,561 $ 193,253 $ 182,788
Provision for possible loan losses............................... 2,285 3,169 5,984 9,002
Net interest income after provision for possible loan losses 148,556 189,392 187,269 173,786
Income before income taxes....................................... 79,761 108,571 109,134 104,982
Net income....................................................... 52,900 67,028 68,274 67,837
Earnings per common share........................................ 1.31 1.63 1.67 1.68
As of September 30, 1996
-------------------------
Balance Sheet:
Total assets..................................................... $ 5,031,113
Total deposits................................................... 4,459,572
Total stockholders' equity....................................... 416,417
Book value per common share...................................... 10.38
- --------------------------------------
</TABLE>
<PAGE>
INTRODUCTORY STATEMENT
This Proxy Statement-Prospectus solicits, on behalf of the Board of
Directors of Midland Bancorporation, Inc. ("Midland"), approval by the holders
of shares of common stock of Midland, $15.00 par value per share ("Midland
Common Stock"), of the Agreement and Plan of Merger dated as of September 13,
1996 (the "Merger Agreement"), by and among Valley National Bancorp ("Valley"),
Valley's national bank subsidiary, Valley National Bank ("VNB"), Midland and
Midland's New Jersey bank subsidiary, The Midland Bank and Trust Company
("Midland Bank"). Pursuant to the Merger Agreement, Midland will be merged with
and into Valley (the "Merger"). Immediately following consummation of the
Merger, or as soon thereafter as VNB may deem appropriate, Midland Bank will
merge with and into VNB (the "Bank Merger"), with VNB as the surviving entity,
pursuant to a separate merger agreement between VNB and Midland Bank (the "Bank
Merger Agreement"). If the Merger Agreement is approved and becomes effective,
each outstanding share of Midland Common Stock will be converted into 30.00
shares (the "Exchange Ratio") of common stock of Valley, no par value per share
("Valley Common Stock"), subject to adjustment, as more fully set forth in the
Merger Agreement. A copy of the Merger Agreement is attached as Appendix A to
this Proxy Statement-Prospectus and is incorporated herein by reference.
In connection with the negotiation by Valley and Midland of the Merger
Agreement, Valley and Midland entered into a Stock Option Agreement (the "Stock
Option Agreement") dated September 13, 1996. Pursuant to the Stock Option
Agreement, Midland granted Valley an option (the "Option"), exercisable only
under certain limited and specifically defined circumstances, to purchase up to
35,000 authorized but unissued shares of Midland Common Stock, representing
approximately 21.8% of the shares of Midland Common Stock which would be
outstanding immediately following the exercise of the Option, for an exercise
price of $301.00 per share. Valley does not have any voting rights with respect
to the shares of Midland Common Stock subject to the Option prior to exercise of
the Option. A copy of the Stock Option Agreement is attached as Appendix B to
this Proxy Statement-Prospectus.
All information contained in this Proxy Statement-Prospectus with respect
to Midland or Midland Bank was supplied by Midland for inclusion herein. All
information contained herein or incorporated by reference herein with respect to
Valley and VNB was supplied by Valley. The first date on which this Proxy
Statement-Prospectus and the enclosed form of proxy are being sent to the
shareholders of Midland is on or about December --, 1996.
This Proxy Statement-Prospectus does not cover any resales of shares of
Valley Common Stock to be received by shareholders of Midland upon consummation
of the Merger. Affiliates of Midland will be subject to restrictions on their
ability to resell the Valley Common Stock received by them in the Merger. See
"The Proposed Merger -- Resale Considerations with Respect to the Valley Common
Stock."
CERTAIN INFORMATION REGARDING VALLEY
General
Valley is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Board of Governors") under the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). Valley was
organized under the laws of New Jersey in 1983 by VNB for the purpose of
creating a bank holding company for VNB. In addition to VNB, Valley indirectly
owns additional subsidiaries through VNB, including two investment subsidiaries
and a mortgage servicing subsidiary.
As of September 30, 1996, Valley had consolidated assets of approximately
$4.6 billion, deposits of $4.1 billion and shareholders' equity of $382.4
million.
Valley's principal executive offices are located at 1455 Valley Road,
Wayne, New Jersey 07474, and its telephone number is (201) 305-8800. See
"Available Information" and "Information Incorporated by Reference."
<PAGE>
Valley National Bank
VNB, a wholly owned subsidiary of Valley, is a commercial bank established
in 1927 under the laws of the United States of America. It maintains its main
office in Passaic, New Jersey and operates 80 branches in northern New Jersey.
VNB provides a full range of commercial and retail bank services, including
the acceptance of demand, savings and time deposits. Commercial and retail
lending, primarily residential mortgages, automobile loans and credit card
loans, constitute a substantial part of VNB's business. VNB also offers full
personal, corporate and pension trust and other fiduciary services.
CERTAIN INFORMATION REGARDING MIDLAND
General
Midland is a bank holding company organized under the laws of the State of
New Jersey in 1985 and registered under the Bank Holding Company Act. Midland
has one banking subsidiary, Midland Bank. Midland Bank has two subsidiaries, an
investment subsidiary and a subsidiary which holds and manages real estate for
Midland Bank.
At September 30, 1996, Midland had consolidated assets of $426 million,
deposits of $389 million and shareholders' equity of $34 million. Midland's
principal executive offices are located at 80 East Ridgewood Avenue, Paramus,
New Jersey 07652 and its telephone number is (201) 265-5555. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Midland."
The Midland Bank and Trust Company
Midland Bank, a wholly owned subsidiary of Midland, is a commercial bank
established in 1958 under the laws of the State of New Jersey. It maintains its
main office in Paramus, New Jersey and operates 13 full service branches and 1
limited service facility throughout Bergen County, New Jersey.
Midland Bank provides a full range of commercial and retail bank services,
including the acceptance of demand, savings, money market and time deposits.
Midland Bank also provides commercial and retail loans and mortgages to a
variety of businesses and consumers located primarily in Bergen County, New
Jersey.
THE MEETING
General
This Proxy Statement-Prospectus solicits, on behalf of the Midland Board of
Directors, proxies to be voted at a Special Meeting of Shareholders (the
"Meeting") of Midland which is to be held at 550 Kinderkamack Road, Oradell, New
Jersey on Tuesday, January 28, 1997 at 3:00 p.m., and at any adjournments or
postponements thereof.
Purpose of the Meeting
At the Meeting, the Midland shareholders will (i) consider and vote upon a
proposal to approve the Merger Agreement; and (ii) act on such other matters as
may be properly brought before the Meeting. The Merger will become effective at
the time (the "Effective Time") specified in a certificate of merger which will
be filed with the New Jersey Secretary of State. A closing under the Merger
Agreement (the "Closing") will occur prior to the Effective Time. The Closing
will take place on February 28, 1997 or, if later than February 28, 1997, on the
tenth business day following the receipt of all necessary regulatory and
governmental approvals and satisfaction of all other conditions to closing
(other than the delivery of documents to be delivered at the Closing), or on
such other date as Valley and Midland agree upon. The Bank Merger will be
consummated immediately following consummation of the Merger, or as soon
thereafter as VNB may deem appropriate. At the Effective Time, each outstanding
share of Midland Common Stock will be converted into 30.00 shares of Valley
Common Stock, subject to adjustment, as more fully set forth in the Merger
Agreement. See "The Proposed Merger -- General Description."
THE BOARD OF DIRECTORS OF MIDLAND RECOMMENDS THAT THE SHAREHOLDERS OF
MIDLAND VOTE IN FAVOR OF THE MERGER AGREEMENT.
Vote Required; Shares Entitled to Vote
Only holders of record of Midland Common Stock at the close of business on
December 13, 1996 (the "Record Date") are entitled to notice of and to vote at
the Meeting. The number of shares of Midland Common Stock issued, outstanding
and entitled to vote at the close of business on the Record Date was 129,220.
Holders of Midland Common Stock of record on the Record Date are entitled to one
vote per share on any matter that may properly come before the Meeting.
The affirmative vote, in person or by proxy, of a majority of the
outstanding shares of Midland Common Stock is required to approve the Merger
Agreement. In connection with the execution of the Merger Agreement, each owner
of Norwood Associates II, a partnership in which Walter H. Jones, III and Graham
O. Jones, directors of Midland, and their two sisters are partners, agreed to
vote in favor of the Merger Agreement all shares of Midland Common Stock which
he or she holds, or over which he or she exercises voting control. As of the
Record Date, such persons held or had voting control over 50.9% of the issued
and outstanding shares of Midland Common Stock. The directors and executive
officers of Midland other than Messrs. Graham and Walter Jones have also
indicated their intention to vote in favor of the Merger Agreement the shares of
Midland Common Stock which they beneficially own (9.9% of the issued and
outstanding shares of Midland Common Stock as of the Record Date). Consequently,
the affirmative vote of other shareholders will not be required for approval of
the Merger Agreement. See "Security Ownership of Certain Beneficial Owners and
Management of Midland."
Solicitation, Voting and Revocation of Proxies
The enclosed proxy is designed to permit each shareholder of record on the
Record Date to vote on all matters to come before the Meeting. This proxy is
solicited by the Board of Directors of Midland. Any proxy may be revoked at any
time before its exercise by giving written notice of revocation to Nela Govic,
Corporate Secretary of Midland, at the main office of Midland at 80 East
Ridgewood Avenue, Paramus, New Jersey 07652. A subsequently dated and duly
executed proxy, if properly presented, will revoke a prior proxy. Any
shareholder entitled to vote who has previously executed a proxy may attend the
Meeting and vote in person, provided the shareholder has filed a written notice
of revocation of such proxy with the Secretary of the Meeting prior to the
voting of such proxy. Where a shareholder specifies a choice in the form of
proxy with respect to a matter being voted upon, the shares represented by the
proxy will be voted in accordance with such specification. If no such
specification is made, the shares represented by proxies will be voted in favor
of the Merger Agreement.
The Board of Directors of Midland knows of no matters, other that the
proposed Merger described in this Proxy Statement-Prospectus, that will be
presented for consideration at the Meeting. However, if other matters properly
come before the Meeting, it is intended that the persons designated as proxy
will vote upon such additional matter(s) in accordance with their best judgment.
The cost of soliciting proxies for the Meeting will be borne by Midland. In
addition to the use of the mails, proxies may be solicited personally, by
telephone or telegram, and by directors, officers and employees of Midland
acting without additional compensation. Arrangements may also be made with
brokers, dealers, nominees and other custodians for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and such persons may be reimbursed by Midland for reasonable
out-of-pocket expenses.
THE PROPOSED MERGER
Descriptions of the Merger and the Merger Agreement (which is attached as
Appendix A to this Proxy Statement-Prospectus) are qualified in their entirety
by reference to the Merger Agreement which is hereby incorporated in this Proxy
Statement-Prospectus by reference. Midland shareholders are urged to carefully
review the Merger Agreement.
General Description
The Merger Agreement provides that, at the Effective Time, Midland will
merge with and into Valley, with Valley as the surviving entity (the "Surviving
Corporation"). The separate identity and existence of Midland will cease upon
consummation of the Merger. All property, rights, powers and franchises of each
of Midland and Valley will vest in the Surviving Corporation. The Surviving
Corporation will be governed by the Certificate of Incorporation and bylaws of
Valley in effect immediately prior to the Effective Time. Immediately following
consummation of the Merger, or as soon thereafter as VNB may deem appropriate,
Midland Bank will merge with and into VNB, with VNB as the surviving entity in
the Bank Merger, pursuant to the separate Bank Merger Agreement between VNB and
Midland Bank. The Effective Time will be specified in a certificate of merger
which will be filed with the New Jersey Secretary of State.
Consideration
Upon consummation of the Merger, each share of Midland Common Stock issued
and outstanding immediately prior to the Effective Time will be converted into
30.00 shares of Valley Common Stock. The Exchange Ratio is subject to adjustment
to take into account any stock split, stock dividend, stock combination,
reclassification, or similar transaction by Valley with respect to the Valley
Common Stock. The Exchange Ratio is also subject to adjustment in connection
with provisions relating to the termination of the Merger Agreement. See "--
Termination of the Merger Agreement."
Cash in Lieu of Fractional Shares
It is anticipated that none of the Midland Common Stock will be converted
in the Merger into fractional shares of Valley Common Stock because the Exchange
Ratio is a whole number and no fractional shares of Midland Common Stock are
outstanding as of the date of this Proxy Statement-Prospectus. It is possible
that the Exchange Ratio may be adjusted so that it is no longer a whole number
(see "Consideration," above) or that fractional shares of Midland Common Stock
will be issued prior to the Effective Time. In either of these events, in lieu
of converting any Midland Common Stock into fractional shares of Valley Common
Stock in the Merger, Midland shareholders would be entitled to receive, without
interest, a cash payment equal to the value of any fractional share interest to
which they would otherwise be entitled.
Exchange of Certificates
At the Effective Time, holders of certificates formerly representing shares
of Midland Common Stock will cease to have any rights as Midland shareholders
and their certificates automatically will represent the shares of Valley Common
Stock into which their shares of Midland Common Stock will have been converted
by the Merger. As soon as practicable after the Effective Time, Valley will send
written notice to each holder of record of Midland Common Stock, indicating the
number of shares of Valley Common Stock into which such holder's shares of
Midland Common Stock have been converted.
Each holder of outstanding certificates for Midland Common Stock, promptly
upon proper surrender of such certificates to Valley, will receive a certificate
representing the full number of shares of Valley Common Stock into which the
shares of Midland Common Stock previously represented by the surrendered
certificates have been converted. At the time of issuance of a new stock
certificate, each shareholder will receive a check for the amount of any
fractional share interest to which he may be entitled.
Each share of Valley Common Stock into which shares of Midland Common Stock
are converted will be deemed to have been issued at the Effective Time.
Accordingly, Midland shareholders who receive Valley Common Stock in the Merger
will be entitled to receive any dividend or other distribution which may be
payable to holders of record of Valley Common Stock on or after the Effective
Time. However, no dividend or other distribution will actually be paid until the
certificate or certificates formerly representing shares of Midland Common Stock
have been surrendered, at which time any accrued dividends and other
distributions on such shares of Valley Common Stock will be paid without
interest.
HOLDERS OF MIDLAND COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Conversion of Stock Options
The Merger Agreement provides that each outstanding option to purchase
Midland Common Stock (a "Midland Option") granted under the stock option plans
of Midland will be converted at the Effective Time at the election of the holder
of the Midland Option (an "Optionee"), into either (i) an option to purchase
Valley Common Stock on the same terms and conditions existing for the current
Midland Option, except that the number of shares of Valley Common Stock
purchasable under the new option and the new option exercise price will both be
adjusted to reflect the Exchange Ratio, or (ii) if the Midland Option is fully
vested at the Closing, into the right to receive a number of whole shares of
Valley Common Stock equal to (x) the excess of the sum determined by multiplying
(A) the number of shares of Midland Common Stock covered by the Midland Option,
times (B) the Exchange Ratio, times (C) the Average Closing Price, less (y) the
aggregate exercise price for the Midland Option divided by (z) the Average
Closing Price. The "Average Closing Price" of Valley Common Stock is defined in
the Merger Agreement as the average of the closing prices of Valley Common Stock
as reported on the NYSE and published in the Wall Street Journal during the
first 10 of the 15 consecutive trading days immediately preceding the Effective
Time. The Average Closing Price is subject to adjustment to take into account
any stock split, stock dividend, stock combination, reclassification, or similar
transaction by Valley with respect to Valley Common Stock.
From and after the Effective Time, each Midland Option which is converted
into an option to purchase Valley Common Stock will be administered, operated
and interpreted by a committee comprised of members of the Board of Directors of
Valley appointed by such Board. Valley has reserved for issuance the number of
shares of Valley Common Stock necessary to satisfy Valley's obligations under
such options, and has agreed to register such shares pursuant to the Securities
Act. As of the Record Date, there were Midland Options outstanding for 6.250
shares of Midland Common Stock.
Optionees will receive an option preference form after the mailing of this
Proxy Statement-Prospectus but prior to the Effective Time. Optionees may
exercise their election by submitting the option preference form as specified in
such form.
No Dissenters' Rights
Consistent with the provisions of the New Jersey Business Corporation Act
(the "NJBCA"), no shareholder of Midland will have the right to dissent from the
Merger.
Background and Reasons for the Merger
Background. Prior to July 11, 1996, there had been no discussions between
Valley and Midland with respect to a merger or similar transaction. On July 11,
1996, at a social engagement, Gerald H. Lipkin, Chairman of Valley, inquired of
Robert M. Meyer, President of Midland, as to whether Midland would be interested
in a merger with Valley. Mr. Meyer informed Graham Jones, a director of Midland
and one of the four Jones family members who own Norwood Associates II, the
controlling shareholder of Midland, of this inquiry. Mr. Lipkin and Graham Jones
met on three occasions, July 17, July 22 and August 8. On each of these
occasions, there were various negotiations leading to a preliminary agreement as
to the major business terms set forth in the Merger Agreement including the
Exchange Ratio. During this period of time, Graham Jones discussed the merits of
Valley's proposal with Walter Jones, his brother and Chairman of the Midland
Board, Mr. Meyer and representatives of Midland's accounting firm. In addition,
Mr. Meyer met with Mr. Lipkin to determine what his role would be with the
combined entity after a merger. After the August 8 meeting, Midland engaged
Capital Consultants to analyze the fairness of the transaction to Midland's
shareholders from a financial point of view. In the ensuing weeks through
September 12, representatives of each company and their counsel performed a due
diligence review of the other company and negotiated the terms of the Merger
Agreement.
On September 12, the Midland Board met with its legal counsel and
representatives from Capital Consultants and Midland's accounting firm to
consider Valley's proposal and the terms of the Merger Agreement. At that
meeting, the Midland Board was informed of the specific terms of the Merger
Agreement and Stock Option Agreement, learned that due diligence at Midland had
been performed by Valley and that representatives of Midland had been informed
that the results of that due diligence review were satisfactory to Valley. The
Midland Board was also informed of the results of the due diligence review
performed on Valley by representatives of Midland. Capital Consultants made an
extensive presentation to the Midland Board about, among other things, Valley's
business, financial performance and management, the current state of the banking
industry in New Jersey, recent bank mergers involving other institutions in New
Jersey, the possible benefits of the combination of Valley and Midland, and the
basis for Capital Consultant's opinion that the consideration to be received in
the Merger was fair to the Midland shareholders from a financial point of view.
After an extensive discussion, the Midland Board approved the Merger and the
Merger Agreement, as well as the Stock Option Agreement granting Valley the
Option, and authorized Midland's officers to execute and deliver such agreements
and take further steps as necessary to affect the Merger. Immediately after the
meeting, Mr. Lipkin and Mr. Meyer, as officers of Valley and Midland
respectively, executed the Merger Agreement and Stock Option Agreement. Walter
and Graham Jones, as representatives of Norwood Associates II, executed an
agreement to vote or cause to be voted in favor of the Merger shares of Midland
Common Stock held by Norwood Associates II. Following the meeting, the other
partners of Norwood Associates II also executed this agreement.
Reasons of the Midland Board. The terms of the Merger and the Merger
Agreement, including the Exchange Ratio, were the result of the arms-length
negotiations between representatives of Valley and Midland discussed above. In
the course of reaching the decision to approve the Merger and Merger Agreement
(including the Option), the Midland Board in consultation with its legal
advisors and Capital Consultants, its financial advisor, and without assigning
any relative or specific weight, considered numerous factors, including but not
limited to the following:
1. The growth prospects for Midland and Midland Bank, their historical
results of operations and their prospective results of operations if Midland
remained independent.
2. The economic, business and competitive climate for banking
institutions in New Jersey, including recent mergers and similar transactions
involving other banking institutions in the state which have increased
competitive pressure.
3. The terms of other recent mergers and acquisitions involving
independent and other banks in New Jersey.
4. The traditionally low trading price for Midland Common Stock and the
limited market for that stock.
5. The probability of increased liquidity to Midland's current
shareholders after the Merger due to the more active trading market for Valley
Common Stock resulting in part from its current listing on the New York Stock
Exchange.
6. The monetary value to Midland shareholders of the Valley Common
Stock to be received in the Merger. On September 12, 1996 the day of the Midland
Board meeting approving the Merger Agreement, Valley Common Stock closed at a
price of $25.625 per share. Based upon the Exchange Ratio on that date, the
post-merger value of a share of Midland Common Stock was $768.75. The Midland
Board was informed that recent quotes and trades of Midland Common Stock prior
to the September 12, 1996 Board meeting had been at prices of approximately
$300.00 per share.
7. The fact that the Merger and Exchange Ratio provided the opportunity
for Midland's current shareholders to receive significantly greater dividend
income from their investment after the Merger. Prior to the execution of the
Merger Agreement, dividends paid per share on Midland Common Stock were at the
rate of $13.00 per year. If Valley's recent quarterly dividend payment rate per
share of $0.25 is continued after the Merger, the 30 shares of Valley Common
Stock received for each share of Midland Common Stock will generate dividends at
the rate of $30.00 per annum or $17.00 more than the annual dividends paid in
the prior year on the share of Midland Common Stock converted into such shares
of Valley Common Stock. Such analysis did not take into account the special
dividend declared by the Midland Board on September 12, 1996. That special
dividend was declared because the Merger Agreement provides that, until closing
of the Merger, Midland is permitted to pay dividends at the same rate, based
upon the Exchange Ratio, as Valley pays to its shareholders.
8. Valley's historical results of operation and financial condition and
the prospects for the combined institution resulting from anticipated synergies
achieved by combining the branch sites, personnel and customer bases of Valley
and Midland.
9. The greater financial managerial services and other resources of
Valley which could increase the competitiveness of the combined institution
after the Merger.
10. The future growth prospects of Valley following the Merger.
11. The presentation of Midland's financial advisor, Capital
Consultants, and the opinion rendered at that time by Capital Consultants, to
the effect that the consideration to be received by Midland's shareholders
pursuant to the Merger Agreement is fair from a financial point of view.
The Midland Board believes that the affiliation with Valley will result
in a competitively stronger combined entity with increased financial resources
which could lead to enhanced financial performance in the future. In addition,
the Midland Board believes that the market value of the Valley Common Stock to
be received in the Merger will provide Midland shareholders with the opportunity
for a significant increase in the market value of their investment and
significantly greater dividends in the future.
As of September 30, 1996, the directors and executive officers of
Midland, as a group, beneficially own and are entitled to vote approximately
82,445 shares of Midland Common Stock representing approximately 60.86% of the
Midland Common Stock outstanding. Norwood Associates II, as of that date, is
entitled to vote 68,923 shares of Midland Common Stock representing
approximately 50.9% of the Common Stock outstanding (which amount is included in
the total beneficially owned by directors and executive officers). Norwood
Associates II has agreed to vote in favor of the Merger. Midland believes that
the remainder of the directors' and executive officers' shares of Midland Common
Stock will also be voted in favor of the merger. The directors and executive
officers of Midland and Norwood Associates II will receive the same
consideration for their shares as any other Midland shareholder upon approval of
the Merger. After the Merger, the current directors and executive officers of
Midland will own beneficially approximately 6.2% of the shares of Valley
Common Stock outstanding.
The Midland Board of Directors recommends that the Merger Agreement be
approved by the holders of Midland Common Stock.
Valley's Reasons for the Merger. Valley entered into the Merger Agreement
with Midland as part of Valley's ongoing strategy of growth through
acquisitions.
Opinion of Midland's Financial Advisor
As of August 14, 1996, the Midland Board of Directors retained Capital
Consultants to act as Midland's financial advisor and to render its opinion with
respect to the fairness, from a financial point of view, to the shareholders of
Midland of the consideration to be received in the Merger.
Capital Consultants is regularly engaged in the valuation of banks, bank
holding companies, savings and loan associations, and thrift holding companies
in connection with mergers, acquisitions and other securities transactions.
Capital Consultants has knowledge of, and experience with, the New Jersey
banking and thrift market and financial organizations operating in that market
and was selected by Midland because of this knowledge and experience and its
reputation in the financial services industry. Capital Consultants is not a
market maker in either Valley Common Stock or Midland Common Stock.
On September 12, 1996, the date the Midland Board of Directors approved the
Merger, Capital Consultants delivered to the Board of Directors its opinion
that, based on and subject to various items set forth in its written opinion,
the consideration to be received by Midland's shareholders pursuant to the
Merger Agreement is fair to such shareholders from a financial point of view. In
requesting Capital Consultants' advice and opinion, Midland's Board did not
impose any limitations upon Capital Consultants with respect to the
investigations made or procedures followed by it in rendering its opinion.
Capital Consultants reissued its opinion as of the date of this Proxy
Statement-Prospectus.
The full text of the written opinion of Capital Consultants, which sets
forth assumptions made and matters considered, is attached as Appendix C to this
Proxy Statement-Prospectus. Descriptions in this Proxy Statement-Prospectus of
the opinion of Capital Consultants and the procedures followed in rendering that
opinion are qualified in their entirety by reference to the full text of such
opinion. Midland shareholders are urged to read this opinion in its entirety.
Capital Consultants' opinion is directed only to the financial terms of the
Merger and does not constitute a recommendation to any Midland shareholder as to
how such shareholder should vote at the Meeting.
In arriving at its opinion, Capital Consultants reviewed and analyzed,
among other things: (i) the Merger Agreement; (ii) the Valley Registration
Statement on Form S-4 of which this Proxy Statement-Prospectus is a part; (iii)
publicly available information relating to Valley and Midland including, for
Valley, annual reports to shareholders and Annual Reports on Form 10-K filed
with the SEC for the years ended December 31, 1993 through 1995, the
Consolidated Statements of Financial Condition as of December 31, 1995, 1994 and
1993, and the related Consolidated Statements of Income, Changes in
Stockholders' Equity and Cash Flows for each of the years in the three year
period ended December 31, 1995, included therein, and the quarterly reports to
shareholders and unaudited Quarterly Reports on Form 10-Q filed with the SEC for
the periods ended March 31, June 30, and September 30, 1996, and for Midland,
annual reports to stockholders for the years ended December 31, 1993 through
1995, Consolidated Statements of Financial Condition as of December 31, 1995,
1994 and 1993 and related Consolidated Statements of Income, Changes in
Stockholders' Equity and Cash Flows for each of the years in the three year
period ended December 31, 1995, together with the Reports of Independent Public
Accountants and unaudited Quarterly Reports of Condition and Income as filed
with the Federal Deposit Insurance Corporation for the periods ended March 31,
June 30, and September 30, 1996; (iv) certain historical operating and financial
information provided to Capital Consultants by the managements of Midland and
Valley; (v) historical and current market data for Midland Common Stock and
Valley Common Stock; (vi) the publicly available financial data and stock market
performance data of publicly traded banking and thrift institutions which
Capital Consultants deemed generally comparable to Midland and Valley; (vii) the
nature and terms of recent acquisitions and merger transactions involving
banking institutions and bank and thrift holding companies that Capital
Consultants considered reasonably similar to Midland and Valley in financial
character, operating character, historical performance, geographic market and
economy; and (viii) such other studies, analyses, inquiries and reports as
Capital Consultants deemed appropriate. In addition, Capital Consultants
conducted meetings with members of senior management of Midland and Valley for
purposes of reviewing the future prospects of Midland and Valley. Capital
Consultants evaluated the pro forma ownership of Valley Common Stock by
Midland's shareholders, relative to the pro forma contribution of Midland's
assets, deposits, equity and earnings to the pro forma combined company. Capital
Consultants also took into account its experience in other transactions, as well
as its knowledge of the banking and thrift industries and its experience in
securities valuations.
In rendering its opinion, Capital Consultants assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to it by Midland and Valley. Capital
Consultants did not conduct a physical inspection of any of the properties or
assets of Midland or Valley and has not made any independent evaluations or
appraisal of any properties, assets or liabilities of Midland or Valley. Capital
Consultants has assumed and relied upon the accuracy and completeness of the
publicly available financial and other information provided to it, has relied
upon the representations and warranties of Midland and Valley made pursuant to
the Merger Agreement, and has not independently attempted to verify any of such
information.
In rendering its opinion, Capital Consultants assumed that in the course of
obtaining the necessary regulatory approvals for the Merger, no conditions will
be imposed that will have a material adverse effect on the contemplated benefits
of the Merger on a pro forma basis to Midland.
In arriving at its opinion, Capital Consultants performed a variety of
financial analyses. Capital Consultants believes that its analyses must be
considered as a whole and that consideration of portions of such analyses and
the factors considered therein, without considering all factors and analyses,
could create an incomplete view of the analyses and the process underlying
Capital Consultants' opinion. The preparation of an opinion with respect to
fairness, from a financial point of view, of the consideration to be received by
shareholders is a complex process involving judgments and is not necessarily
susceptible to partial analyses and summary description.
In its analyses, Capital Consultants made numerous assumptions with respect
to Midland's and Valley's industry performance, business and economic conditions
and other matters, many of which are beyond the control of Midland and/or
Valley. Any estimates reflected in Capital Consultants' analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold.
In connection with its opinion, Capital Consultants performed various
analyses with respect to Midland and Valley. The following is a brief summary of
such analyses, certain of which were presented to the Midland Board of Directors
by Capital Consultants.
Valuation Analysis. Using a valuation analysis, Capital Consultants
estimated the present value of theoretical values of Midland based on a range of
price-to-earnings ("P/E") multiples between 14.0x and 16.0x and a range of
discount rates between 6.0% and 8.0%. The range of values were based on a range
of estimated earnings for the next three and a half years assuming annual
earnings growth rates between 8.0% and 12.0%. The results of this analysis
indicated a range of theoretical values for Midland between $490.00 per share
(8.0% earnings growth rate; P/E of 14.0x; 8.0% discount rate) and $689.00 per
share (12.0% earnings growth rate; P/E of 16.0x; 6.0% discount rate).
Capital Consultants also prepared a net present value analysis that
indicated theoretical values for Midland based on range of terminal book value
multiples between 2.20x and 2.40x and a range of discount rates between 6.0% and
8.0%. A dividend payout ratio from current earnings of 40.0% was used which is
higher than Midland's average payout ratio for the last three full years of
35.8% but is consistent with industry trends. Capital Consultants determined the
range of terminal multiples of selected comparable companies. Such comparable
companies are referred to in the "Comparable Company Analysis" and the
"Comparable Transaction Analysis" set forth below. The terminal values were
discounted to present value using discount rates which reflect assumptions
regarding the required rates of return of the current and prospective
shareholders of Midland Common Stock in these economic times. The range of
present values per share of Midland resulting from the above-references
assumptions were $576.00 to $677.00 per share.
Comparable Company Analysis. Capital Consultants compared the operating
performance of Midland to publicly traded commercial banks that Capital
Consultants deemed to be similar to Midland. The group consists of 11 publicly
traded New Jersey based commercial banks with total assets of between $296
million and $485 million. Capital Consultants compared Midland with these
institutions based on selected operating fundamentals, including capital
adequacy, profitability and asset quality. Using pricing data as of August 30,
1996, the median price to stated book value was 138.3% for the comparable
commercial banks and 114.0% for Midland. The median equity to assets ratio was
7.84% for the group of comparable commercial banks and 7.83% for Midland. The
median return on average assets for the twelve months ending December 31, 1995,
was 1.15% for the comparable group of commercial banks and 1.09% for Midland.
The median return on average equity for the twelve months ending December 31,
1995, was 15.44% for the comparable group of commercial banks and 14.42 % for
Midland.
Finally, Capital Consultants compared the market price, market-to-book
value and price-to-earnings multiples of Valley Common Stock with individual
market multiples and medians of seventeen publicly traded New Jersey-based banks
and bank holding companies having total assets between $107 million and $22.4
billion. The analysis also compared returns on average assets and average equity
of Valley to those of selected financial institutions and the medians of the
comparable group. The analysis indicated that Valley Common Stock traded in
August 1996 at a price-to-earnings multiple of 13.7 times trailing twelve months
earnings for the period ended June 30, 1996, as compared to a comparative group
medium of 12.0 times trailing twelve months earnings for the period ending June
30, 1996. While Valley Common Stock traded at a price-to-book value of 249.0%,
the comparative group median was 139.0%. Valley's financial performance, as
measured by returns on average assets and average equity, was 1.5% and 18.0%,
respectively, as compared to the median of the selected comparable financial
institutions which was 1.0% and 13.0%, respectively. The Capital Consultants
analyses also included summary income statement and balance sheet data and
selected ratio analyses for Valley and various other potential acquirers of
Midland.
Contribution Analysis. Capital Consultants prepared a contribution analysis
showing the percentage of assets, deposits, net common equity and 1996 net
income Midland would contribute to the combined company on a pro forma basis,
and compared these percentages to the pro forma ownership after the Merger. This
analysis showed that Midland would contribute 8.2% of pro forma consolidated
total assets, 8.4% of pro forma consolidated deposits, 8.2% of pro forma
consolidated stockholders' equity and 5.9% of pro forma consolidated net income
for 1996, while Midland shareholders would hold 9.4% of the pro forma ownership
of Valley.
Impact Analysis. Capital Consultants analyzed the financial implications of
the Merger on Valley's earnings per common share and book value per common
share. This analysis was based on June 30, 1996 financial data for Valley and
Midland and indicated that the Merger would be (on a pro forma basis for the six
months ended June 30, 1996, assuming the merger was effective as of January 1,
1996) approximately 3.3% dilutive to the earnings per share of Valley Common
Stock and approximately 1.3% dilutive to tangible book value per share of Valley
Common Stock on a fully diluted basis.
Comparable Transaction Analysis. Capital Consultants performed an analysis
of prices and premiums offered in recently announced commercial bank and bank
holding company transactions in the region. Multiples of earnings and fully
diluted book value implied by the consideration to be received by Midland's
shareholders in the Merger were compared with multiples offered in such regional
transactions, which included pending and completed acquisitions announced
between January 1, 1994, and September 12, 1996. The median offer price to book
value for this regional group of comparable transactions was 203.0%. The
equivalent offer price, including the benefits of the dividend equivalent
adjustment, to book value for Midland was 291.0% based on an assumed Valley
offer price of 30.00 shares of Valley Common Stock for each outstanding share of
Midland Common Stock and Midland's book value as of June 30, 1996. Capital
Consultants also reviewed the core capital ratio to total assets of the
comparative group and non-performing assets as a percentage of total assets and
in such analyses. Midland was substantially below the median of the comparative
group in non-performing assets as a percentage of total assets and was very
comparable on core capital to total assets ratio.
It is important to note that while Capital Consultants took into account
the values shown in the comparables used in connection with the rendering of its
opinion, no company or transaction used in these analyses was identical to
Midland or the Merger. Accordingly, an analysis of the results in the foregoing
is not mathematical; rather, it involves complex consideration and judgments
concerning differences in financial and operating characteristics of the
companies involved, the timing of the transactions and prospective buyer
interest, the earnings trends and prospects for the future, as well as other
factors that could affect the public trading values of the companies included in
the comparisons.
For Capital Consultants' services in connection with the Merger, Midland
has agreed to pay Capital Consultants a fee of $125,000 plus reimbursement for
reasonable out-of-pocket expenses. Midland has also agreed to indemnify Capital
Consultants against certain liabilities, including liabilities under the federal
securities laws. Midland paid Capital Consultants $10,000 as of the date of its
engagement, $30,000 at the time the Merger Agreement was signed, and $50,000 on
the mailing of this Proxy Statement-Prospectus. The balance of Capital
Consultants' fee is due at the Effective Time. The amount of Capital
Consultants' fee was determined by negotiation between Midland and Capital
Consultants.
Effective Time; Conditions to Consummation of the Merger
The Merger will become effective at the Effective Time, which will be
specified in a certificate of merger which will be filed with the New Jersey
Secretary of State. The Closing under the Merger Agreement will occur prior to
the Effective Time. The closing will take place on February 28, 1997 or, if
later than February 28, 1997, on the tenth business day following the receipt of
all necessary regulatory and governmental approvals and satisfaction of all
other conditions to closing (other than the delivery of documents to be
delivered at the Closing), or on such other date as Valley and Midland agree
upon. At the Closing, documents required to satisfy the conditions to the Merger
of the respective parties will be exchanged.
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including (i) approval by the requisite vote of the holders
of Midland Common Stock; (ii) the receipt of all consents, approvals and
authorizations of all necessary federal government authorities (without any term
or condition which would materially impair the value of Midland to Valley) and
expiration of all required waiting periods necessary for the consummation of the
Merger (see "-- Regulatory Approvals"); and (iii) the effectiveness of the
registration statement covering the shares of Valley Common Stock to be issued
to Midland shareholders, which shares shall also have been approved for listing
on the New York Stock Exchange. In addition, consummation of the Merger is
conditioned upon receipt by the parties of an opinion of Pitney, Hardin, Kipp &
Szuch to the effect that the conversion of Midland Common Stock for Valley
Common Stock is a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code (the "Code") (see "-- Federal Income Tax
Consequences") and receipt by Valley of a letter from KPMG Peat Marwick LLP,
Valley's independent certified public accountants, to the effect that the Merger
will qualify for pooling-of-interests accounting treatment (see "-- Accounting
Treatment of the Merger").
Consummation of the Merger is also conditioned on, among other things, (i)
the continued accuracy in all material respects of the representations and
warranties of Midland and Valley contained in the Merger Agreement; (ii) the
performance by Midland and Valley, in all material respects, of their respective
obligations under the Merger Agreement; (iii) the absence of any litigation that
would restrain or prohibit the consummation of the Merger; and (iv) receipt by
the Board of Directors of Midland of an opinion from Capital Consultants as of
the date of the Merger Agreement and the date of this Proxy Statement-Prospectus
to the effect that, in its opinion, the consideration to be paid to Midland
shareholders under the Merger Agreement is fair to such shareholders from a
financial point of view. This opinion has been issued and is attached as
Appendix C to this Proxy Statement-Prospectus. See "-- Opinion of Midland's
Financial Advisor."
Regulatory Approvals
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. Consummation of the Merger and
the Bank Merger requires the approval of the Comptroller of the Currency (the
"OCC"). OCC approval does not constitute an endorsement of the Merger or a
determination by the OCC that the terms of the Merger are fair to the
shareholders of Midland. An application for OCC approval was filed on October
31, 1996 and approval was granted on December 13, 1996. Also on October 31,
1996, Valley submitted a draft application to the Federal Reserve Board seeking
a waiver of the requirement for approval of the Merger under Regulation Y
promulgated under the Bank Holding Company Act. The Federal Reserve Board waiver
was granted on December 6, 1996.
Termination of the Merger Agreement
Midland has the right to terminate the Merger Agreement if the Average
Closing Price of Valley Common Stock is $19.50 or less, unless Valley
unilaterally agrees to increase the Exchange Ratio so that the value (measured
by the Average Closing Price) of the number of shares of Valley Common Stock
into which one share of Midland Common Stock is to be converted in the Merger,
based on the new Exchange Ratio, is at least as high as the value would have
been if the Exchange Ratio were unchanged and the Average Closing Price were
$19.50. The "Average Closing Price" of Valley Common Stock is defined in the
Merger Agreement as the average of the closing prices of Valley Common Stock as
reported on the NYSE and published in the Wall Street Journal during the first
10 of the 15 consecutive trading days immediately preceding the Effective Time.
The Average Closing Price is subject to adjustment to take into account any
stock split, stock dividend, stock combination, reclassification, or similar
transaction by Valley with respect to Valley Common Stock.
Valley has the right to terminate the Merger Agreement if any necessary
regulatory or governmental approval contains conditions which materially impair
the value of Midland, taken as a whole, to Valley. Valley also has the right to
terminate the Merger Agreement if at the Closing the stockholders' equity of
Midland (prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved), is less than the
stockholders' equity of Midland (less intangibles) reported in Midland's
financial statements for the period ended June 30, 1996. In calculating
stockholders' equity for this purpose (A) intangibles and all merger related
charges which are anticipated to be expensed at the Effective Time shall be
deducted from stockholders' equity, (B) the amount of dividends paid by Midland
after the date of the Merger Agreement in excess of the amount of dividends paid
by Midland during the same period a year ago shall be added to stockholders'
equity and (C) stockholders equity shall be calculated without taking into
account any changes (positive or negative) in unrealized gain or loss on
securities available for sale or securities held in a trading account between
June 30, 1996 and the Closing.
Either Valley or Midland may terminate the Merger Agreement (i) if the
Effective Time has not occurred by April 30, 1997; (ii) if the stockholders of
Midland fail to approve the Merger Agreement at the Meeting; (iii) if any
application for any necessary regulatory or governmental approval is denied or
withdrawn at the recommendation of the applicable regulatory agency or
governmental authority, unless any such occurrence was caused by the failure of
the terminating party to perform or observe its agreements set forth in the
Merger Agreement; (iv) if there has occurred a material adverse change in the
business, operations, assets or financial condition of the other party; (v) if
the other party materially breaches any of its representations, warranties,
covenants, agreements or obligations under the Merger Agreement; or (vi) if any
closing condition cannot reasonably be met by the other party after the other
party has had a reasonable opportunity to cure such condition. The Merger
Agreement may also be terminated with the written consent of all parties
thereto.
Upon the termination of the Merger Agreement, the transactions contemplated
thereby (other than the confidentiality provisions contained therein) will be
abandoned without further action by any party. In the event of a termination,
the parties will share the cost of printing and mailing this Proxy
Statement-Prospectus but otherwise each will bear its own expenses, and each
party will retain all rights and remedies it may have at law or equity under the
Merger Agreement.
Amendment of the Merger Agreement
The terms of the Merger Agreement may be amended, modified or supplemented
by the written consent of Valley and Midland at any time prior to the Effective
Time. However, following Midland shareholder approval of the Merger Agreement,
Midland shareholders must approve any amendment reducing or changing the amount
or form of consideration to be received by them in the Merger.
Accounting Treatment of the Merger
The Merger will be accounted for by Valley under the pooling-of-interests
method of accounting in accordance with generally accepted accounting
principles. See "Pro Forma Combined Financial Information."
Federal Income Tax Consequences
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY. IT MAY NOT BE APPLICABLE TO CERTAIN CLASSES OF TAXPAYERS,
INCLUDING INSURANCE COMPANIES, SECURITIES DEALERS, FINANCIAL INSTITUTIONS,
FOREIGN PERSONS AND PERSONS WHO ACQUIRED SHARES OF MIDLAND COMMON STOCK AS
COMPENSATION. MIDLAND SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS
AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
General. It is intended that the Merger will be treated as a reorganization
as defined in Section 368(a) of the Code, and that, accordingly, no gain or loss
will be recognized by Valley or Midland or by the shareholders of Midland upon
the conversion of their shares of Midland Common Stock solely into shares of
Valley Common Stock pursuant to the Merger. Counsel to Valley is required, as a
condition of Closing, to provide an opinion to Valley and to Midland, with
respect to the matter covered by the foregoing sentence. With respect to this
Proxy Statement-Prospectus, Pitney, Hardin, Kipp & Szuch, counsel to Valley, has
provided an opinion that based upon the circumstances as they presently exist,
it expects to be able to render the required opinion.
Basis of Valley Common Stock. The basis of Valley Common Stock received by
a Midland shareholder who receives solely Valley Common Stock will be the same
as the basis of such shareholder's Midland Common Stock converted therefrom.
Holding Period. The holding period of shares of Valley Common Stock
received in the Merger by holders of Midland Common Stock will include the
holding period during which such shares of Midland Common Stock surrendered in
conversion therefor were held by the holder thereof, provided such shares of
Midland Common Stock were held as capital assets.
Interests of Certain Persons in the Merger
The Merger Agreement provides that, as of the Effective Time, Valley and
VNB will appoint Walter H. Jones, III, currently the Chairman of the Board of
Directors of Midland and Midland Bank, and Graham O. Jones, currently a director
of Midland and Midland Bank, as directors of Valley and VNB. In addition, the
Merger Agreement provides that, as of the Effective Time, VNB will appoint
Robert M. Meyer, currently the President and Chief Executive Officer of Midland,
as a member of VNB's senior management team, and Valley will assume in writing
Mr. Meyer's current employment contract with Midland.
Under Midland's Long-Term Incentive Plan (the "Plan") payment to certain of
Midland Bank's officers would be due and payable upon consummation of the
Merger. Midland's Board of Directors has determined to terminate the Plan and
accelerate payment of such benefits under the Plan as if the Merger had occurred
in December 1996. As a result of the acceleration and termination, Robert M.
Meyer, President of Midland, will receive a payment of $407,997 and four other
officers of Midland will receive payments in the aggregate amount of $407,997.
These amounts were calculated based upon the current market value of Valley
Common Stock multiplied by the Exchange Ratio. Certain assumptions were also
made about Midland's performance for the calendar year ended December 31, 1996.
One effect of the acceleration is that these five persons will receive the
benefits of early payment of the amounts due under the Plan and elimination of
the risk that the Merger will not be consummated.
The Merger Agreement further provides that for a six year period following
the Effective Time, Valley will indemnify the directors and officers of Midland
against certain liabilities to the extent such persons were indemnified under
Midland's Certificate of Incorporation and Bylaws.
As of the Record Date, the directors and executive officers of Midland
beneficially owned in the aggregate 60.8% of the issued and outstanding shares
of Midland Common Stock.
Resale Considerations With Respect to the Valley Common Stock
The shares of Valley Common Stock that will be issued if the Merger is
consummated have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and will be freely transferable, except for shares
received by persons, including directors and executive officers of Midland, who
may be deemed to be "affiliates" of Midland under Rule 145 promulgated under the
Securities Act. An "affiliate" of an issuer is defined generally as a person who
"controls" the issuer. Directors, executive officers and 10% shareholders are
generally presumed by the Commission to control the issuer. Affiliates may not
sell their shares of Valley Common Stock acquired pursuant to the Merger, except
pursuant to an effective registration statement under the Securities Act
covering the Valley Common Stock or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act.
Persons who may be deemed to be "affiliates" of Midland have delivered
letters to Valley in which they have agreed to certain restrictions on their
ability to sell, transfer or otherwise dispose of ("transfer") any Midland
Common Stock owned by them and any Valley Common Stock acquired by them in the
Merger. Pursuant to the accounting rules governing a pooling-of-interests, the
affiliates of Midland have agreed not to transfer the shares during a period
commencing with the period beginning 30 days prior to the Effective Time and
ending on the date on which financial results covering at least 30 days of
post-merger combined operations of Valley and Midland have been published by
Valley or filed by Valley on a Form 8-K, 10-Q or 10-K. Also, in connection with
the pooling-of-interests rules, the affiliates have agreed not to transfer their
Midland Common Stock in the period prior to 30 days before the Effective Time
without giving Valley advance notice and an opportunity to object if the
transfer would interfere with pooling-of-interests accounting for the Merger.
Pursuant to Rule 145, the affiliates have also agreed to refrain from
transferring Valley Common Stock acquired by them in the Merger, except in
compliance with certain restrictions imposed by Rule 145. Certificates
representing the shares of Valley Common Stock acquired by each such person
pursuant to the Merger will bear a legend reflecting that the shares are
restricted in accordance with the letter signed by such person and may not be
transferred except in compliance with such restrictions.
Persons who may be deemed "affiliates" of Valley have also delivered
letters in which they have agreed not to transfer Valley Common Stock
beneficially owned by them in violation of the pooling of interests restrictions
set forth above with respect to Midland.
Business Pending Consummation
Midland has agreed that prior to the Effective Time, except as otherwise
approved by Valley in writing or as permitted or required by the Merger
Agreement, it will not, nor will it permit any of its subsidiaries to: (i)
change any provision of its Certificate of Incorporation or Bylaws or any
similar governing documents; (ii) except for the issuance of Midland Common
Stock pursuant to the terms of outstanding Midland Options, change the number of
shares of, or issue any more shares of or grant any option or right with respect
to, Midland Common Stock, or split, combine or reclassify any shares of Midland
Common Stock, or redeem or otherwise acquire any shares of Midland Common Stock
(iii) declare, set aside or pay any dividend, or other distribution in respect
of, Midland Common Stock, except that Midland may declare, set aside or pay cash
dividends per share of Midland Common Stock equivalent to the cash dividends per
share declared, set aside or paid by Valley during such period multiplied by the
Exchange Ratio; (iv) grant any severance or termination pay (other than pursuant
to policies of Midland in effect on the date of the Merger Agreement or as
agreed to by Valley in writing) to, or enter into or amend any employment
agreement with, any of its directors, officers or employees; adopt any new
employee benefit plan or arrangement of any type or amend any such existing
benefit plan or arrangement; or award any increase in compensation or benefits
to its directors, officers or employees other than regular and customary pay
increases to its non-officer employees and bonuses to its officers which have
been previously disclosed to Valley and are fully accrued on Midland's books for
1996; (v) sell or dispose of any substantial amount of assets or incur any
significant liabilities other than in the ordinary course of business consistent
with past practices and policies; (vi) make any capital expenditures in excess
of $100,000 other than pursuant to binding commitments existing on the date of
the Merger Agreement, expenditures necessary to maintain existing assets in good
repair and expenditures to renovate or relocate Midland Bank's branch located at
the Bergen Mall in Paramus, New Jersey; (vii) file any application or make any
contract with respect to branching or site location or relocation; (viii) agree
to acquire any business or entity in any manner whatsoever (other than to
foreclose on collateral for a defaulted loan); (ix) make any material change in
its accounting methods or practices, other than changes required in accordance
with GAAP; (x) take any action that would result in any of Midland's
representations and warranties contained in the Merger Agreement not being true
and correct in any material respect at the Effective Time; or (xi) agree to do
any of the foregoing.
Midland has further agreed that it will not, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than Valley) concerning any
merger or sale of shares of capital stock or sale of substantial assets or
liabilities not in the ordinary course of business, or similar transactions
involving Midland (an "Acquisition Transaction"). Midland has agreed to promptly
communicate to Valley the terms of any proposal, whether written or oral, which
it may receive in respect of any Acquisition Transaction.
Management and Operations After the Merger
At the Effective Time, as a result of the Merger, Midland will be merged
into Valley which will be the Surviving Corporation. Immediately following
consummation of the Merger, or as soon thereafter as VNB may deem appropriate,
Midland Bank will merge with and into VNB, with VNB as the surviving entity,
pursuant to the separate Bank Merger Agreement. The location of the principal
office of Valley will remain unchanged: 1455 Valley Road, Wayne, New Jersey.
Following the Bank Merger, the branch offices of Midland Bank will serve as
branch offices of VNB.
Stock Option for Shares of Midland Common Stock
In connection with the negotiation by Valley and Midland of the Merger
Agreement, Valley and Midland entered into the Stock Option Agreement on
September 13, 1996. A copy of the Stock Option Agreement is attached as Appendix
B to this Proxy Statement-Prospectus. Descriptions of the Stock Option Agreement
in this Proxy Statement-Prospectus are qualified in their entirety by reference
to the Stock Option Agreement.
Pursuant to the Stock Option Agreement, Midland granted Valley the Option,
exercisable only under certain limited and specifically defined circumstances,
to purchase up to 35,000 authorized but unissued shares of Midland Common Stock,
representing approximately 21.8% of the shares of Midland Common Stock which
would be outstanding immediately following the exercise of the Option, for an
exercise price of $301.00 per share. Valley does not have any voting rights with
respect to the shares of Midland Common Stock subject to the Option prior to
exercise of the Option.
In the event that certain Triggering Events (as hereinafter described)
specifically enumerated in the Stock Option Agreement occur, Valley may exercise
the Option in whole or in part. In the event that a Triggering Event occurs and
the Merger is not consummated, Valley would recognize a gain on the sale of the
shares of Midland Common Stock received pursuant to the exercise of the Option
if such shares of Midland Common Stock were sold at prices exceeding $301.00 per
share.
The term "Triggering Event" is defined in the Stock Option Agreement to
mean the occurrence of any of the following events: a person or group, as such
terms are defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"), other than Valley or an
affiliate of Valley, (i) acquires beneficial ownership (as such term is defined
in Rule 13d-3 promulgated under the Exchange Act) of at least 20% of the then
outstanding shares of Midland Common Stock (provided, that the continuing
ownership by a person or group which as of the date of the Stock Option
Agreement owned more than 20% of the outstanding Midland Common Stock will not
constitute a Triggering Event); (ii) enters into a letter of intent or an
agreement with Midland pursuant to which such person or any affiliate of such
person would (a) merge or consolidate, or enter into any similar transaction,
with Midland or Midland Bank, (b) acquire all or a significant portion of the
assets or liabilities of Midland or Midland Bank, or (c) acquire beneficial
ownership of securities representing, or the right to acquire the beneficial
ownership or to vote securities representing, 20% or more of the then
outstanding shares of Midland Common Stock; (iii) makes a filing with bank or
thrift regulatory authorities or publicly announces a bona fide proposal (a
"Proposal") for (a) any merger, consolidation or acquisition of all or a
significant portion of all the assets or liabilities of Midland or any other
business combination involving Midland or Midland Bank, or (b) a transaction
involving the transfer of beneficial ownership of securities representing, or
the right to acquire beneficial ownership or to vote securities representing,
20% or more of the outstanding shares of Midland Common Stock, and thereafter,
if such Proposal has not been publicly withdrawn (as defined below) at least 15
days prior to the Meeting and Midland's shareholders fail to approve the Merger
by the vote required by applicable law at the Meeting; or (iv)makes a bona fide
proposal and thereafter, but before such Proposal has been publicly withdrawn,
Midland willfully takes any action in any manner that would materially interfere
with its ability to consummate the Merger or materially reduce the value of the
Merger to Valley. The definition of "Triggering Event" also includes the taking
of any direct or indirect action by Midland or any of its directors, officers or
agents, to invite, encourage or solicit any proposal which has as its purpose a
tender offer for the shares of Midland Common Stock, a merger, consolidation,
plan of exchange, plan of acquisition or reorganization of Midland or Midland
Bank, or a sale of shares of Midland Common Stock or stock of Midland Bank or
any significant portion of the assets or liabilities of Midland or Midland Bank.
Under the Stock Option Agreement, a significant portion means 25% of the assets
or liabilities of Midland. "Publicly withdrawn" for purposes of the Stock Option
Agreement means an unconditional bona fide withdrawal of a Proposal coupled with
a public announcement of no further interest in pursuing such Proposal or
acquiring any controlling influence over Midland or in soliciting or inducing
any other person (other than Valley or any affiliate) to do so.
Valley may not sell, assign or otherwise transfer its rights and
obligations under the Stock Option Agreement in whole or in part to any person
or any group of persons other than to an affiliate of Valley. The Option may not
be exercised (i) in the absence of any required governmental or regulatory
approval or consent necessary for Midland to issue the Midland Common Stock
subject to the Option or Valley to exercise the Option, or prior to the
expiration or termination of any waiting period required by law, or (ii) so long
as any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect which prohibits the sale or
delivery of the Midland Common Stock subject to the Option.
The Stock Option Agreement further provides that after the occurrence of a
Triggering Event and upon receipt of a written request from Valley, Midland
shall prepare and file a registration statement with the Commission covering the
Option and such number of shares of Midland Common Stock subject thereto as
Valley shall specify in its request, and shall use its best efforts to cause
such registration statement to become effective in order to permit the sale or
other disposition of the Option and the shares of Midland Common Stock covered
thereby; provided, however, that in no event will Valley have the right to have
more than one such registration statement become effective.
The Stock Option Agreement terminates upon either the termination of the
Merger Agreement or the consummation of the transactions contemplated thereby;
provided that if the Merger Agreement terminates after the occurrence of a
Triggering Event, the Stock Option Agreement will not terminate until 18 months
following the date of termination of the Merger Agreement.
The ability of Valley to exercise the Option and to cause up to an
additional 35,000 shares of Midland Common Stock to be issued may be considered
a deterrent to other potential acquirors of control of Midland, as it is likely
to increase the cost of an acquisition of all of the shares of Midland Common
Stock which would then be outstanding. The exercise of the Option by Valley may
also make pooling-of-interests accounting treatment unavailable to a subsequent
acquiror.
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information presents
the Pro Forma Combined Condensed Statements of Condition of Valley and Midland
at September 30, 1996, December 31, 1995 and 1994 giving effect to the Merger as
if it had been consummated at each such date. Also presented are the Pro Forma
Combined Condensed Statements of Income for the nine months ended September 30,
1996 and the years ended December 31, 1995, 1994 and 1993 giving effect to the
Merger as if it was consummated on January 1 of each year. The unaudited pro
forma financial information is based on the historical financial statements of
Valley and Midland after giving effect to the Merger under the
pooling-of-interests method of accounting and based upon the assumptions and
adjustments contained in the accompanying Notes to Pro Forma Combined Condensed
Financial Statements.
The unaudited pro forma financial information has been prepared by Valley's
management based upon the historical financial statements and related notes
thereto of Valley and Midland contained herein or incorporated herein by
reference. The unaudited pro forma financial information should be read in
conjunction with such historical financial statements and notes. The Pro Forma
Combined Condensed Statements of Income are not necessarily indicative of
operating results which would have been achieved had the Merger been consummated
as of the beginning of the periods for which such data are presented and should
not be construed as being representative of future periods.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
September 30, 1996
(Unaudited)
Valley and
Pro Forma Midland
Valley Midland Adjustment(1) Combined
---------------- -------------- ------------- -----------------
(Dollar amounts in thousands)
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $ 135,589 $ 36,900 $ $ 172,489
Federal funds sold 0 800 800
Investment securities held to maturity 222,005 50,532 272,537
Investment securities available for sale 1,049,069 40,183 (171) 1,089,081
Loans 3,085,213 289,479 3,374,692
Allowance for possible loan losses (41,798) (4,208) (46,006)
Other assets 154,973 12,547 167,520
------------- ----------- ---------- ------------
Total assets $ 4,605,051 $ 426,233 $ (171) $ 5,031,113
============= ========== ========== ============
LIABILITIES
Deposits $ 4,070,621 $ 388,951 $ $ 4,459,572
Borrowings 104,146 413 104,559
Other liabilities 47,867 2,698 50,565
------------- ----------- -------------
Total liabilities 4,222,634 392,062 4,614,696
------------- ---------- ------------
SHAREHOLDERS' EQUITY
Common stock 20,440 1,938 (70) 22,308
Surplus 238,870 565 (1034) 238,401
Retained earnings, net 136,599 32,757 169,356
Unrealized gain (loss) on securities
available for sale, net of taxes (4,739) (156) (4,895)
Translation adjustment 8 0 8
Treasury stock (8,761) (933) 933 (8,761)
------------ ----------- ------- -------------
Total shareholders' equity 382,417 34,171 (171) 416,417
----------- ----------- ------- ------------
Total liabilities and shareholders' equity $ 4,605,051 $ 426,233 $ (171) $ 5,031,113
============ ========== =========== ============
(1) The pro forma adjustments represents (a) the difference between the stated value of Valley and Midland stock and
the retirement of treasury stock and (b) the elimination of Midland stock owned by Valley.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
December 31, 1995
(Unaudited)
Valley and
Pro Forma Midland
Valley Midland Adjustment(1) Combined
----------------- --------------- ----------------- --------------
(Dollar amounts in thousands)
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $ 167,349 $ 43,508 $ $ 210,857
Federal funds sold 108,500 15,550 124,050
Investment securities held to maturity 266,354 58,225 324,579
Investment securities available for sale 1,146,285 39,811 (171) 1,185,925
Loans 2,793,175 258,665 3,051,840
Allowance for possible loan losses (39,670) (4,321) (43,991)
Other assets 143,818 12,654 156,472
------------ ----------- ------------ ------------
Total assets $ 4,585,811 $ 424,092 $ (171) $ 5,009,732
============ ========== ============ ============
LIABILITIES
Deposits $ 4,083,873 $ 388,260 $ $ 4,472,133
Borrowings 66,124 446 66,570
Other liabilities 35,577 3,014 38,591
------------ ----------- ------------
Total liabilities 4,185,574 391,720 4,577,294
------------ ---------- ------------
SHAREHOLDERS' EQUITY
Common stock 20,025 1,938 (63) 21,900
Surplus 216,377 565 (897) 216,045
Retained earnings, net 162,012 30,836 192,848
Unrealized gain (loss) on securities
available for sale, net of taxes 3,733 (178) 3,555
Treasury stock (1,910) (789) 789 (1,910)
------------ ----------- -------- ------------
Total shareholders' equity 400,237 32,372 (171) 432,438
------------ ---------- --------- ------------
Total liabilities and shareholders' equity $ 4,585,811 $ 424,092 $ (171) $ 5,009,903
============ ========== ========== ============
(1) The pro forma adjustments represent (a) the difference between the stated value of Valley and Midland stock and
the retirement of treasury stock and (b) the elimination of Midland stock owned by Valley.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
December 31, 1994
(Unaudited)
Valley and
Pro Forma Midland
Valley Midland Adjustment(1) Combined
-------------- ------------- -------------- ---------------
(Dollar amounts in thousands)
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $ 168,072 $ 32,069 $ 200,141
Federal funds sold 0 2,675 2,675
Investment securities held to maturity 853,983 64,184 918,167
Investment securities available for sale 696,438 51,238 (135) 747,541
Loans 2,592,756 242,061 2,834,817
Allowance for possible loan losses (42,024) (3,881) (45,905)
Other assets 149,361 13,384 162,745
------------ ----------- ------------- ------------
Total assets $ 4,418,586 $ 401,730 $ (135) $ 4,820,316
============ ========== ============= ============
LIABILITIES
Deposits $ 3,880,002 $ 370,235 $ $ 4,250,237
Borrowings 153,920 487 154,407
Other liabilities 34,048 2,729 36,777
------------ ----------- -------------
Total liabilities 4,067,970 373,451 4,441,421
------------ ---------- ------------
SHAREHOLDERS' EQUITY
Common stock 18,869 1,938 (44) 20,763
Surplus 172,321 565 (564) 172,322
Retained earnings, net 179,432 28,041 207,473
Unrealized gain (loss) on securities
available for sale, net of taxes (17,842) (1,792) (19,634)
Treasury stock (2,164) (473) 473 (2,164)
----------- --------- --------- -------------
Total shareholders' equity 350,616 28,279 (135) 378,760
---------- --------- --------- ------------
Total liabilities and shareholders' equity $ 4,418,586 $ 401,730 $ (135) $ 4,820,181
============ ========== ============ ============
(1) The pro forma adjustments represent (a) the difference between the stated value of Valley and Midland stock
and the retirement of treasury stock and (b) the elimination of Midland stock owned by Valley.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the nine months ended September 30, 1996
(Unaudited)
Pro Forma Valley and Midland
Valley Midland Adjustment(2) Combined
------------ ------------- ----------- --------------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 243,943 $ 21,982 $ (9) $ 265,916
Total interest expense 108,100 6,975 115,075
----------- ----------- -------- ------------
Net interest income 135,843 15,007 (9) 150,841
Provision for possible loan losses 2,095 190 2,285
------------ ----------- -------- -------
Net interest income after provision for
possible loan losses 133,748 14,817 (9) 148,556
Total non-interest income 17,252 1,977 19,229
Total non-interest expense 76,706 11,318 88,024
----------- ---------- -------- -------------
Income before income taxes 74,294 5,476 (9) 79,761
Income taxes 24,747 2,114 26,861
----------- ---------- -------- -------------
Net income $ 49,547 $ 3,362 $ (9) $ 52,900
=========== ========== ======== ============
Earnings per share (1) $ 1.35 $ 26.79 $ $ 1.31
============ ========== ======== ==============
Weighted average number of shares
outstanding 36,792,418 125,490 (728) 40,535,278
========== ========= ========= ============
- -------------------------------------------------------------------
(1) The historical earnings per share of Valley and Midland have been restated to give retroactive effect
to stock dividends and splits.
(2) Interest income has been reduced for dividends received by Valley on Midland common shares owned.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1995
(Unaudited)
Pro Forma Valley and Midland
Valley Midland Adjustment(2) Combined
--------------- ------------ ------------ ------------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 316,650 $ 29,242 $ (5) $ 345,887
Total interest expense 143,271 10,055 153,326
------------ --------- --------- -----------
Net interest income 173,379 19,187 (5) 192,561
Provision for possible loan losses 2,669 500 3,169
------------- --------- --------- -----------
Net interest income after provision for
possible loan losses 170,710 18,687 (5) 189,392
Total non-interest income 20,968 2,934 23,902
Total non-interest expense 90,203 14,520 104,723
------------ -------- ---------- -----------
Income before income taxes 101,475 7,101 (5) 108,571
Income taxes 38,879 2,664 41,543
----------- -------- ---------- -----------
Net income $ 62,596 $ 4,437 $ (5) $ 67,028
=========== ======== ========== ===========
Earnings per share (1) $ 1.67 $ 34.99 $ $ 1.63
============ ======== ========== ===========
Weighted average number of shares
outstanding 37,396,106 126,805 (606) 41,182,076
========== ======= ========== ===========
(1) The historical earnings per share of Valley and Midland have been restated to give retroactive effect to stock dividends
and splits.
(2) Interest income has been reduced for dividends received by Valley on Midland common shares owned.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1994
(Unaudited)
Pro Forma Valley and Midland
Valley Midland Adjustment Combined
------------- ------------- ------------- ---------------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C>
Total interest income $ 292,583 $ 25,500 $ 318,083
Total interest expense 117,465 7,365 124,830
----------- --------- -----------
Net interest income 175,118 18,135 193,253
Provision for possible loan losses 5,197 787 5,984
----------- --------- -----------
Net interest income after provision for
possible loan losses 169,921 17,348 187,269
Total non-interest income 23,967 2,979 26,946
Total non-interest expense 90,594 14,487 105,081
----------- --------- -----------
Income before income taxes 103,294 5,840 109,134
Income taxes 38,723 2,137 40,860
----------- --------- -----------
Net income $ 64,571 $ 3,703 $ 68,274
=========== ========= ===========
Earnings per share (1) $ 1.74 $ 29.16 $ 1.67
=========== ========= ============
Weighted average number of shares
outstanding 37,067,458 126,987 40,877,068
========== ========= ==========
(1) The historical earnings per share of Valley and Midland have been restated to give retroactive effect to stock dividends
and splits.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1993
(Unaudited)
Pro Forma Valley and Midland
Valley Midland Adjustment Combined
----------------- ------------- ------------ ------------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C>
Total interest income $ 280,693 $ 24,620 $ 305,313
Total interest expense 114,021 8,504 122,525
------------ ---------- -----------
Net interest income 166,672 16,116 182,788
Provision for possible loan losses 7,966 1,036 9,002
------------- ---------- -----------
Net interest income after provision for
possible loan losses 158,706 15,080 173,786
Total non-interest income 27,990 3,379 31,369
Total non-interest expense 85,671 14,502 100,173
------------ --------- -----------
Income before income taxes 101,025 3,957 104,982
Income taxes 35,638 1,256 36,894
------------ --------- -----------
Net income before cumulative effect of
accounting change 65,387 2,701 68,088
Cumulative effect of accounting change (402) 151 (251)
------------ -------- ------------
Net income $ 64,985 $ 2,852 $ 67,837
=========== ======== ===========
Net income per share before cumulative
effect of accounting change $ 1.79 $ 21.26 $ 1.69
============ ======== ===========
Earnings per share (1) $ 1.78 $ 22.45 $ 1.68
============ ======== ===========
Weighted average number of shares
outstanding 36,473,116 127,023 40,283,806
========== ======= ==========
(1) The historical earnings per share of Valley and Midland have been restated to give retroactive effect to stock dividends
and splits.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MIDLAND
General
The following analysis of Midland's financial condition and results of
operations for the nine months ended September 30, 1996 and 1995, and for the
years ended December 31, 1995, 1994 and 1993, should be read in conjunction with
the audited Consolidated Financial Statements of Midland and notes thereto, and
information presented elsewhere herein.
Midland's results of operations depend primarily on its net interest
income, which is the difference between interest earned on its interest-earning
assets, such as loans and investment securities, and the interest paid on its
interest-bearing liabilities, such as its deposits. The amount of net interest
income is a function of the difference between the weighted average rate
received on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, as well as the average level of interest-earning
assets as compared with that of interest-bearing liabilities. Net income is also
affected by the amount of non-interest income and by operating expenses.
Financial Condition
Total assets increased $22,362,000 or 5.6% from $401,730,000 at December
31, 1994, to $424,092,000 at December 31, 1995, after decreasing $6,231,000 or
1.5% from $407,961,000 at December 31, 1993, to December 31, 1994. Midland's
loan portfolio increased $16,604,000 or 6.9% from $242,061,000 at December 31,
1994, to $258,665,000 at December 31, 1995, due primarily to increased business
development activities. See "Business of Midland--Lending." Money market
investments that consist of overnight federal funds and interest-bearing
deposits with banks increased $24,875,000 to $27,550,000 at December 31, 1995,
from $2,675,000 at December 31, 1994. These increases were funded by increased
deposits and decreases in investment securities. Deposits increased $18,025,000
or 4.9% from $370,235,000 at December 31, 1994, to $388,260,000 at December 31,
1995, after decreasing $7,068,000 or 1.9% from $377,303,000 at December 31,
1993, to December 31, 1994.
Total assets increased $2,141,000 or 0.5% from December 31, 1995, to
$426,233,000 at September 30, 1996. Midland's loan portfolio increased
$30,814,000 or 11.9% from December 31, 1995, to $289,479,000 at September 30,
1996, due to increased business development activities. This increase was funded
from substantial decreases in investment securities, federal funds sold and
deposits with other banks as deposits increased only slightly over the same
period. See "Business of Midland-Lending." Deposits increased $691,000 or 0.2%
from $388,260,000 at December 31, 1995, to $388,951,000 at September 30, 1996.
Investment securities held to maturity decreased $5,959,000 or 9.3% from
$64,184,000 at December 31, 1994, to $58,225,000 at December 31, 1995.
Investment securities available for sale decreased $11,427,000 or 22.3% from
$51,238,000 at December 31, 1994, to $39,811,000 at December 31, 1995. The
decrease in the investment securities was used to fund the increase in both the
loan portfolio and the money market investment portfolio which consists of
overnight federal funds and interest-bearing deposits with banks. Investment
securities held to maturity decreased $7,693,000 or 13.2% from December 31,
1995, to $50,532,000 at September 30, 1996. Investment securities available for
sale increased $372,000 or 0.9% from December 31, 1995, to $40,183,000 at
September 30, 1996. The decrease in the securities portfolio was used primarily
to fund the growth in the loan portfolio.
Money market investments that include both overnight federal funds and
interest-bearing deposits with banks increased $24,875,000 or 929.9% from
$2,675,000 at December 31, 1994, to $27,550,000 at December 31, 1995, due to
growth in deposits as well as a decrease in the investment portfolio. Overnight
federal funds sold decreased $14,750,000 or 94.8% from $15,550,000 at December
31, 1995, to $800,000 at September 30, 1996, in order to fund the growth in the
loan portfolio.
Stockholders' equity increased $4,093,000 or 14.5% from $28,279,000 at
December 30, 1994, to $32,372,000 at December 31, 1995, due primarily to
earnings retention. Stockholders' equity increased $359,000 or 1.3% from
$27,920,000 at December 31, 1993, to December 31, 1994. Retained earnings
increased $2,795,000 or 10% from $28,041,000 at December 31, 1994, to
$30,836,000 at December 31, 1995.
Stockholders' equity increased $1,799,000 or 5.6% from $32,372,000 at
December 31, 1995, to $34,171,000 at September 30, 1996, due primarily to
earnings retention. Retained earnings increased $1,921,000 or 6.2% from
$30,836,000 at December 31, 1995, to $32,757,000 at September 30, 1996.
Comparison of Operating Results
Net Income. Net income increased $734,000 or 19.8% from $3,703,000 for the
year ended December 31, 1994, to $4,437,000 for the year ended December 31,
1995, and increased $851,000 or 29.8% from $2,852,000 at December 31, 1993, to
December 31, 1994. The increase in net earnings from 1994 to 1995 was due to an
increase in net interest income of $1,052,000 in addition to a decrease of
$287,000 in the loan loss provision. The increase in net interest income after
provision for loan losses was offset in part by a $33,000 increase in other
operating expenses, a $45,000 decrease in other operating income and a $527,000
increase in income taxes from 1994 to 1995.
Net income increased $283,000 or 9.2% from $3,079,000 for the nine months
ended September 30, 1995, to $3,362,000 for the nine months ended September 30,
1996. The net earnings increase was due to an increase in net interest income of
$766,000 and a decrease in the provision for loan losses of $210,000. The
increase in net interest income after provision for loan losses was offset in
part by a $181,000 increase in other operating expenses, a decrease of $245,000
in other operating income and a $267,000 increase in income taxes.
Net Interest Income. The results of Midland's operations depend to a large
extent on net interest income. Net interest income is the difference between the
interest income Midland earns on its loans, investments and other
interest-earning assets, and the interest cost of deposits and other
interest-bearing liabilities necessary to fund these interest-earning assets.
Interest rates are highly sensitive to many factors, including domestic and
international economic and political conditions and governmental money policies.
See "Supervision and Regulation of Midland." Conditions such as inflation,
recession, unemployment, money supply, international disorders and other factors
beyond the control of Midland may affect interest rates and adversely affect
Midland's operations.
In general, the net interest income of a financial institution will benefit
if the institution has a negative interest sensitivity gap during periods of
declining rates and a positive interest sensitivity gap during periods of
increasing interest rates. Midland monitors its interest rate sensitivity and
attempts to reduce the risk of a significant decrease in net interest income
caused by a change in interest rates. See "Interest Rate Sensitivity and
Liquidity."
Net interest income increased $1,052,000 or 5.8% from $18,135,000 for the
year ended December 31, 1994, to $19,187,000 for the year ended December 31,
1995, and increased $2,019,000 or 12.5% from $16,116,000 for the year ended
December 31, 1993, to $18,135,000 for the year ended December 31, 1994. The
increase from 1994 to 1995 was attributable to an increase in the average loan
portfolio of $29,163,000 and an increase in average money market investments of
$6,061,000. This growth was funded by a decrease in the average outstanding
securities portfolio of $22,438,000 and an increase in average deposits of
$6,976,000 from December 31, 1994, to December 31, 1995.
Midland's average cost of funds was 2.74% for the year ended 1994 and 3.65%
for the year ended 1995 and the average yield on a tax equivalent basis on
interest-earning assets increased 0.76% from 7.19% in 1994 to 7.95% in 1995. The
interest rate spread decreased 0.15% from 4.45% in 1994 to 4.30% in 1995.
Net interest income increased $766,000 or 5.4% from $14,241,000 for the
nine months ended September 30, 1995, to $15,007,000 for the nine months ended
September 30, 1996. This increase was due to a $19,250,000 increase in the
average loan portfolio and a $1,983,000 increase in average money market
investments from the nine months ended September 30, 1995, to the nine months
ended September 30, 1996, offset in part by the effects of a $16,910,000
decrease in average outstanding securities and a $5,177,000 decrease in
average interest-bearing deposits.
Midland's average cost of funds was 3.45% for the nine-month period ended
September 30, 1996, compared to 3.64% for the nine-month period ended September
30, 1995. The average tax equivalent yield on interest-earning assets decreased
slightly from 7.95% for the nine-month period ended September 30, 1995, to 7.92%
for the nine-month period ended September 30, 1996. The average interest rate
spread increased slightly from 4.31% for the nine months ended September 30,
1995, to 4.47% for the nine months ended September 30, 1996. The average net
interest rate margin also increased slightly from 5.21% for the nine months
ended September 30, 1995, to 5.41% for the nine months ended September 30, 1996.
See "Interest Rate Sensitivity and Liquidity."
The following tables provide an analysis of Midland's net interest income,
net interest spread and net interest margin for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
-------------------------------------------- ------------------------------------------------
Average Balance Interest Average Rate Average Balance Interest Average Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities held to maturity(1) $ 55,824 $ 2,314 5.54% $ 61,586 $ 2,487 5.40%
Securities available for sale 38,940 1,453 4.98% 50,088 1,807 4.82%
Money market investments(2) 8,263 330 5.33% 6,280 276 5.88%
Loans(3)
Commercial(1) 156,086 11,210 9.59% 146,311 10,975 10.03%
Installment 49,765 3,254 8.73% 45,560 3,147 9.24%
Mortgage 62,507 3,465 7.40% 57,237 3,130 7.31%
---------- --------- ---------- ----------
Total interest-earning assets interest income $ 371,385 $ 22,026 7.92% $ 367,062 $ 21,822 7.95%
Cash and due from banks 32,535 - - 30,770 - -
Other non-earning assets 13,300 - - 11,847 - -
Less allowance for loan losses (4,239) - - (4,071) - -
Less unrealized loss on securities available
for sale (335) - - (1,437) - -
---------- ----------
TOTAL ASSETS $ 412,646 - - $ 404,171 - -
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits $ 269,768 $ 6,940 3.44% $ 274,945 $ 7,465 3.63%
Money market borrowings 207 8 5.16% 371 17 6.13%
Long-term debt 427 27 8.45% 470 28 7.97%
---------- -------- ---------- --------
Total interest-bearing funds
interest expense $ 270,402 $ 6,975 3.45% $ 275,786 $ 7,510 3.64%
---------- ---------- ----------- --------
Demand deposits and other noninterest-
bearing liabilities 108,635 - - 98,152 - -
Stockholders' equity 33,609 - - 30,233 - -
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 412,646 - - $ 404,171 - -
========== ==========
Net interest income - $ 15,051 - - $ 14,312 -
========= =========
Interest rate spread(4) 4.47% 4.31%
Interest rate margin(5) 5.41% 5.21%
(1) Fully taxable equivalent basis assuming a tax rate of 34%. Reflects disallowance of interest expense deductions.
(2) Money market investments include interest-bearing deposits with banks and Federal funds sold.
(3) Non-accrual loans are included in net loans; the related income is recorded in interest income on a cash basis.
(4) Interest rate spread is calculated by subtracting the average rate paid for interest bearing funds from the average rate
earned on total earning assets.
(5) Interest rate margin (net yield on earning assets) is calculated by dividing net interest income by total earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
--------------------------------------- --------------------------------------------
Average Balance Interest Average Rate Average Balance Interest Average Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities held to maturity(1) $ 60,812 $ 3,295 5.42% $ 63,392 $ 3,299 5.20%
Securities available for sale 47,840 2,296 4.80% 67,698 3,382 5.00%
Money market investments(2) 9,101 528 5.80% 3,040 122 4.01%
Loans(3)
Commercial(1) 147,293 14,755 10.02% 134,028 11,641 8.69%
Installment 46,082 4,245 9.21% 41,469 3,663 8.83%
Mortgage 57,650 4,210 7.30% 46,365 3,495 7.54%
---------- --------- ---------- ---------
Total interest-earning assets interest income $ 368,778 $ 29,329 7.95% $ 355,992 $ 25,602 7.19%
Cash and due from banks 31,571 - - 29,473 - -
Other non-earning assets 11,430 - - 12,167 - -
Less allowance for loan losses (4,129) - - (3,558) - -
Less unrealized loss on securities available
for sale (1,208) - - (1,291) - -
----------- -----------
TOTAL ASSETS $ 406,442 - - $ 392,783 - -
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits $ 274,839 $ 10,000 3.64% $ 267,863 $ 7,284 2.72%
Money market borrowings 279 17 6.09% 849 40 4.71%
Long-term debt 465 38 8.17% 504 41 8.13%
----------- -------- ----------- --------
Total interest-bearing funds interest expense $ 275,583 $ 10,055 3.65% $ 269,216 $ 7,365 2.74%
---------- --------- ---------- --------
Demand deposits and other noninterest-bearing
liabilities 100,093 - - 95,606 - -
Stockholders' equity 30,766 - - 27,961 - -
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 406,442 - - $ 392,783 - -
========== ==========
Net interest income - $ 19,274 - - $ 18,237 -
========= =========
Interest rate spread(4) 4.30% 4.45%
Interest rate margin(5) 5.23% 5.12%
(1) Fully taxable equivalent basis assuming a tax rate of 34%. Reflects disallowance of interest expense deductions.
(2) Money market investments include interest-bearing deposits with banks and Federal funds sold.
(3) Non-accrual loans are included in net loans; the related income is recorded in interest income on a cash basis.
(4) Interest rate spread is calculated by subtracting the average rate paid for interest bearing funds from the average rate
earned on total earning assets.
(5) Interest rate margin (net yield on earning assets) is calculated by dividing net interest income by total earning assets.
</TABLE>
<PAGE>
Interest Income. Total interest income increased $3,742,000 or 14.7% from
$25,500,000 for the year ended December 31, 1994, to $29,242,000 for the year
ended December 31, 1995, and increased $880,000 or 3.6% from $24,620,000 at
December 31, 1993, to December 31, 1994. Loans represent the largest component
of interest-earning assets and generally result in a greater rate of yield than
investment securities. Interest and fees on loans increased $4,411,000 or 23.5%
from $18,799,000 during 1994 to $23,210,000 during 1995. The increase in
interest income was primarily due to an increase of $29,163,000 or 13.1% in
average loans outstanding from $221,862,000 for 1994 to $251,025,000 for 1995,
and an increase in the average yield on interest-earning assets from 7.19% in
1994 to 7.95% in 1995. This increase was offset in part by a $22,438,000 or
17.1% decrease in average investment securities from $131,090,000 at December
31, 1994, to $108,652,000 at December 31, 1995. Interest income on investments
decreased $1,075,000 or 16.3% from $6,579,000 in 1994 to $5,504,000 in 1995 as a
result of the lower average balances in 1995.
Total interest income increased $231,000 or 1.1% from $21,751,000 for the
nine months ended September 30, 1995, to $21,982,000 for the nine months ended
September 30, 1996. Interest and fees on loans increased $677,000 or 3.9% from
$17,252,000 for the nine months ended September 30, 1995, to $17,929,000 for the
nine months ended September 30, 1996. The increase in interest income was
primarily due to an increase of $19,250,000 or 7.7% in average loans outstanding
from $249,108,000 for the nine months ended September 31, 1995, to $268,358,000
for the nine months ended September 31, 1996. This was offset in part by a
decrease in average investment securities of $16,910,000 or 15.1% from
$111,674,000 for the nine months ended September 30, 1995, to $94,764,000 for
the nine months ended September 30, 1996, and a decrease on the average yield on
interest-earning assets from 7.95% for the nine months ended September 30, 1995,
to 7.92% for the nine months ended September 30, 1996. Interest income on
investments decreased $500,000 or 11.8% from $4,223,000 for the nine-month
period ending September 30, 1995, to $3,723,000 for the nine-month period ending
September 30, 1996, as a result of the lower average balance in the first nine
months of 1995.
Interest Expense. Total interest expense increased $2,690,000 or 36.5% from
$7,365,000 for the year ended December 31, 1994, to $10,055,000 for the year
ended December 31, 1995, and decreased $1,139,000 or 13.4% from $8,504,000 for
the year ended December 31, 1993, to $7,365,000 for the year ended December 31,
1994. The increase from 1994 to 1995 was due to an increase in the average
volume of interest-bearing deposits and an increase in the average rate paid on
interest-bearing liabilities from 2.74% in 1994 to 3.65% in 1995. Average
interest-bearing deposits increased by $6,976,000 or 2.6% from $267,863,000 in
1994 to $274,839,000 in 1995. The increase in the average rate paid was due to
an increase in the average volume of higher rate certificates of deposits and
decreases in interest paid on lower rate savings and money market accounts.
Total interest expense decreased $535,000 or 7.1% from $7,510,000 for the
nine months ended September 30, 1995, to $6,975,000 for the nine months ended
September 30, 1996. This decrease was due to decreases in both the average
volume of interest-bearing liabilities and the average rate paid. Average
interest bearing deposits decreased $5,177,000 or 1.9% from $274,945,000 for the
nine months ended September 30, 1995, compared to $269,768,000 for the nine
months ended September 30, 1996, and the average rates paid on interest-bearing
liabilities decreased for the comparable nine month periods.
The following table presents average balances and rates on interest-bearing
deposits for the nine-month and twelve-month periods indicated:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
Average Balance Average Rate Average Balance Average Rate
---------------- ------------- ---------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Demand $ 101,911 $ 92,307
Money market accounts 63,168 1.86% 62,547 2.13%
Savings 83,530 2.43% 85,371 2.58%
Certificates of deposit 123,070 4.93% 127,027 5.07%
---------- ----------
Total deposits $ 371,679 $ 367,252
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Average Balance Average Rate Average Balance Average Rate
--------------- ------------ --------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Demand $ 94,291 $ 91,192
Money market accounts 62,003 2.08 72,817 1.95%
Savings 84,796 2.60 100,786 2.41%
Certificates of deposit 128,040 5.08 94,260 3.64%
---------- -----------
Total deposits $ 369,130 $ 359,055
========== ===========
</TABLE>
Allowance and Provision for Loan Losses; Non-Performing Loans. Regardless
of credit standards, there is a risk of loss in every loan portfolio. The
allowance for loan losses is a reserve established through charges to earnings
in the form of a provision for loan losses. Management establishes a provision
for loan losses based upon its assessment of the inherent risk in, and the
growth of, the loan portfolio as a whole. A review of the quality of the loan
portfolio is conducted internally by management on a quarterly basis with the
results presented to Midland's Board of Directors. This evaluation considers, in
addition to individual loan review, several factors including, but not limited
to, general economic conditions, loan portfolio composition, prior loan losses,
and an estimation by management of future potential losses. The provision for
loan losses was $500,000 in 1995, $787,000 in 1994, and $1,036,000 in 1993. As
of December 31, 1995, the allowance for loan losses was $4,321,000 or 1.67% of
total loans, compared to $3,881,000 or 1.60% of total loans as of December 31,
1994, and $3,211,000 or 1.47% of total loans as of December 31, 1993.
The provision for loan losses was $190,000 for the nine months ended
September 30, 1996, compared to $400,000 for the comparable period in 1995. At
September 30, 1996, the allowance for loan losses was $4,208,000 or 1.5% of
total loans, compared to $4,218,000 or 1.6% of total loans at September 30,
1995.
The following table provides an analysis of Midland's allowance for loan
losses as of the dates indicated: (1)
September 30 December 31
1996 1995 1995 1994
---------------------- ---------------------
(Dollars in thousands)
Ba1ance at beginning of year $ 4,321 $ 3,881 $ 3,881 $ 3,211
Loans charged off:
Commercial 164 13 18 -
Real Estate 113 14 14 -
Installment 111 156 187 347
------- -------- -------- --------
Recoveries on loans previously
charged off $ 85 120 $ 159 $ 230
-------- -------- -------- --------
Net charge offs 303 63 60 117
Provision charged to operating
expenses 190 400 500 787
-------- -------- -------- --------
Balance at end of peroid $ 4,208 $ 4,218 $ 4,321 $ 3,881
======== ======== ======== ========
Ratio of net charge offs during
the period to average loans
outstanding during period .11% .03% .02% .05%
- ---------------------------------------
(1) As of December 31, 1995, and December 31, 1994 and September 30, 1995,
there were no loans which were "troubled debt restructuring" as defined by
Financial Accounting Standards No. 15- "Accounting by Debtors and Creditors for
Troubled Debt Restructuring." As of September 30, 1996, $214,000 is considered
to be "troubled debt restructuring" and is in compliance with its terms.
Midland places loans on non-accrual status when principal or interest is
past due 90 days or more, provided that Midland Bank's Senior Loan Committee may
choose not to account for any such loan on a non-accrual basis if the
delinquency is technical in nature and there is a clear understanding of when
payment will be made. Loans for which payments are less than 90 days past due
are placed on non-accrual status when there exists serious doubt as to
collectibility. At September 30, 1996, Midland had non-accrual loans of
$1,697,000 and $154,000 of accruing loans past due 90 days, compared to
non-accrual loans of $2,338,000 and $32,000 of accruing loans past due 90 days
at September 30, 1995.
The following table summarizes the composition of Midland's non-performing
assets as of the dates indicated:
September 30 December 31
1996 1995 1995 1994
-------------------- --------------------
(Dollars in Thousands)
Non-accrual loans $ 1,697 $ 1,918 $ 2,382 $ 1,223
Other real estate owned, net - 420 - 489
--------- -------- -------- -------
Total non-performing assets $ 1,697 $ 2,338 $ 2,382 $ 1,712
======== ======== ======== ========
Non-performing assets to total loans .59% .90% .92% .71%
Non-performing assets to total assets .40% .57% .56% .43%
The amount of gross interest income that would have been recorded for the
nine months ending September 30, 1996 and September 30, 1995, if the non-accrual
loans as of such date had been current in accordance with their original terms
and had been outstanding throughout such period or since origination, if held
for part of such period, and the amount of interest income on such loans that
was included in net income for such periods, is not material.
Except for loans accounted for on a non-accrual basis as of September 30,
1996, management is not aware of any significant possible credit problems of
borrowers which causes management to have serious doubts as to the ability of
such borrowers to comply with their present loan repayment terms and which may
cause such loans to be accounted for on a non-accrual basis. However, there can
be no assurance that borrowers who currently comply with their loan repayment
terms will continue to do so or that any loans not accounted for on a
non-accrual basis as of September 30, 1996 will not thereafter be accounted for
on a non-accrual basis.
In addition, as of September 30, 1996, Midland had no interest-bearing
assets (other than loans) that would be accounted for on a non-accrual basis or
that were accruing and contractually past due 90 days or more.
Other Operating Income. Other operating income, including securities gains
or losses, decreased $45,000 or 1.5% from $2,979,000 in 1994 to $2,934,000 in
1995, and decreased $400,000 or 11.8% from $3,379,000 in 1993 to $2,979,000 in
1994. Service charges on deposit accounts decreased $51,000 or 2.0% from
$2,508,000 in 1994 to $2,457,000 in 1995, principally due to an $83,000 decrease
in overdraft charges offset by a $34,000 increase in analysis fees. Loan fees
decreased $15,000 or 46.9% from $32,000 in 1994 to $17,000 in 1995 due to
decreases in late charges collected and commissions collected on insurance
premiums on installment loans. Commissions and fees increased $7,000 or 2.9%
from $237,000 in 1994 to $244,000 in 1995. Other income decreased $12,000 or
5.3% from $227,000 in 1994 to $215,000 in 1995, due primarily to decreased safe
deposit fees. In 1994 there was a loss on sale of securities of $25,000 compared
to a gain of $1,000 in 1995. Total other operating income, including security
transactions, represented 9% of total income in 1995 compared to 10% of total
income in 1994.
Other operating income, including securities gains or losses, decreased
$245,000 or 11.0% from $2,222,000 for the nine months ended September 30, 1995,
to $1,977,000 for the nine months ended September 30, 1996. Service charges on
deposit accounts decreased $235,000 or 12.6% from $1,869,000 for the nine months
ended September 30, 1995, to $1,634,000 for the nine months ended September 30,
1996, principally due to a $185,000 decrease in overdraft and uncollected
charges and a $47,000 decrease in analysis fees. Commissions and fees decreased
$2,000 or 1.0% from $192,000 for the nine months ended September 30, 1995, to
$190,000 for the nine months ended September 30, 1996. Other income decreased
$6,000 or 4.1% from $147,000 for the nine months ended September 30, 1995, to
$141,000 for the nine months ended September 30, 1996, due primarily to safe
deposit fees. For the nine months ended September 30, 1995, there was a gain on
the sale of securities of $2,000 compared to no gains or losses for the nine
months ended September 30, 1996. Total other operating income, including
security transactions, represented 8.3% of total income for the nine months
ended September 30, 1996, compared to 9.3% of total income for the nine months
ended September 30, 1995.
Other Operating Expense. Other operating expenses increased $33,000 or 0.2%
from $14,487,000 in 1994 to $14,520,000 in 1995, and decreased $15,000 or 0.1%
from $14,502,000 in 1993 to 1994. Salaries and related expenses increased
$463,000 or 6.0% from $7,739,000 in 1994 to $8,202,000 in 1995, due primarily to
salary increases of $377,000 for annual merit and incentive compensation and
increased insurance benefits of $85,000. Occupancy expense increased $39,000 or
2.3% from $1,715,000 in 1994 to $1,754,000 in 1995, primarily due to increased
rental expense and maintenance costs. Premises and equipment expense increased
$87,000 or 5.1% from $1,715,000 in 1994 to $1,802,000 in 1995. Purchases of new
furniture and equipment of $500,000 in 1995 resulted in a $35,000 or 4.3%
increase of depreciation expense from 1994 to 1995. Telephone expense increased
$19,000 or 10.3% from 1994 to 1995. Offsetting these increases was a $390,000 or
48.5% decrease in FDIC expense from $804,000 in 1994 to $414,000 in 1995. This
decrease was due to reductions on the FDIC premiums that are assessed on
outstanding deposits. The reduced FDIC premiums resulted in a refund of $229,000
for the second and third quarters of 1995 and reduced premiums for the fourth
quarter of 1995. Other expense decreased $166,000 or 6.6% from $2,514,000 in
1994 to $2,348,000 in 1995. Of this amount, $113,000 was due to a reduction in
the expense of maintaining and carrying other real estate owned.
Other operating expense increased $181,000 or 1.6% from $11,137,000 for the
nine months ended September 30, 1995, to $11,318,000 for the nine months ended
September 30, 1996. Salaries and related expenses increased $183,000 or 2.9%
from $6,217,000 for the nine months ended September 30, 1995, to $6,400,000 for
the nine months ended September 30, 1996, due primarily to salary increases of
$172,000 for annual merit and incentive compensation. Occupancy expense
increased $133,000 or 10.0% from $1,327,000 for the nine months ended September
30, 1995, to $1,460,000 for the nine months ended September 30, 1996. This
increase was due to increased rental expense and additional maintenance costs.
Of this amount, $70,000 was a direct result of additional snow removal expense.
Premises and equipment expense increased $44,000 or 3.7% from $1,200,000 for the
nine months ended September 30, 1995, to $1,244,000 for the nine months ended
September 30, 1996. Professional services increased $107,000 or 63.3% from
$169,000 for the nine months ended September 30, 1995, to $276,000 for the nine
months ended September 30, 1996, primarily due to additional costs incurred as a
result of a business process marketing effort. Offsetting these increases was a
decrease of $286,000 or 12.9% in other expenses from $2,224,000 for the nine
months ended September 30, 1995, to $1,938,000 for the nine months ended
September 30, 1996. Of this amount, $376,000 was due to a reduction in FDIC
premiums, which are assessed on outstanding deposits.
Interest Rate Sensitivity and Liquidity
Interest Rate Sensitivity. Midland seeks to manage interest rate
sensitivity to avoid net interest margin risk and to enhance consistent growth
of net interest income through periods of changing rates. Interest rate risk
arises from mismatches between repricing or maturity characteristics of assets
and liabilities. More assets repricing or maturing than liabilities over a given
time frame is considered asset sensitive, and more liabilities repricing or
maturing than assets is considered liability sensitive. An asset sensitive
position will generally enhance earnings in a rising interest rate environment
and will negatively impact earnings in a falling interest rate environment and a
liability sensitive position will generally enhance earnings in a falling rate
environment and negatively impact earnings in a rising rate environment.
Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. Overnight federal funds (with respect
to which rates change daily) and loans which are tied to the prime rate differ
considerably from long-term investment securities and fixed-rate loans.
Similarly, time deposits are much more interest sensitive than regular savings
accounts.
The following table sets forth the contractual maturity or repricing
distribution of Midland's interest-earning assets and interest-bearing
liabilities as of September 30, 1996. Midland's interest sensitivity gap (i.e.,
interest-sensitive assets less interest sensitive liabilities), the ratio of
cumulative total interest-earning assets to cumulative total interest-bearing
liabilities, and Midland's cumulative interest sensitivity gap ratio:
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
(unaudited)
Assets/Liabilities Subject to Within Within Within Within Over
Interest Rate Adjustment 3 Mos. 6 Mos. 1 Yr. 5 Yrs. 5 Yrs. Total
------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Loans and Leases:
Fixed rate by maturity $ 6,622 $ 4,293 $ 11,678 $ 51,282 $ 6,346 $ 80,221
Floating rate by interval 131,412 5,715 10,178 55,083 6,870 209,258
Securities:
Fixed rate by maturity 9,939 7,289 14,746 49,891 3,471 85,336
Floating rate by interval 5,188 191 - - - 5,379
Federal Funds Sold 800 - - - - 800
---------- -------- -------- --------- ------- ---------
Total Interest-Earning Assets $ 153,961 $ 17,488 $ 36,602 $ 156,256 $ 16,687 $ 380,994
========== ======== ========= ========== ======== =========
Money market accounts $ 67,046 - - - - $ 67,046
Savings accounts 82,709 - - - - 82,709
Time Deposits $100M and over 18,180 7,263 $ 1,487 204 - 27,134
Time Deposits under $100M 8,649 46,086 24,717 17,541 7 $ 97,000
----------- --------- --------- --------- --------- ---------
Total Interest-Bearing
Liabilities $ 176,584 $ 53,349 $ 26,204 $ 17,745 $ 7 $ 273,889
========== ========= ========= ========= ========= ==========
Net Position (Interest
Sensitivity Gap) (22,623) (35,861) 10,398 138,511 16,680
----------- --------- --------- --------- --------
Cumulative Interest Sensitivity
Gap (22,623) (58,484) (48,086) 90,425 107,105
Ratio of Cumulative Gap to
Total Assets (5.31%) (13.72%) (11.28%) 21.21% 25.13%
</TABLE>
The amount of Midland's interest sensitive liabilities (generally
deposits with maturities of one year or less) have in the past not matched the
amount of its interest sensitive assets (assets which reprice based on an index
or have short term maturities). This imbalance is referred to as an interest
sensitivity gap, and measures the potential impact of changes to earnings based
on changes in the general level of interest rates. In general, the net interest
income of a financial institution will be benefited if the institution has a
negative interest sensitivity gap during periods of declining interest rates and
a positive interest sensitivity gap during periods of increasing interest rates.
Likewise, net interest income generally will be adversely affected if a
financial institution has a positive interest sensitivity gap during periods of
declining interest rates or a negative interest sensitivity gap during periods
of increasing interest rates.
For a number of reasons, the table set forth above reflecting Midland's
interest rate sensitivity analysis is not a complete picture of the possible
effect of interest rate changes on net interest income. First, changes in the
general level of interest rates will not affect all categories of assets and
liabilities equally or simultaneously. Second, the table represents a one-day
position; variations occur daily as Midland adjusts its interest sensitivity
throughout the year. Third, assumptions must be made to construct such a table.
For example, there are several savings products categorized as interest
sensitive in the 30 day interval; however, they may be adjusted less frequently
than changes in the leading rate indicators. Fourth, the re-pricing distribution
of interest sensitive assets may not be indicative of the liquidity of those
assets. Finally, since the table is based on contractual maturities, it does not
include estimates of early principal payment on mortgage and installment loans.
Liquidity. Liquidity is a measure of Midland's ability to fund loans,
withdrawals of deposits and other cash outflows in a cost effective manner.
Midland's principal source of funds is deposits and, to a lessor extent,
scheduled amortization and prepayments of loan principal. In addition, Midland
has available other sources of credit, including borrowings, sales and
maturities of investment securities and funds provided by operations. While loan
payments and maturing investments are relatively predictable sources of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions and competition.
Midland's primary source of cash from financing activities during the
first nine months of 1996 and 1995, as well as during 1995 and 1994, was from
the net decrease in the investment portfolios and the net increases in deposits.
Total deposits equaled $388,951,000, $374,323,000, $388,260,000, $370,235,000
and $377,303,000 as of September 30, 1996, September 30, 1995, December 31,
1995, December 31, 1994, and December 31, 1993, respectively. Total securities
for the periods ended September 30, 1996, September 30, 1995, December 31, 1995,
December 31, 1994 and December 31, 1993 were $90,715,000, $101,396,000,
$98,036,000, $115,422,000 and $140,866,000, respectively. To further support and
enhance its liquidity position, Midland has established lines of credit with
other banks. In addition, Midland may borrow from the Federal Home Loan Bank of
New York, subject to certain limitations.
Midland Bank has an Asset/Liability Management Committee which is
comprised entirely of members of senior management of Midland Bank. This
committee, which advises the Investment Committee of Midland's Board of
Directors, is responsible for reviewing interest rate risk and enhancing future
liquidity needs over various time periods. Its primary goals are to maintain an
appropriate balance between interest-earning assets and interest-bearing
liabilities and to assure adequate liquidity.
Capital
Stockholders' equity increased $1,799,000 or 5.6% from $32,372,000 at
December 31, 1995, to $34,171,000 at September 30, 1996. Stockholders' equity
increased $4,093,000 or 14.5% from $28,279,000 at December 31, 1994, to
$32,372,000 at December 31, 1995, and increased $359,000 or 1.3% from
$27,920,000 at December 31, 1993, to December 31, 1994. The growth in all
periods was generated through earnings retention.
The FDIC and Federal Reserve Board have adopted minimum risk-based and
leverage capital guidelines which are discussed at "Supervision and Regulation
of Midland-Capital Requirements."
Impact of Inflation
The financial statements and related financial data and notes presented
herein have been prepared in accordance with GAAP, which requires the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of Midland are monetary in nature. As a result, interest rates have
a more significant impact on performance than the effects of general price
levels. Although interest rates generally move in the same directions as
inflation, the magnitude of such changes varies. The possible effect of
fluctuating interest rates is discussed more fully at "Interest Rate
Sensitivity and Liquidity."
BUSINESS OF MIDLAND
General
Midland was organized as a bank holding company under the laws of New
Jersey in 1985 to acquire all of the outstanding stock of Midland Bank. Midland
engages in no business activities other than acting as a holding company for
Midland Bank. Midland Bank owns all of the outstanding stock of Midland Realty
Co., Inc. ("Midland Realty") and Midpar Investment, Inc. ("Midpar").
Midland Realty is a New Jersey corporation organized in 1967 which
holds and manages real estate for Midland Bank. As of September 30, 1996,
Midland Realty had assets of $1,489,000.
Midpar is a New Jersey corporation organized in 1985 which manages
certain investments for Midland Bank. As of September 30, 1996, Midpar had
assets of $54,402,000.
Business of Midland Bank
The Midland Bank and Trust Company is a New Jersey banking organization
located in Paramus, New Jersey. In 1985, Midland was formed for the purpose of
acquiring all of the outstanding stock of Midland Bank. Assets in the last five
years have grown from $362,492,000 at December 31, 1991, to $426,233,000 at
September 30, 1996. For the nine months ended September 30, 1996, Midland's net
income after taxes was $3,362,000, compared to $3,079,000 for the nine months
ended September 30, 1995. On September 30, 1996, deposit liabilities were
$388,951,000 and net loans were $285,271,000 compared to $374,323,000 and
$254,326,000, respectively, at September 30, 1995. Net interest income for the
nine months ended September 30, 1996 was $15,007,000 compared to $14,241,000 at
September 30, 1995. As of September 30, 1996, loans past due 90 days or more
totaled $154,000, not including non-accrual loans of $1,697,000.
Midland Bank offers traditional commercial bank services including
checking, savings and money market accounts, time deposits and safe deposit
services. A variety of loans including commercial, real estate and consumer
installment loans are offered to persons and businesses located primarily in
central and eastern Bergen County, New Jersey. Midland Bank also offers cash
management services to its customers.
Midland Bank commenced operations in April, 1958, and currently
operates through its main office located at 80 East Ridgewood Avenue, Paramus,
New Jersey, and 13 branch offices located throughout central and eastern Bergen
County in the towns of Paramus, Fort Lee, Englewood, Northvale, Oradell,
Ridgefield, Tenafly, Waldwick and Hackensack, New Jersey.
Lending
Midland concentrates its lending activities in three principal areas:
commercial, consumer installment and mortgage. At September 30, 1996, these
categories accounted for approximately 57%, 19% and 24%, respectively, of
Midland's loan portfolio. The interest rates charged for the loans made by
Midland vary with the degree of risk, the size and maturity of the loans, the
borrower's relationship with Midland, and prevailing money market rates
indicative of Midland's cost of funds. The majority of Midland's loans are
generated in Bergen County, New Jersey.
The following table sets forth the amounts of loans outstanding by
category as of the dates indicated:
<TABLE>
<CAPTION>
September 30 December 31
-------------------------------------- -----------------------
1996 1995 1995 1994
-------------------------------------- -----------------------
(unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 161,758 $ 150,381 $ 150,570 $ 143,507
Consumer Installment 56,138 47,148 46,651 43,543
Real estate 67,918 59,032 59,188 55,011
Construction 3,665 1,983 2,256 -
---------- ---------- ----------- ----------
Total loans 289,479 258,544 258,665 242,061
---------- ---------- ----------- ----------
Allowance for Loan Losses (4,208) (4,218) (4,321) (3,881)
Net Loans $ 285,271 $ 254,326 $ 254,344 $ 238,180
========== =========== ========== ==========
</TABLE>
Average loan balances for 1995 were up 13.1% over 1994. The 1995 year
end loan balance of $258,665,000 was 6.8% higher than the balance on the same
date of 1994. At year end 1995, the loan to deposit ratio was 66.6% versus 65.4%
at December 31, 1994.
Loan balances at September 30, 1996, reflected an increase of
$30,935,000 or 12.0% from the period ending September 30, 1995. The higher
growth rate resulted from increasing economic activity in general.
Midland relies substantially on local promotional activity, personal
contacts by bank officers, directors and employees to compete with other
financial institutions. Midland makes loans to borrowers whose applications, in
the view of Midland managment, include a sound purpose, a viable repayment
source and a plan of repayment established at inception and generally backed by
a secondary source of repayment. Midland has established a written loan policy
for each of its categories of loans which is reviewed periodically by the Board
of Directors. The loan portfolio is reviewed periodically by Midland Bank's
Credit Quality Committee to initiate steps to accelerate the collections of past
due loans and other actions deemed necessary in order to maintain a good quality
loan portfolio.
Commercial Loans. Commercial loans include business related loans
priced by Midland at variable and fixed rates of interest. At September 30,
1996, approximately 57% or $165,423,000 of Midland's loan portfolio consisted of
commercial loans. Commercial loans include operating lines of credit, letters of
credit, working capital, asset acquisition, construction and loans for business
related purposes.
Real Estate Loans. Approximately 24% or $67,918,000 of the total loan
portfolio of $289,479,000 at September 30, 1996, was secured by residential real
estate. The loan to value ratio for a real estate loan is dependent upon the
borrower, the type of project and the duration. Loan to value ratios are
generally at 75% or less for commercial and 80% for 1-4 family residential real
estate loans at the time the loan is made.
Midland has an active residential real estate department which provides
loans for 1-4 family residences. Commercial real estate lending is generally
reserved for productive as opposed to investment or speculative purposes.
Midland requires debt service ratios which it considers to be adequate as part
of its consideration of the financial viability of the borrower. The real
property provides a secondary source of repayment.
Midland utilizes third-party appraisers for appraising all loans
secured by real estate. These appraisers are approved annually. Midland has
adopted real estate appraisal standards as set forth in FDIC regulations which
are applied to all regulated real estate transactions.
Consumer Installment Loans. The consumer installment loan portfolio was
$56,138,000 at September 30, 1996. These loans represent a diverse group of
borrowers and include automobile loans, personal loans, home equity lines of
credit and overdraft protection.
Investment Portfolio
Midland's investment portfolio consists primarily of U.S. Treasury and
U.S. Agency securities. Government regulations limit the type and quality of
investments in which Midland may invest its funds. See "Supervision and
Regulation of Midland."
Midland has established a written investment policy which is reviewed
annually. This policy identifies investment criteria and states specific
objectives in terms of risk, interest rate sensitivity and liquidity. Midland's
primary investment goal is to acquire the best mix of securities for its
investment portfolio in terms of quality, term and marketability.
Midland Bank has established an Investment Committee which is comprised
of its President, Treasurer and certain members of the Board of Directors. This
Investment Committee is responsible for reviewing interest rate risk and
liquidity needs over various time periods. The Investment Committee monitors
Midland's investment portfolio to ensure compliance with guidelines. Midland's
Board of Directors review monthly the minutes from the Investment Committee
meetings.
<PAGE>
<TABLE>
The following tables present the mix of Midland's investment portfolio
along with the amortized cost and market values of those components as of
September 30, 1996 and 1995, and as of December 31, 1995 and 1994:
<CAPTION>
September 30, 1996 September 30, 1995
Amortized Cost Market Value Amortized Cost Market Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury $ 29,151 $ 28,971 $ 40,378 $ 40,041
U.S. Agencies 16,753 16,645 14,563 14,520
States and political 1,768 1,847 3,674 3,752
Other 2,860 2,860 264 264
--------- --------- --------- ---------
Total investment securities-HTM $ 50,532 $ 50,323 $ 58,879 $ 58,577
========= ========= ========= =========
Securities available for sale:
U.S. Treasury $ 26,627 $ 26,456 $ 30,388 $ 29,966
U.S. agencies 12,004 11,936 12,091 11,834
Other 1,788 1,791 711 717
--------- --------- --------- ---------
Total investment securities-AFS $ 40,419 $ 40,183 $ 43,190 $ 42,517
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Amortized Cost Market Value Amortized Cost Market Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury $ 38,331 $ 38,365 $ 38,076 $ 36,315
U.S. Agencies 16,844 16,981 20,195 19,344
States and political 2,439 2,533 5,159 5,180
Other 611 611 754 754
------- ------- --------- ---------
Total investment securities-HTM $ 58,225 $ 58,490 $ 64,184 $ 61,593
========= ========= ========= =========
Securities available for sale:
U.S. Treasury $ 29,301 $ 29,174 $ 36,648 $ 34,747
U.S. agencies 10,069 9,915 16,142 15,359
Other 711 722 1,163 1,132
-------- -------- --------- ---------
Total investment securities-AFS $ 40,081 $ 39,811 $ 53,953 $ 51,238
========= ========= ========= =========
</TABLE>
Investment securities held to maturity are carried at cost, adjusted
for the accretion of discounts and amortization of premiums using the interest
method. Amortization and accretion are recognized as adjustments to interest
income.
The portfolio includes no obligation of a single state or political
subdivision issuer with an aggregate book value in excess of 10% of
shareholders' equity. Mortgage backed securities are scheduled according to
anticipated principal repayments and prepayments.
Deposits
Deposits are the primary source of funds used by Midland for lending
and other general business purposes. In addition to deposits, Midland may derive
additional funds from principal repayments on loans, the sale of loans and
investment securities and borrowings from other financial institutions and the
FHLB (which lends to the member institutions within its assigned region). The
level of deposit liabilities can vary significantly and is influenced by
prevailing interest rates, money market conditions, general economic conditions
and competition.
Midland primarily attracts deposits from local businesses,
professionals and retail customers. Midland attempts to ensure a satisfied
customer base by offering a full range of banking products including checking,
savings and money market accounts and certificates of deposit. Midland also
offers Individual Retirement Accounts. Midland attempts to control the flow of
deposits primarily by pricing its accounts to remain competitive with other
financial institutions in its market area, although Midland does not necessarily
seek to match the highest rates paid by competing institutions. Management
believes that the customers provide a strong and relatively stable core deposit
base.
Total deposits increased 3.9% from September 30, 1995, to September 30,
1996. There were some changes in the deposit mix. Most of the mix changes were
the result of the increase in interest-bearing demand deposits.
Noninterest-bearing demand and interest-bearing demand deposits increased to
46.8% from 43.1% of total deposits, respectively, at September 30, 1996, and
September 30, 1995. Savings deposits decreased slightly from 22.1% to 21.2% and
time certificates decreased from 34.7% to 31.9% from September 30, 1995, to
September 30, 1996.
At September 30, 1996, deposits totaled $388,951,000 or 91% of total
assets. Approximately 68% of the deposit base consisted of demand deposits,
savings and money market accounts. Time deposits of $100,000 or more with
specific maturities totaled $27,134,000 at September 30, 1996, of which
$18,180,000 mature within three months from such date, $8,750,000 mature between
three and twelve months from such date and $204,000 mature between twelve and
sixty months from such date.
Property
Midland Realty owns the five-story main office building used by Midland
Bank which is located at 80 East Ridgewood Avenue, Paramus, New Jersey. This
location has 32,000 square feet of floor area and provides 5 teller windows, 2
drive up windows, 1 ATM and safe deposit facilities. Midland Realty leases
approximately 2,955 square feet in this building to 2 unrelated entities.
Midland Bank owns its branch offices located in Englewood, Oradell and
Ridgefield, New Jersey. Midland Bank leases its branch facilities located in
Englewood (1 limited service facility), Fort Lee (2 branches), Hackensack,
Northvale, Paramus (2 branches), Tenafly and Waldwick, New Jersey. Midland Bank
also leases space in buildings in Paramus and Oradell, which it uses for support
operations and training facilities.
Competition
The primary service area of Midland Bank is affluent Bergen County, New
Jersey, particularly the central, northwestern, northern valley and southeastern
regions. Bergen County is a densely populated suburb of New York City, which is
largely suburban in nature, although its location on several major arterial
routes has attracted the headquarters of many large corporations.
Midland Bank has competition within Bergen County from many
well-established financial institutions. In addition to competition from other
commercial banking institutions, there is competition from savings and loan
companies, credit unions and other types of financial institutions. Many of
Midland Bank's competitors are larger and more substantially capitalized than
Midland Bank. They have established positions in Bergen County and have greater
resources than Midland Bank for lending and to pay for advertising, physical
facilities, personnel and interest on deposited funds.
The primary factors affecting competition for deposits are interest
rates, the quality and range of financial services offered and the convenience
of office locations and office hours. The primary factors in competing for loans
are interest rates, loan origination fees and the quality and range of lending
services offered. Other factors which affect competition include the general
availability of lendable funds and credit, general and local economic conditions
and the quality of service provided to customers.
Midland Bank relies substantially on local promotional activity,
personal contacts by its officers, directors, employees and shareholders,
extended hours, personalized service, and its reputation in the communities it
serves to compete effectively.
Legal Proceedings
Midland is not presently involved in any legal proceedings which
Midland's management believes to be material to its financial condition or
results of operations. As the nature of Midland's business involves providing
certain financial services, the collection of loans and the enforcement and
validity of mortgages and other liens, Midland and Midland Bank are parties in
various legal proceedings (such as garnishment proceedings) which may be
considered as arising in the ordinary course of their business.
Employees
As of September 30, 1996, Midland Bank employed 171 persons on a full
time basis and 37 persons on a part time basis. Midland Bank's employees are not
parties to any collective bargaining agreement. Midland Bank provides a variety
of employee benefits and believes employee relations are good.
SUPERVISION AND REGULATION OF MIDLAND
Midland
As a registered bank holding company under the Bank Holding Company
Act, Midland is subject to the regulations and supervision of the Federal
Reserve Board. The Bank Holding Company Act requires Midland to file reports
with the Federal Reserve Board and provide additional information requested by
the Federal Reserve Board. Midland must receive the approval of the Federal
Reserve Board before it may acquire all or substantially all of the assets of
any bank, or ownership or control of the voting shares of any bank if, after
giving effect to such acquisition of shares, Midland would own or control more
than 5% of the voting shares of such bank.
Midland is prohibited from engaging in, or acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company engaged
in, non-banking activities, unless the Federal Reserve Board by order or
regulation has found such activities to be closely related to banking or
managing or controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board considers whether the performance of
such activities by a bank holding company would offer advantages to the public
which outweigh any possible adverse effects.
Midland and its subsidiaries are deemed to be affiliates of Midland
Bank under the Federal Reserve Act. That Act establishes certain restrictions
which limit the extent to which an affiliated bank may supply funds to Midland
and other affiliates. Midland is also subject to restrictions on the
underwriting and the public sale and distribution of securities and is
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, sale or lease of property, or furnishing of services.
Midland Bank
The operations of Midland Bank are subject to federal and state
statutes applicable to banks chartered under the State of New Jersey. The New
Jersey Banking Commissioner (the "Commissioner") regularly examines such areas
as reserves, loans, investments, management practices and other aspects of bank
operations. These examinations are for the protection of Midland Bank's
depositors and not for its shareholders. In addition to these regular
examinations, Midland Bank must furnish to the Commissioner quarterly reports
containing a full and accurate statement of its affairs.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extension of credit to
the bank holding company or any of its subsidiaries on investments and stock or
other securities thereof, and on the taking of such stock or securities as
collateral for loans to any borrower.
The operations of Midland Bank are also subject to the regulations of
the FDIC, which insures the deposits of Midland Bank up to a maximum of $100,000
per depositor. The FDIC issues regulations, conducts periodic examinations,
requires the filing of reports and generally supervises the operations of its
insured banks. This supervision and regulation is intended primarily for the
protection of depositors.
Dividend Restrictions
Under New Jersey corporate law, cash dividends and other distributions
by Midland with respect to its stock are subject to declaration by its Board of
Directors at its discretion out of net assets. Dividends cannot be declared and
paid when such payment would make Midland insolvent or unable to pay its debts
as they come due.
Federal Reserve Board policy prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowings or other
arrangements that might adversely affect the holding company's financial
position. The policy further declares that a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and
overall financial condition. Other Federal Reserve Board policies forbid the
payment by bank subsidiaries to their parent companies of management fees which
are unreasonable in amount or exceed a fair market value of the services
rendered (or, if no market exists, actual costs plus a reasonable profit).
Midland's sole source of income and funds are dividends paid by Midland
Bank. The ability of Midland Bank to pay dividends is subject to New Jersey
banking law and to the powers of the Federal Reserve Board. Under New Jersey
banking law, Midland Bank may not, without the approval of the Commissioner,
declare dividends in any one calendar year unless its surplus is greater than
50% of its common stock equity. The ability of Midland Realty and Midpar to pay
dividends to Midland Bank is subject to the NJBCA.
In addition, the Federal Reserve Board has the authority to prohibit
banks regulated by it from engaging in practices which in its opinion are unsafe
or unsound. Such practices could include the payment of dividends under some
circumstances. Moreover, the payment of dividends may be inconsistent with
capital adequacy guidelines of the various regulatory authorities.
Under federal and state law, Midland may be subject to assessment to
restore the capital of Midland Bank should it become impaired.
Capital Requirements
Midland is subject to the minimum capital requirements of the Federal
Reserve Board and the FDIC. As a result of these requirements, the growth in
assets of Midland is limited by the amount of its capital account as defined by
the regulatory agencies. Capital requirements may have an effect on
profitability and the payment of dividends by Midland. If Midland is unable to
increase its assets without violating the minimum capital requirements or is
forced to reduce assets, its ability to generate earnings would be reduced.
The Federal Reserve Board and the FDIC have adopted guidelines
utilizing a risk-based capital structure. These guidelines apply on a
consolidated basis to bank holding companies with consolidated assets of $150
million or more. For bank holding companies with less than $150 million in
consolidated assets, the guidelines apply on a bank-only basis unless the
holding company is engaged in non-bank activity involving significant leverage
or has a significant amount of outstanding debt that is held by the general
public. Midland currently has consolidated assets of more than $150 million;
accordingly, the risk-based capital guidelines apply to Midland.
The risk-based guidelines require Midland to maintain a level of
capital based primarily on the risk of its assets and off-balance sheet items
which are placed in one of four risk categories. Assets in the first category,
such as cash, have no risk and therefore carry a zero percent risk-weight and
require no capital support. Capital support is required for assets in the
remaining three risk categories -- those categories having a risk-weight of 20%,
50% and 100%, respectively. A financial institution's risk-based capital ratio
is calculated by dividing its qualifying total capital base by its risk-weighted
assets. Qualifying capital is divided into two tiers. Core capital (Tier 1)
consists of common shareholders' equity capital, non-cumulative perpetual
preferred stock and minority interests in equity capital accounts of
consolidated subsidiaries, less goodwill and other intangible assets.
Supplementary capital (Tier 2) consists of items such as allowance for possible
loan and lease losses, cumulative and limited-life preferred stock, mandatory
convertible securities and subordinated debt. Tier 2 capital qualifies as a part
of total capital up to a maximum of 100% of Tier 1 capital. Amounts in excess of
these limits may be issued but are not included in the calculation of the
risk-based capital ratio.
Under current guidelines, Midland must maintain a risk-based capital
ratio of 8%, of which at least 4 % must be in the form of core capital.
Midland's ratios of Tier 1 and total capital to risk-weighted assets were 11.55%
and 12.80% at September 30, 1996.
The purposes of the risk-based capital guidelines are twofold -- to
make capital requirements more sensitive to differences in risk profiled among
banking organizations, and to aid in making the definition of bank capital
uniform internationally. To achieve these purposes, the guidelines recognize the
riskiness of assets by lowering capital requirements for some assets that
clearly have less risk than others, and they recognize that there are risks
inherent in off-balance sheet activities. The guidelines require that banking
organizations hold capital to support such activities. In addition, the
guidelines establish a definition of capital and minimum risk-based capital
standards which are consistent on an international basis and that place a
greater emphasis on equity capital.
The federal regulatory agencies have also adopted a minimum leverage
ratio which is intended to supplement risk-based capital requirements and to
insure that all financial institutions continue to maintain a minimum level of
capital. Current regulations stipulate that banks maintain a minimum level of
Tier 1 capital to total assets. The most highly rated banks in terms of safe and
sound operation that are not experiencing or anticipating significant growth are
required to have Tier 1 capital equal to at least 3% of total assets. All other
banks are expected to maintain a minimum leverage capital ratio (i.e., Tier 1
capital divided by total assets) in excess of the 3% minimum level. The FDIC
regulations require a financial institution to maintain a minimum ratio of 4% to
5%, depending on the condition of the institution. Midland's leverage ratio was
8.11% at September 30, 1996.
Governmental Monetary Policies and Economic Conditions
The principal sources of funds essential to the business of banks and
bank holding companies are deposits, stockholders' equity and borrowed funds.
The availability of these and other potential sources of funds, such as
preferred stock or commercial paper, and the extent to which they are utilized
depends on many factors, the most important of which are the Federal Reserve
Board's monetary policies and the relative costs of different types of funds. An
important function of the Federal Reserve Board is to regulate the national
supply of bank credit in order to combat recession and curb inflationary
pressure. Among the instruments of monetary policy used by the Federal Reserve
Board to implement these objectives are open market operations in United States
Government securities, changing the discount rate on bank borrowings, and
changing reserve requirements against bank deposits. The monetary policies of
the Federal Reserve Board have had a significant impact on the operating results
of commercial banks in the past and are expected to continue to do so in the
future. In view of the recent changes in regulations affecting commercial banks
and other actions and proposed actions by the federal government and its
monetary and fiscal authorities, including proposed changes in the structure of
banking in the United States, no prediction can be made as to future changes in
interest rates, credit availability, deposit levels, the overall performance of
banks generally or of Midland.
Recent Legislation and Regulatory Action
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
was enacted by Congress in September of 1994. Under the Act, beginning on
September 29, 1995, bank holding companies could acquire banks in any state,
notwithstanding contrary state law, and all banks commonly owned by a bank
holding company could act as agents for one another. An agent bank can receive
deposits, renew time deposits, accept payments and close and service loans for
its principal bank, but will not be considered a branch of that principal bank.
A bank may also merge with a bank in another state and operate either
office as a branch, notwithstanding pre-existing contrary state law. This law
becomes automatically effective in all states on June 1, 1997, unless (1) the
law becomes effective in a given state at any earlier date selected by
legislation in that state; or (2) the law does not become effective at all in a
given state because by legislation enacted before June 1, 1997, that state opts
out of coverage by the interstate merger provision. Upon consummation of an
interstate merger, the resulting bank may acquire or establish branches on the
same basis that any participant in the merger could have if the merger had not
taken place.
Banks may also merge with branches of banks in other states without
merging with the banks themselves, or may establish de novo branches in other
states, if the laws of the other states expressly permit such mergers or such
interstate de novo branching.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF MIDLAND
On December 13, 1996, there were 129,220 shares of Midland's Common
Stock outstanding, including 3,962 Treasury shares, held of record by 227
shareholders. Only shareholders of record as of December 13, 1996, shall be
entitled to vote at the Special Meeting and each share is entitled to one vote.
As of December 13, 1996, Midland's Board of Directors and affiliated entities
owned or controlled approximately 61% of the outstanding shares of Midland
Common Stock. Each director has indicated his intention to vote in favor of the
Merger Agreement.
The following table sets forth information with respect to the
beneficial ownership of Midland Common Stock as of September 30, 1996, and the
number and percentage of outstanding shares of Valley Common Stock into which
such shares would be converted in the Merger, by (i) each person known by
Midland to own beneficially more than 5% of the outstanding Midland Common
Stock, (ii) each current director of Midland, and (iii) all executive officers
and directors of Midland as a group. Except as otherwise indicated, each of the
persons named below has sole voting and investment power with respect to the
Midland Common Stock owned by them.
<TABLE>
<CAPTION>
Amount and Nature of Shares of Valley Percent of Valley
Beneficial Ownership of Common Stock to be Common Stock to be
Name of Beneficial Owner Midland Common Stock Percent of Class Received held Post Merger
- ------------------------ -------------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Norwood Associates II 68,923(1) 50.9% 2,067,690 5.2%
c/o Graham O. Jones
45 Essex Street
Hackensack, NJ 07601
Graham O. Jones 68,958(1) 50.9% 2,068,740 5.2%
200 Lincoln Street
Englewood, NJ
Walter H. Jones, III 68,958(1) 50.9% 2,068,740 5.2%
401 Morrow Road
Englewood, NJ
Susan H. Jones 68,923(1) 50.9% 2,067,690 5.2%
2906 N Street, N.W.
Washington, DC
Deborah R. J. Boillot 68,923(1) 50.9% 2,067,690 5.2%
44 Coronation Road West
02-01 Astrid Meadows
Singapore
P. Russell Bodrato 298 * 8,940 *
Burton B. Goldmeier 5,659(2) 4.5% 169,770 *
Robert M. Meyer 5,111(3) 4.1% 153,330 *
Richard L. Nelson 254 * 7,620 *
Theodore L. Peasley 162 * 4,860 *
James R. Poole 536(4) * 16,080 *
Richard H. Weisinger 103 * 3,090 *
Charles E. Williams 50(5) * 1,500 *
All executive officers and
directors as a group (11
persons) 82,425(6) 60.8% 2,472,750 6.2%
- ------------------------
* Less than 1 percent.
(1) Includes 68,923 shares held by Norwood Associates II, a New Jersey partnership whose partners are siblings
Walter H. Jones, III, Graham O. Jones, Susan H. Jones and Deborah R. J. Boillot.
(2) Includes 1,100 shares held by Mr. Goldmeier's spouse.
(3) Includes 5,000 shares issuable pursuant to options exercisable within 60 days of December 13, 1996.
(4) Includes 520 shares held by an IRA in Mr. Poole's name.
(5) Includes 15 shares held jointly by Mr. Williams and his spouse.
(6) Includes 6,250 shares issuable pursuant to options exercisable within 60 days of December 13, 1996.
</TABLE>
CERTAIN TRANSACTIONS OF MIDLAND
Midland Bank has had banking transactions in the ordinary course of its
business with directors, officers, principal shareholders and their associates
on the same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with unaffiliated
parties. To the extent that such transactions consisted of extensions of credit,
they did not, in the opinion of management, involve more than a normal risk of
collectibility or present other unfavorable features. As of September 30, 1996,
Midland's directors and executive officers were indebted to Midland Bank in the
aggregate amount of $11,780,000, none of which such loans were delinquent. This
indebtedness is secured by mortgages and/or security interests in real or
personal property owned by these persons.
In addition, in the first nine months of 1996 Midland paid
approximately $150,000 for legal services to a law firm whose partner is Graham
O. Jones, a director and shareholder of Midland. In the opinion of management,
such charges are reasonable in relation to the services provided and are
consistent with those that would have been received from non-affiliated counsel.
DESCRIPTION OF VALLEY COMMON STOCK
The authorized capital stock of Valley consists of 75,000,000 shares of
common stock, of which 36,366,749 shares were issued and outstanding as of
September 30, 1996.
General
Valley is a New Jersey general business corporation governed by the New
Jersey Business Corporation Act and a registered bank holding company under the
Bank Holding Company Act. The following description of Valley Common Stock sets
forth certain general terms of Valley Common Stock.
Dividend Rights
Holders of Valley Common Stock are entitled to dividends when, as and
if declared by the Board of Directors of Valley out of funds legally available
for the payment of dividends. The only statutory limitation is that such
dividends may not be paid when Valley is insolvent. Because funds for the
payment of dividends by Valley must come primarily from the earnings of Valley's
bank subsidiary, as a practical matter, any restrictions on the ability of VNB
to pay dividends will act as restrictions on the amount of funds available for
payment of dividends by Valley.
As a national banking association, VNB is subject to limitations on the
amount of dividends it may pay to Valley, VNB's only shareholder. Prior approval
by the OCC is required to the extent the total of all dividends to be declared
by VNB in any calendar year exceeds net profits, as defined, for that year
combined with VNB's retained net profits from the preceding two calendar years,
less any transfers to capital surplus. Under this limitation, VNB could declare
dividends in 1996 without prior approval of the OCC of up to $52.1 million plus
an amount equal to VNB's net profits for 1996 to the date of such dividend
declaration.
Valley is also subject to the certain Federal Reserve Board policies
which may, in certain circumstances, limit its ability to pay dividends. These
policies require, among other things, that a bank holding company maintain a
minimum capital base. The Federal Reserve Board would most likely seek to
prohibit any dividend payment which would reduce a holding company's capital
below these minimum amounts.
Voting Rights
At meetings of shareholders, holders of Valley Common Stock are
entitled to one vote per share. The quorum for shareholders' meeting is a
majority of the outstanding shares. Generally, actions and authorizations to be
taken or given by shareholders require the approval of a majority of the votes
cast by holders of Valley Common Stock at a meeting at which a quorum is
present.
Liquidation Rights
In the event of liquidation, dissolution or winding up of Valley,
holders of Valley Common Stock are entitled to share equally and ratably in
assets available for distribution after payment of debts and liabilities.
Assessment and Redemption
All outstanding shares of Valley Common Stock are fully paid and
nonassessable. The Valley Common Stock is not redeemable at the option of the
issuer or the holders thereof.
Other Matters
The transfer agent and registrar for Valley Common Stock is presently
American Stock Transfer and Trust Company. Valley Common Stock is traded on the
New York Stock Exchange, and is registered with the Commission under Section
12(b) of the Exchange Act.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF VALLEY AND MIDLAND
Valley and Midland are each business corporations incorporated in New
Jersey under the New Jersey Business Corporation Act (the "NJBCA"). At the
Effective Time, each Midland shareholder will become a shareholder of Valley.
The following is a comparison of certain provisions of Valley's and Midland's
respective Certificates of Incorporation and bylaws. This summary does not
purport to be complete and is qualified in its entirety by reference to the
Banking Act and the NJBCA, which statutes may change from time to time, and the
Certificate of Incorporation of Valley, which also may be changed.
Voting Requirements
Under the NJBCA, unless a greater vote is specified in the certificate
of incorporation, any amendment to a New Jersey corporation's certificate of
incorporation, the voluntary dissolution of the corporation, the sale or other
disposition of all or substantially all of a corporation's assets otherwise than
in the ordinary course of business or the merger or consolidation of the
corporation with another corporation, requires in each case the affirmative vote
of a majority of the votes cast by shareholders of the corporation entitled to
vote thereon. Neither Valley's nor Midland's Certificate of Incorporation
presently contains provisions specifying a greater vote in certain
circumstances. All shareholder voting rights of Valley are vested in the holders
of Valley Common Stock and all shareholder voting rights of Midland are vested
in the holders of Midland Common Stock.
Cumulative Voting
Under the NJBCA, shareholders of a New Jersey corporation do not have
cumulative voting rights in the election of directors unless the certificate of
incorporation so provides. Neither Valley's Certificate of Incorporation nor
Midland's Certificate of Incorporation presently provide for cumulative voting.
Classified Board of Directors
The NJBCA permits a New Jersey corporation to provide for a classified
board in its certificate of incorporation. Neither the Certificate of
Incorporation of Valley nor the Certificate of Incorporation of Midland provide
for a classified Board of Directors. The entire Board of each entity is elected
each year.
Shareholder Consent to Corporate Action
Except as otherwise provided by the certificate of incorporation (and
neither Valley's nor Midland's Certificate of Incorporation provides otherwise)
the NJBCA permits any action required or permitted to be taken at any meeting of
a corporation's shareholders, other than the annual election of directors, to be
taken without a meeting upon the written consent of shareholders who would have
been entitled to cast the minimum number of votes necessary to authorize such
action at a meeting of shareholders at which all shareholders entitled to vote
were present and voting. The annual election of directors, if not conducted at a
shareholders' meeting, may only be effected by unanimous written consent. Under
the NJBCA, a shareholder vote on a plan of merger or consolidation, if not
conducted at a shareholders' meeting, may only be effected by either: (i)
unanimous written consent of all shareholders entitled to vote on the issue with
advance notice to any other shareholders, or (ii) written consent of
shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize such action at a meeting, together with advance notice to
all other shareholders.
Dividends
Unless there are other restrictions contained in its certificate of
incorporation (and neither Valley's Certificate of Incorporation nor Midland's
Certificate of Incorporation presently contain any such restriction), the NJBCA
generally provides that a New Jersey corporation may declare and pay dividends
on its outstanding stock so long as the corporation is not insolvent and would
not become insolvent as a consequence of the dividend payment. Because funds for
the payment of dividends by Valley must come primarily from the earnings of
Valley's bank subsidiary, as a practical matter, any restrictions on the ability
of VNB to pay dividends act as restrictions on the amount of funds available for
the payment of dividends by Valley. At September 30, 1996, Valley had $52.1
million available for shareholder dividends. For a description of the regulatory
restrictions on dividend payments by VNB, see "Description of Valley Capital
Stock -- Dividend Rights."
By-laws
Under the NJBCA, the board of directors of a New Jersey corporation has
the power to adopt, amend, or repeal the corporation's by-laws, unless such
powers are reserved in the certificate of incorporation to the shareholders.
Neither Valley's Certificate of Incorporation nor Midland's Certificate of
Incorporation presently reserve such powers to shareholders.
Limitations of Liability of Directors and Officers
Under the NJBCA, a New Jersey corporation may include in its
certificate of incorporation a provision which would, subject to the limitations
described below, eliminate or limit directors' or officers' liability to the
corporation or bank, as the case may be, or to its shareholders, for monetary
damage for breaches of their fiduciary duty of care. A director or officer
cannot be relieved from liability or otherwise indemnified for any breach of
duty based upon an act or omission (i) in breach of such person's duty of
loyalty to the entity or its shareholders, (ii) not in good faith or involving a
knowing violation of law, or (iii) resulting in receipt by such person of an
improper personal benefit. Both Valley's and Midland's Certificates of
Incorporation contain provisions which limit a director's or officer's liability
to the full extent permitted by New Jersey law.
LEGAL OPINION
Certain legal matters relating to the issuance of the shares of Valley
Common Stock offered hereby and certain tax consequences of the Merger will be
passed upon by Pitney, Hardin, Kipp & Szuch, counsel to Valley. Attorneys in the
law firm of Pitney, Hardin, Kipp & Szuch beneficially owned 5,244 shares of
Valley Common Stock and 300 shares of Midland Common Stock as of November 15,
1996.
EXPERTS
The consolidated financial statements of Midland as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995 have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The report of KPMG Peat Marwick LLP with respect to Midland for the
years ended December 31, 1995 and 1994 refers to Midland's adoption in 1994 of
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Additionally, as discussed in notes 1 and 9 to the
consolidated financial statements, Midland changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes".
The consolidated financial statements of Valley as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995 have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP with respect to Valley for the
years ended December 31, 1995 and 1994 refers to Valley's adoption of provisions
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1994 and Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" in 1993.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 13,
1996 ("Agreement"), is among Valley National Bancorp, a New Jersey corporation
and registered bank holding company ("Valley"), Valley National Bank, a national
banking association ("VNB"), Midland Bancorporation, Inc., a New Jersey
corporation and registered bank holding company ("Midland") and Midland Bank, a
bank chartered under the laws of New Jersey (the "Bank").
WHEREAS, Valley desires to acquire Midland and Midland's Board
of Directors has determined, based upon the terms and conditions hereinafter set
forth, that the acquisition is in the best interests of Midland and its
stockholders. The acquisition will be accomplished by merging Midland into
Valley with Valley as the surviving corporation and, at the same time, merging
the Bank into VNB with VNB as the surviving bank, and Midland shareholders
receiving the consideration hereinafter set forth. The Boards of Directors of
Midland, Valley, the Bank and VNB have duly adopted and approved this Agreement
and the Board of Directors of Midland has directed that it be submitted to its
shareholders for approval.
WHEREAS, as a condition precedent to entering into this
Agreement, Valley has required that Midland grant it an option to purchase
35,000 shares of Midland's authorized but unissued common stock and, as a
consequence, Valley and Midland have entered into a Stock Option Agreement,
dated the date hereof (the "Valley Stock Option").
NOW, THEREFORE, intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereafter defined), Midland shall be merged
with and into Valley (the "Merger") in accordance with the New Jersey Business
Corporation Act and Valley shall be the surviving corporation (the "Surviving
Corporation"). Immediately following the Effective Time, the Bank shall be
merged with and into VNB as provided in Section 1.7 hereof.
1.2. Effect of the Merger. At the Effective Time (as hereafter
defined), the Surviving Corporation shall be considered the same business and
corporate entity as each of Midland and Valley and thereupon and thereafter, all
the property, rights, powers and franchises of each of Midland and Valley shall
vest in the Surviving Corporation and the Surviving Corporation shall be subject
to and be deemed to have assumed all of the debts, liabilities, obligations and
duties of each of Midland and Valley and shall have succeeded to all of each of
their relationships, fiduciary or otherwise, as fully and to the same extent as
if such property rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Corporation.
1.3. Certificate of Incorporation. The certificate of
incorporation of Valley as it exists immediately prior to the Effective Time
shall not be amended by the Merger, but shall continue as the certificate of
incorporation of the Surviving Corporation until otherwise amended as provided
by law.
1.4. Bylaws. The bylaws of Valley as they exist immediately
prior to the Effective Date shall continue as the by-laws of the Surviving
Corporation until otherwise amended as provided by law.
1.5. Directors and Officers. The directors and officers of
Valley as of the Effective Time shall continue as the directors and officers of
the Surviving Corporation with the additions provided for in Section 5.15
hereof.
1.6. Effective Time and Closing. The Merger shall become
effective (and be consummated) upon the effective time specified in the
certificate of merger (the "Certificate of Merger") filed with the New Jersey
Secretary of State. The term "Effective Time" shall mean the date and time when
the Certificate of Merger as so filed becomes effective. A closing (the
"Closing") shall take place prior to the Effective Time at 10:00 a.m., February
28, 1997, or, if later than February 28, 1997, on the tenth business day
following the receipt of all necessary regulatory and governmental approvals and
consents and the expiration of all statutory waiting periods in respect thereof
and the satisfaction or waiver of the conditions to the consummation of the
Merger specified in Article VI hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing), at
Valley's main office, or at such other place, time or date as Valley and Midland
may mutually agree upon. Immediately following the Closing, the Certificate of
Merger shall be filed with the New Jersey Secretary of State and it shall become
effective at the opening of business on the next business day.
1.7. The Bank Merger. Immediately following the Effective
Time, the Bank shall be merged with and into VNB (the "Bank Merger") in
accordance with the provisions of the National Bank Act and the New Jersey
Banking Act of 1948, as amended, and VNB shall be the surviving bank (the
"Surviving Bank"). Upon the consummation of the Bank Merger, the separate
existence of the Bank shall cease and the Surviving Bank shall be considered the
same business and corporate entity as each of the Bank and VNB and all of the
property, rights, powers and franchises of each of the Bank and VNB shall vest
in the Surviving Bank and the Surviving Bank shall be deemed to have assumed all
of the debts, liabilities, obligations and duties of each of the Bank and VNB
and shall have succeeded to all of each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property rights,
privileges, powers, franchises, debts, obligations, duties and relationships had
been originally acquired, incurred or entered into by the Surviving Bank. Upon
the consummation of the Bank Merger, the articles of association and bylaws of
VNB shall become the articles of association and bylaws of the Surviving Bank
and the officers, employees and directors of VNB and the officers and employees
of the Bank shall be the officers, employees and directors of the Surviving Bank
with such additions from the directors of Midland as specified herein. In
connection with the execution of this Agreement, the Bank and VNB shall execute
and deliver a separate merger agreement (the "Bank Merger Agreement") in the
form of Appendix A, annexed hereto, for delivery to the OCC (as hereafter
defined) and the Commissioner (as hereafter defined) for approval of the Bank
Merger.
ARTICLE II
CONVERSION OF MIDLAND SHARES
2.1. Conversion of Midland Shares and Options. Each share of
common stock, $15.00 par value, of Midland ("Midland Common Stock"), issued and
outstanding immediately prior to the Effective Time other than Excluded Shares
(as defined in Section 2.4 hereof), and each validly outstanding option to
purchase Midland Common Stock, shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted, paid or canceled as
follows:
(a) Midland Common Stock. Each share of Midland Common Stock
shall be converted into and represent the right to receive 30.00 (the "Exchange
Ratio") shares of Valley's common stock, no par value ("Valley Common Stock"),
subject to adjustments as set forth in this subsection 2.1(a).
(i) The Exchange Ratio and the Average Closing Price (as
hereafter defined) shall be appropriately adjusted for any stock split, stock
dividend, stock combination, reclassification or similar transaction ("Capital
Change") effected by Valley with respect to Valley Common Stock between the date
hereof and the Effective Time. The parties shall mutually agree upon such
adjustment in writing or, if unable to agree, shall arbitrate the dispute, using
a mutually agreed upon arbitrator whose decision shall be final and
non-appealable.
(ii) No fractional shares of Valley Common Stock will be
issued, and in lieu thereof, each holder of Midland Common Stock who would
otherwise be entitled to a fractional interest will receive an amount in cash
determined by multiplying such fractional interest by the Average Closing Price
(as hereafter defined).
(iii) The "Average Closing Price" shall mean the average price
of Valley Common Stock calculated based upon the closing price during the first
10 of the 15 consecutive trading days immediately preceding the Closing. The
Average Closing Price shall be determined by (x) first, recording the closing
price (the "Daily Price") of Valley Common Stock reported on the New York Stock
Exchange and published in The Wall Street Journal during the first 10 of the 15
consecutive trading days immediately preceding the Closing; and (y) second,
computing the average of the Daily Prices in the 10 day period.
(b) Midland Stock Options. At the Effective Time, each
outstanding option to purchase Midland Common Stock (a "Midland Option") granted
under the Stock Option Plans of Midland (the "Midland Option Plans") shall be
converted, at the election of the holder of such Midland Option (an "optionee"),
as follows:
(i) into an option to purchase Valley Common Stock, wherein
(x) the right to purchase shares of Midland Common Stock pursuant to the Midland
Option shall be converted into the right to purchase that same number of shares
of Valley Common Stock multiplied by the Exchange Ratio, (y) the option exercise
price per share of Valley Common Stock shall be the previous option exercise
price per share of the Midland Common Stock divided by the Exchange Ratio and
(z) in all other material respects the option shall be subject to the same terms
and conditions as governed the Midland Option on which it was based, including
the length of time within which the option may be exercised and for any options
which are "incentive stock options" (as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), the adjustments shall be and are
intended to be effected in a manner which is consistent with Section 424(a) of
the Code; or
(ii) if the Midland Option is fully vested at the Closing,
into the right to receive immediately after the Effective Time a number of whole
shares of Valley Common Stock equal to {(x) the amount determined by multiplying
(A) the number of shares of Midland Common Stock covered by the Midland Option,
times (B) the Exchange Ratio, times (C) the Average Closing Price, minus (y) the
aggregate exercise price for the Midland Option} (z) divided by the Average
Closing Price. No fractional shares of Valley Common Stock shall be issued
pursuant to this Section 2.1(b)(ii), and in lieu thereof, each optionee who
would otherwise be entitled to a fractional interest will receive an amount in
cash determined by multiplying such fractional interest by the Average Closing
Price.
2.2. Exchange of Shares.
(a) Midland and Valley hereby appoint Valley National Bank,
Trust Department (the "Exchange Agent") as the Exchange Agent for purposes of
effecting the conversion of Midland Common Stock and Midland Options. As soon as
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record (a "Record Holder") of a certificate or certificates which,
immediately prior to the Effective Time represented outstanding shares of
Midland Common Stock (the "Certificates"), a mutually agreed upon letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent), and instructions for use in effecting the
surrender of the Certificates in exchange for Valley Common Stock (and cash in
lieu of fractional shares) as provided in Section 2.1 hereof.
(b) Upon surrender of a Certificate for exchange and
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the Record Holder shall be entitled to promptly receive in
exchange for such Certificate the consideration as provided in Section 2.1
hereof and the Certificates so surrendered shall be canceled. The Exchange Agent
shall not be obligated to deliver or cause to be delivered to any Record Holder
the consideration to which such Record Holder would otherwise be entitled until
such Record Holder surrenders the Certificate for exchange or, in default
thereof, an appropriate Affidavit of Loss and Indemnity Agreement and/or a bond
as may be reasonably required in each case by Valley. Notwithstanding the time
of surrender of the Certificates, Record Holders shall be deemed shareholders of
Valley for all purposes from the Effective Time, except that Valley shall
withhold the payment of dividends from any Record Holder until such Record
Holder effects the exchange of Certificates for Valley Common Stock. (Such
Record Holder shall receive such withheld dividends, without interest, upon
effecting the share exchange.)
(c) After the Effective Time, there shall be no transfers on
the stock transfer books of Midland of the shares of Midland Common Stock which
were outstanding immediately prior to the Effective Time and, if any
Certificates representing such shares are presented for transfer, they shall be
canceled and exchanged for the consideration as provided in Section 2.1 hereof.
(d) If payment of the consideration pursuant to Section 2.1
hereof is to be made in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
payment that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such payment shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
payment to a person other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(e) With respect to each outstanding Midland Option the
Exchange Agent shall, 10 days prior to Closing, distribute option election forms
to each optionee and, upon receipt from the optionee of a properly completed
option election, shall after the Effective Time distribute to the optionee
Valley Common Stock or an amendment to the option grant evidencing the
conversion of the grant to an option to purchase Valley Common Stock in
accordance with Section 2.1 hereof.
2.3. No Dissenters' Rights. Consistent with the provisions of
the New Jersey Business Corporation Act, no shareholder of Midland shall have
the right to dissent with respect to the Merger.
2.4. Excluded Shares. Each share of Midland Common Stock (i)
which is held by Midland as treasury stock or (ii) which is held by Bank or any
other direct or indirect subsidiary of Bank (except as trustee or in a fiduciary
capacity) or (iii) which is held by Valley, shall be canceled and retired at the
Effective Time.
2.5. Valley Shares. The shares of Valley Common Stock
outstanding at the Effective Time shall not be affected by the Merger, but along
with the additional shares of Valley Common Stock to be issued as provided in
Section 2.1 hereof, shall become the outstanding common stock of the Surviving
Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MIDLAND
References herein to "Midland Disclosure Schedule" shall mean
all of the disclosure schedules required by this Article III, dated as of the
date hereof and referenced to the specific sections and subsections of Article
III of this Agreement, which have been delivered on the date hereof by Midland
to Valley. Midland hereby represents and warrants to Valley as follows:
3.1. Corporate Organization.
(a) Midland is a corporation duly organized, validly existing
and in good standing under the laws of the State of New Jersey. Midland has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations, assets or financial
condition of Midland on a consolidated basis. Midland is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended ("BHCA").
(b) Each of the Subsidiaries of Midland are listed in the
Midland Disclosure Schedule. The term "Subsidiary", when used in this Agreement
with respect to Midland, means any corporation, joint venture, association,
partnership, trust or other entity in which Midland has, directly or indirectly
at least a 50% interest or acts as a general partner. Each Subsidiary of Midland
is duly organized, validly existing and in good standing under the laws of its
state of incorporation. The Bank is a New Jersey commercial bank whose deposits
are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") to the fullest extent permitted by law. Each Subsidiary of
Midland has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a material adverse effect on the business, operations, assets or
financial condition of Midland and its Subsidiaries. The Midland Disclosure
Schedule sets forth true and complete copies of the Certificate of Incorporation
and Bylaws of Midland and each Midland Subsidiary as in effect on the date
hereof. Except as set forth in the Midland Disclosure Schedule, Midland does not
own or control, directly or indirectly, any equity interest in any corporation,
company, association, partnership, joint venture or other entity and owns no
real estate, except (i) residential real estate acquired through foreclosure or
deed in lieu of foreclosure in each individual instance with a fair market value
less than $500,000 and (ii) real estate used for its banking premises.
3.2. Capitalization. The authorized capital stock of Midland
consists solely of 300,000 shares of Midland Common Stock. As of June 30, 1996,
there were 125,294 shares of Midland Common Stock issued and outstanding, net of
3,926 shares issued and held in the treasury. As of August 31, 1996, there were
10,150 shares of Midland Common Stock issuable upon exercise of outstanding
Midland Options (the "Option Shares") granted to, officers of the Bank pursuant
to the Midland Option Plan. The Midland Disclosure Schedule sets forth true and
complete copies of the Midland Option Plans and of each outstanding Midland
Option. All issued and outstanding shares of Midland Common Stock, and all
issued and outstanding shares of capital stock of each Midland Subsidiary, have
been duly authorized and validly issued, are fully paid, and nonassessable. The
authorized capital stock of the Bank consists of 331,125 shares of common stock,
$5.00 par value. All of the outstanding shares of capital stock of each Midland
Subsidiary are owned by Midland and are free and clear of any liens,
encumbrances, charges, restrictions or rights of third parties. Except for the
Midland Options and the Valley Stock Option, neither Midland nor any Midland
Subsidiary has or is bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the transfer,
purchase or issuance of any shares of capital stock of Midland or any Midland
Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of such capital stock or any securities convertible into or
representing the right to purchase or subscribe for any such shares, and there
are no agreements or understandings with respect to voting of any such shares.
3.3. Authority; No Violation.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by the shareholders of Midland, and subject to
the parties obtaining all necessary regulatory approvals, Midland and the Bank
have full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby in accordance with the
terms hereof. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly approved by
the Board of Directors of each of Midland and the Bank. The execution and
delivery of the Bank Merger Agreement has been duly and validly approved by the
Board of Directors of the Bank. Except for the approvals described in paragraph
(b) below, no other corporate proceedings on the part of Midland or the Bank are
necessary to consummate the transactions contemplated hereby (except for the
approval by Midland of the Bank Merger Agreement). This Agreement has been duly
and validly executed and delivered by Midland and the Bank, and constitutes
valid and binding obligations of Midland and the Bank, enforceable against
Midland and the Bank in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
Midland and the Bank, nor the consummation by Midland and the Bank of the
transactions contemplated hereby in accordance with the terms hereof, or
compliance by Midland and the Bank with any of the terms or provisions hereof,
will (i) violate any provision of Midland's or the Bank's Certificate of
Incorporation or other governing instrument or Bylaws, (ii) assuming that the
consents and approvals set forth below are duly obtained, violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Midland or the Bank or any of their respective properties or
assets, or (iii) except as set forth in the Midland Disclosure Schedule,
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the respective properties or
assets of Midland or the Bank under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which Midland or the Bank is a party, or by
which either or both of them or any of their respective properties or assets may
be bound or affected except, with respect to (ii) and (iii) above, such as
individually and in the aggregate will not have a material adverse effect on the
business, operations, assets or financial condition of Midland and its
Subsidiaries on a consolidated basis, and which will not prevent or delay the
consummation of the transactions contemplated hereby. Except for consents and
approvals of or filings or registrations with or notices to the Comptroller of
the Currency ("OCC"), the Commissioner of Banking of the State of New Jersey
(the "Commissioner"), the Board of Governors of the Federal Reserve System
("FRB"), the Securities and Exchange Commission ("SEC"), applicable state
securities bureaus or commissions, the New Jersey Secretary of State, and the
shareholders of Midland, no consents or approvals of or filings or registrations
with or notices to any third party or any public body or authority are necessary
on behalf of Midland or the Bank in connection with (x) the execution and
delivery by Midland and the Bank of this Agreement and (y) the consummation by
Midland and the Bank of the transactions contemplated hereby and (z) the
execution and delivery by the Bank of the Bank Merger Agreement and the
consummation by the Bank of the transactions contemplated thereby.
3.4. Financial Statements.
(a) The Midland Disclosure Schedule sets forth copies of the
consolidated statements of condition of Midland as of December 31, 1993, 1994
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for the periods ended December 31 in each of the three
years 1993 through 1995, in each case accompanied by the audit report of KPMG
Peat Marwick, LLP, independent public accountants with respect to Midland, and
the unaudited consolidated statements of condition and related consolidated
statements of income, stockholders' equity and cash flows of Midland for the six
months ended June 30, 1996 (collectively, the "Midland Financial Statements").
The Midland Financial Statements (including the related notes) have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, and fairly present the
consolidated financial condition of Midland as of the respective dates set forth
therein, and the related consolidated statements of income, stockholders' equity
and cash flows fairly present the results of the consolidated operations,
stockholders' equity and cash flows of Midland for the respective periods set
forth therein.
(b) The books and records of Midland and its Subsidiaries have
been and are being maintained in material compliance with applicable legal and
accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the Midland Financial Statements (including the notes
thereto), as of June 30, 1996 neither Midland nor any of its Subsidiaries had
any material liabilities, whether absolute, accrued, contingent or otherwise
material to the business, operations, assets or financial condition of Midland
or any of its Subsidiaries. Since June 30, 1996 and to the date hereof, neither
Midland nor any of its Subsidiaries have incurred any material liabilities
except in the ordinary course of business and consistent with prudent banking
practice, except as specifically contemplated by this Agreement.
3.5. Brokerage Fees. Neither Midland nor any of its
Subsidiaries nor any of their respective directors or officers has employed any
broker or finder or incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement. Midland has employed Capital Consultants of Princeton, Inc. ("Capital
Consultants") to render a fairness opinion on its behalf. There are no fees
(other than time charges billed at usual and customary rates) payable to any
consultants, including lawyers and accountants, in connection with this
transaction or which would be triggered by consummation of this transaction or
the termination of the services of such consultants by Midland or any of its
Subsidiaries other than fees which will be payable by Midland to Capital
Consultants for its fairness opinion. Copies of Midland's agreements with
Capital Consultants are set forth in the Midland Disclosure Schedule.
3.6. Absence of Certain Changes or Events.
(a) There has not been any material adverse change in the
business, operations, assets or financial condition of Midland and its
Subsidiaries on a consolidated basis since June 30, 1996 and to Midland's
knowledge, no facts or conditions exist which Midland believes will cause or is
likely to cause such a material adverse change in the future.
(b) Except as set forth in the Midland Disclosure Schedule,
neither Midland nor any of its Subsidiaries has taken or permitted any of the
actions set forth in Section 5.2 hereof between June 30, 1996 and the date
hereof and Midland and the Midland Subsidiaries have conducted their business
only in the ordinary course, consistent with past practice.
3.7. Legal Proceedings. Except as disclosed in the Midland
Disclosure Schedule, neither Midland nor any of its Subsidiaries is a party to
any, and there are no pending or, to Midland's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against Midland or any of its Subsidiaries. Except
as disclosed in the Midland Disclosure Schedule, neither Midland nor any of its
Subsidiaries is a party to any order, judgment or decree entered against Midland
or any Midland Subsidiary in any lawsuit or proceeding.
3.8. Taxes and Tax Returns.
(a) To its knowledge, Midland and each Midland Subsidiary have
duly filed (and until the Effective Time will so file) all returns,
declarations, reports, information returns and statements ("Returns") required
to be filed by them in respect of any federal, state and local taxes (including
withholding taxes, penalties or other payments required) and each has duly paid
(and until the Effective Time will so pay) all such taxes due and payable, other
than taxes or other charges which are being contested in good faith (and
disclosed to Valley in writing). Midland and each Midland Subsidiary have
established (and until the Effective Time will establish) on their books and
records reserves for the payment of all federal, state and local taxes not yet
due and payable, but incurred in respect of Midland or any Midland Subsidiary
through such date, which reserves are, to the knowledge of Midland, adequate for
such purposes. Except as set forth in the Midland Disclosure Schedule, the
federal income tax returns of Midland and its Subsidiaries have been examined by
the Internal Revenue Service (the "IRS") (or are closed to examination due to
the expiration of the applicable statute of limitations) and no deficiencies
were asserted as a result of such examinations which have not been resolved and
paid in full. Except as set forth in the Midland Disclosure Schedule, the
applicable state income tax returns of Midland and its Subsidiaries have been
examined by the applicable authorities (or are closed to examination due to the
expiration of the statute of limitations) and no deficiencies were asserted as a
result of such examinations which have not been resolved and paid in full. To
the knowledge of Midland, there are no audits or other administrative or court
proceedings presently pending nor any other disputes pending, or claims asserted
for, taxes or assessments upon Midland or any of its Subsidiaries, nor has
Midland or any of its Subsidiaries given any currently outstanding waivers or
comparable consents regarding the application of the statute of limitations with
respect to any taxes or Returns.
(b) Except as set forth in the Midland Disclosure Schedule,
neither Midland nor any of its Subsidiaries (i) has requested any extension of
time within which to file any tax Return which Return has not since been filed,
(ii) is a party to any agreement providing for the allocation or sharing of
taxes, (iii) is required to include in income any adjustment pursuant to Section
481(a) of the Code, by reason of a voluntary change in accounting method
initiated by Midland or any Midland Subsidiary (nor does Midland have any
knowledge that the IRS has proposed any such adjustment or change of accounting
method) or (iv) has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply.
3.9. Employee Benefit Plans. Except as disclosed in the
Midland Disclosure Schedule:
(a) Neither Midland nor any of its Subsidiaries maintains or
contributes to any "employee pension benefit plan", within the meaning of
Section 3(2)(A) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (the "Midland Pension Plans"), "employee welfare benefit
plan", within the meaning of Section 3(1) of ERISA (the "Midland Welfare
Plans"), stock option plan, stock purchase plan, deferred compensation plan,
severance plan, bonus plan, employment agreement or other similar plan, program
or arrangement. Neither Midland nor any of its Subsidiaries has, since September
2, 1974, contributed to any "Multiemployer Plan", within the meaning of Sections
3(37) and 4001(a)(3) of ERISA.
(b) Midland has delivered to Valley in the Midland Disclosure
Schedule a complete and accurate copy of each of the following with respect to
each of the Midland Pension Plans and Midland Welfare Plans: (i) plan document,
summary plan description, and summary of material modifications (if not
available, a detailed description of the foregoing); (ii) trust agreement or
insurance contract, if any; (iii) most recent IRS determination letter, if any;
(iv) most recent actuarial report, if any; and (v) most recent annual report on
Form 5500.
(c) The present value of all accrued benefits under each of
the Midland Pension Plans subject to Title IV of ERISA, based upon the actuarial
assumptions used for purposes of the most recent actuarial valuation prepared by
such Pension Plan's actuary, did not exceed the then current value of the assets
of such plans allocable to such accrued benefits.
(d) During the last five years, the Pension Benefit Guaranty
Corporation (the "PBGC") has not asserted any claim for liability against
Midland or any of its Subsidiaries which has not been paid in full.
(e) All premiums (and interest charges and penalties for late
payment, if applicable) due to the PBGC with respect to each Midland Pension
Plan have been paid. All contributions required to be made to each Midland
Pension Plan under the terms thereof, ERISA or other applicable law have been
timely made, and all amounts properly accrued to date as liabilities of Midland
and its Subsidiaries which have not been paid have been properly recorded on the
books of Midland and its Subsidiaries.
(f) To the knowledge of Midland, each of the Midland Pension
Plans, the Midland Welfare Plans and each other plan and arrangement identified
on the Midland Disclosure Schedule has been operated in compliance in all
material respects with the provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations. Furthermore, the IRS has issued a
favorable determination letter with respect to each of the Midland Pension Plans
and Midland is not aware of any fact or circumstance which would disqualify any
such plan, that could not be retroactively corrected (in accordance with the
procedures of the IRS).
(g) To the knowledge of Midland, within the past two plan
years no non-exempt prohibited transaction, within the meaning of Section 4975
of the Code or Section 406 of ERISA, has occurred with respect to any of the
Midland Welfare Plans or Midland Pension Plans.
(h) No Midland Pension Plan or any trust created thereunder
has been terminated, nor have there been any "reportable events", within the
meaning of Section 4034(b) of ERISA, with respect to any of the Midland Pension
Plans.
(i) To the knowledge of Midland, no "accumulated funding
deficiency", within the meaning of Section 412 of the Code, has been incurred
with respect to any of the Midland Pension Plans.
(j) There are no pending, or, to the knowledge of Midland,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Midland Pension Plans or the Midland Welfare
Plans, any trusts related thereto or any other plan or arrangement identified in
the Midland Disclosure Schedule.
(k) No Midland Pension or Welfare Plan provides medical or
death benefits (whether or not insured) beyond an employee's retirement or other
termination of service, other than (i) coverage mandated by law, or (ii) death
benefits under any Midland Pension Plan.
(l) Except with respect to customary health, life and
disability benefits or as disclosed in the Midland Disclosure Schedule, there
are no unfunded benefits obligations which are not accounted for by reserves
shown on the Midland Financial Statements and established under GAAP, or
otherwise noted on such financial statements.
(m) With respect to each Midland Pension and Welfare Plan that
is funded wholly or partially through an insurance policy, there will be no
liability of Midland or any Midland Subsidiary as of the Effective Time under
any such insurance policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring prior to the Effective Time.
(n) Except as hereafter agreed to by Valley in writing or as
disclosed on the Midland Disclosure Schedule, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee of Midland or any Midland Subsidiary to severance pay or any
similar payment, or (ii) accelerate the time of payment, accelerate the vesting,
or increase the amount, of any compensation due to any current employee or
former employee under any Midland Pension Plan or Midland Welfare Plan.
3.10. Reports.
(a) Each communication mailed by Midland to its stockholders
since January 1, 1993, and each annual, quarterly or special report, proxy
statement or communication, as of its date, complied in all material respects
with all applicable statutes, rules and regulations enforced or promulgated by
the applicable regulatory agency and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
disclosures as of a later date shall be deemed to modify disclosures as of an
earlier date.
(b) Midland and the Bank have, since January 1, 1993, duly
filed with the FDIC and the FRB in correct form in all material respects the
monthly, quarterly and annual reports required to be filed under applicable laws
and regulations, and Midland promptly will deliver or make available to Valley
accurate and complete copies of such reports. The Midland Disclosure Schedule
lists all examinations of Midland or the Bank conducted by either the New Jersey
Department of Banking, FDIC or the FRB since January 1, 1993 and the dates of
any responses thereto submitted by Midland or the Bank.
3.11. Midland and Bank Information. The information relating
to Midland and the Bank to be contained in the Proxy Statement/Prospectus (as
defined in Section 5.6(a) hereof) to be delivered to stockholders of Midland in
connection with the solicitation of their approval of this Agreement and the
transactions contemplated hereby, as of the date the Proxy Statement/Prospectus
is mailed to stockholders of Midland, and up to and including the date of the
meeting of stockholders to which such Proxy Statement/Prospectus relates, will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.12. Compliance with Applicable Law.
(a) General. Except as set forth in the Midland Disclosure
Schedule, each of Midland and the Midland Subsidiaries hold all material
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business under and pursuant to each, and has complied with and is
not in default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any federal, state or local governmental
authority relating to Midland or the Bank (other than where such defaults or
non-compliances will not, alone or in the aggregate, result in a material
adverse effect on the business, operations, assets or financial condition of
Midland and its Subsidiaries on a consolidated basis) and Midland has not
received notice of violation of, and does not know of any violations of, any of
the above.
(b) CRA. Without limiting the foregoing, to its knowledge the
Bank has complied in all material respects with the Community Reinvestment Act
("CRA") and Midland has no reason to believe that any person or group would
object to the consummation of this Merger due to the CRA performance of or
rating of the Bank. Except as listed on the Midland Disclosure Schedule to the
knowledge of the Bank, no person or group has adversely commented upon the
Bank's CRA performance.
3.13. Certain Contracts.
(a) Except as disclosed in the Midland Disclosure Schedule
under this Section or Section 3.5, (i) neither Midland nor any Midland
Subsidiary is a party to or bound by any contract or understanding (whether
written or oral) with respect to the employment or termination of any present or
former officers, employees, directors or consultants. The Midland Disclosure
Schedule sets forth true and correct copies of all employment agreements or
termination agreements with officers, employees, directors, or consultants to
which Midland or any Midland Subsidiary is a party.
(b) Except as disclosed in the Midland Disclosure Schedule,
(i) as of the date of this Agreement, neither Midland nor any Midland Subsidiary
is a party to or bound by any commitment, agreement or other instrument which
contemplates the payment by Midland or any Midland Subsidiary of amounts in
excess of $100,000, or which has a term extending beyond March 1, 1997 and
cannot be terminated by Midland or its subsidiary without consent of the other
party thereto, (ii) no commitment, agreement or other instrument to which
Midland or any Midland Subsidiary is a party or by which any of them is bound
limits the freedom of Midland or any Midland Subsidiary to compete in any line
of business or with any person, and (iii) neither Midland nor any Midland
Subsidiary is a party to any collective bargaining agreement.
(c) Except as disclosed in the Midland Disclosure Schedule,
neither Midland nor any Midland Subsidiary nor, to the knowledge of Midland, any
other party thereto, is in default in any material respect under any material
lease, contract, mortgage, promissory note, deed of trust, loan or other
commitment or arrangement.
3.14. Properties and Insurance.
(a) Midland and its Subsidiaries have good and, as to owned
real property, marketable title to all material assets and properties, whether
real or personal, tangible or intangible, reflected in Midland's consolidated
balance sheet as of June 30, 1996, or owned and acquired subsequent thereto
(except to the extent that such assets and properties have been disposed of for
fair value in the ordinary course of business since June 30, 1996), subject to
no encumbrances, liens, mortgages, security interests or pledges, except (i)
those items that secure liabilities that are reflected in such balance sheet or
the notes thereto or incurred in the ordinary course of business after the date
of such balance sheet, (ii) statutory liens for amounts not yet delinquent or
which are being contested in good faith, (iii) such encumbrances, liens,
mortgages, security interests, pledges and title imperfections that are not in
the aggregate material to the business, operations, assets, and financial
condition of Midland and its Subsidiaries taken as a whole and (iv) with respect
to owned real property, title imperfections noted in title reports delivered to
Valley prior to the date hereof. Midland and its Subsidiaries as lessees have
the right under valid and subsisting leases to occupy, use, possess and control
all property leased by them in all material respects as presently occupied,
used, possessed and controlled by them.
(b) The Midland Disclosure Schedule lists all policies of
insurance covering business operations and all insurable properties and assets
of Midland and its Subsidiaries showing all risks insured against, in each case
under valid, binding and enforceable policies or bonds, with such amounts and
such deductibles as are specified. As of the date hereof, neither Midland nor
any of its Subsidiaries has received any notice of cancellation or notice of a
material amendment of any such insurance policy or bond or is in default under
such policy or bond, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion.
3.15. Minute Books. The minute books of Midland and its
Subsidiaries contain records that are accurate in all material respects of all
meetings and other corporate action held of their respective stockholders and
Boards of Directors (including committees of their respective Boards of
Directors).
3.16. Environmental Matters. Except as disclosed in the
Midland Disclosure Schedule, neither Midland nor any of its Subsidiaries has
received any written notice, citation, claim, assessment, proposed assessment or
demand for abatement alleging that Midland or any of its Subsidiaries (either
directly or as a successor-in-interest in connection with the enforcement of
remedies to realize the value of properties serving as collateral for
outstanding loans) is responsible for the correction or clean-up of any
condition material to the business, operations, assets or financial condition of
Midland or its Subsidiaries. Except as disclosed in the Midland Disclosure
Schedule, Midland has no knowledge that any toxic or hazardous substances or
materials have been emitted, generated, disposed of or stored on any property
owned or leased by Midland or any of its Subsidiaries in any manner that
violates or, after the lapse of time may violate, any presently existing
federal, state or local law or regulation governing or pertaining to such
substances and materials.
3.17. Reserves. As of the date hereof, the reserve for loan
and lease losses in the Midland Financial Statements is, to Midland's knowledge,
adequate based upon past loan loss experiences and potential losses in the
current portfolio to cover all known or anticipated loan losses.
3.18. No Parachute Payments. No officer, director, employee or
agent (or former officer, director, employee or agent) of Midland or any Midland
Subsidiary is entitled now, or will or may be entitled to as a consequence of
this Agreement or the Merger, to any payment or benefit from Midland, a Midland
Subsidiary, Valley or VNB which if paid or provided would constitute an "excess
parachute payment", as defined in Section 280G of the Code or regulations
promulgated thereunder.
3.19. Disclosure. There are no material facts concerning the
business, operations, assets or financial condition of Midland or its
Subsidiaries which could have a material adverse effect on the business,
operations or financial condition of Midland or its Subsidiaries on a
consolidated basis which have not been disclosed to Valley directly. The
representations and warranties contained in Article III of this Agreement are
accurate in all material respects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VALLEY
References herein to the "Valley Disclosure Schedule" shall
mean all of the disclosure schedules required by this Article IV, dated as of
the date hereof and referenced to the specific sections and subsections of
Article IV of this Agreement, which have been delivered on the date hereof by
Valley to Midland.
Valley hereby represents and warrants to Midland as follows:
4.1. Corporate Organization.
(a) Valley is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey. Valley
has the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations, assets or financial
condition of Valley or its Subsidiaries (defined below). Valley is registered as
a bank holding company under the BHCA.
(b) Each of the Subsidiaries of Valley are listed in the
Valley Disclosure Schedule. The term "Subsidiary" when used in this Agreement
with reference to Valley, means any corporation, joint venture, association,
partnership, trust or other entity in which Valley has, directly or indirectly,
at least a 50% interest or acts as a general partner. Each Subsidiary of Valley
is duly organized and validly existing and in good standing under the laws of
the jurisdiction of its incorporation. VNB is a national bank whose deposits are
insured by the Bank Insurance Fund of the FDIC to the fullest extent permitted
by law. Each Subsidiary of Valley has the corporate power and authority to own
or lease all of its properties and assets and to carry on its business as it is
now being conducted and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the business,
operations, assets or financial condition of Valley and its Subsidiaries.
4.2. Capitalization. The authorized capital stock of Valley
consists solely of 75,000,000 shares of Valley Common Stock. As of August 31,
1996, there were 36,364,799 shares of Valley Common Stock issued and outstanding
net of treasury stock, and 314,888 treasury shares. Since such date, and from
time to time hereafter, Valley may repurchase shares of its Common Stock. Since
August 31, 1996, to and including the date of this Agreement, no additional
shares of Valley Common Stock have been issued except in connection with
exercises of options granted under the Long-Term Stock Incentive Plan of Valley
(the "Valley Option Plan") or grants of restricted stock under the Valley Option
Plan. As of August 31, 1996, except for: (a) 544,808 shares of Valley Common
Stock issuable upon exercise of outstanding stock options and stock appreciation
rights granted pursuant to the Valley Option Plan, and (b) 11,369 shares of
Valley Common Stock issuable upon exercise of outstanding stock options granted
to a consultant for Valley, there were no shares of Valley Common Stock issuable
upon the exercise of outstanding stock options or otherwise. All issued and
outstanding shares of Valley Common Stock, and all issued and outstanding shares
of capital stock of Valley's Subsidiaries, have been duly authorized and validly
issued, are fully paid, nonassessable and free of preemptive rights, and are
free and clear of all liens, encumbrances, charges, restrictions or rights of
third parties. All of the outstanding shares of capital stock of Valley's
Subsidiaries are owned by Valley free and clear of any liens, encumbrances,
charges, restrictions or rights of third parties. Except for the options and
stock appreciation rights referred to above under the Valley Option Plan,
neither Valley nor any of Valley's Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase or issuance of any shares of
capital stock of Valley or Valley's Subsidiaries or any securities representing
the right to otherwise receive any shares of such capital stock or any
securities convertible into or representing the right to purchase or subscribe
for any such shares, and there are no agreements or understandings with respect
to voting of any such shares.
4.3. Authority; No Violation.
(a) Valley and VNB have full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby in accordance with the terms hereof. Valley has a sufficient
number of authorized but unissued shares of Valley Common Stock to pay the
consideration for the Merger set forth in Section 2.1 of this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of each of Valley and VNB. The execution and delivery of the
Bank Merger Agreement has been duly and validly approved by the Board of
Directors of VNB. No other corporate proceedings on the part of Valley and VNB
are necessary to consummate the transactions contemplated hereby (except for the
approval by Valley of the Bank Merger Agreement). This Agreement has been duly
and validly executed and delivered by Valley and VNB and constitutes a valid and
binding obligation of Valley and VNB, enforceable against Valley and VNB in
accordance with its terms.
(b) Neither the execution or delivery of this Agreement nor
the consummation by Valley and VNB of the transactions contemplated hereby in
accordance with the terms hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Valley or the Articles of Association
or Bylaws of VNB, (ii) assuming that the consents and approvals set forth below
are duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Valley or VNB or any
of their respective properties or assets, or (iii) violate, conflict with,
result in a breach of any provision of, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, result
in the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the properties or assets of Valley or VNB under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Valley or VNB is a
party, or by which Valley or VNB or any of their properties or assets may be
bound or affected, except, with respect to (ii) and (iii) above, such as in the
aggregate will not have a material adverse effect on the business, operations,
assets or financial condition of Valley and Valley's Subsidiaries on a
consolidated basis, or the ability of Valley and VNB to consummate the
transactions contemplated hereby. Except for consents and approvals of or
filings or registrations with or notices to the OCC, the Commissioner, the FRB,
the New Jersey Secretary of State, the SEC, or applicable state securities
bureaus or commissions, no consents or approvals of or filings or registrations
with or notices to any third party or any public body or authority are necessary
on behalf of Valley or VNB in connection with (a) the execution and delivery by
Valley or VNB of this Agreement, (b) the consummation by Valley of the Merger
and the other transactions contemplated hereby and (c) the execution and
delivery by VNB of the Bank Merger Agreement and the consummation by VNB of the
Bank Merger and other transactions contemplated thereby. To Valley's knowledge,
no fact or condition exists which Valley has reason to believe will prevent it
or VNB from obtaining the aforementioned consents and approvals.
4.4. Financial Statements.
(a) Valley has previously delivered to Midland copies of the
consolidated statements of financial condition of Valley as of December 31,
1993, 1994 and 1995, the related consolidated statements of income, changes in
stockholders' equity and of cash flows for the periods ended December 31 in each
of the three fiscal years 1993 through 1995, in each case accompanied by the
audit report of KPMG Peat Marwick LLP, independent public accountants with
respect to Valley, and the unaudited consolidated statements of condition of
Valley as of June 30, 1996 and the related unaudited consolidated statements of
income, changes in stockholders' equity and cash flows for the six months then
ended as reported in Valley's Quarterly Reports on Form 10-Q, filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act")
(collectively, the "Valley Financial Statements"). The Valley Financial
Statements (including the related notes), have been prepared in accordance with
generally accepted accounting principles consistently applied during the periods
involved, and fairly present the consolidated financial position of Valley as of
the respective dates set forth therein, and the related consolidated statements
of income, changes in stockholders' equity and of cash flows (including the
related notes, where applicable) fairly present the results of the consolidated
operations and changes in stockholders' equity and of cash flows of Valley for
the respective fiscal periods set forth therein.
(b) The books and records of Valley and its subsidiaries have
been and are being maintained in material compliance with applicable legal and
accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the Valley Financial Statements (including the notes
thereto), as of June 30, 1996 neither Valley nor any of its Subsidiaries had or
has, as the case may be, any material obligation or liability, whether absolute,
accrued, contingent or otherwise, material to the business, operations, assets
or financial condition of Valley or any of its Subsidiaries. Since June 30,
1996, neither Valley nor any of its Subsidiaries have incurred any material
liabilities, except in the ordinary course of business and consistent with
prudent banking practice.
4.5. Brokerage Fees. Except for fees to be paid to MG
Advisors, Inc., neither Valley nor VNB nor any of their respective directors or
officers has employed any broker or finder or incurred any liability for any
broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement.
4.6. Absence of Certain Changes or Events. There has not been
any material adverse change in the business, operations, assets or financial
condition of Valley and Valley's Subsidiaries on a consolidated basis since June
30, 1996 and to Valley's knowledge, no fact or condition exists which Valley
believes will cause or is likely to cause such a material adverse change in the
future.
4.7. Valley Information. The information relating to Valley
and its subsidiaries, this Agreement and the transactions contemplated hereby in
the Registration Statement and Proxy Statement/Prospectus (as defined in Section
5.6(a) hereof), as of the date of the mailing of the Proxy Statement/Prospectus,
and up to and including the date of the meeting of stockholders of Midland to
which such Proxy Statement/Prospectus relates, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
4.8. Capital Adequacy. At the Effective Time, after taking
into effect the Merger and the transactions contemplated hereunder, Valley will
have sufficient capital to satisfy all applicable regulatory capital
requirements.
4.9. Valley Common Stock. At the Effective Time, the Valley
Common Stock to be issued pursuant to the terms of Section 2.1, when so issued,
shall be duly authorized, validly issued, fully paid, and non-assessable, free
of preemptive rights and free and clear of all liens, encumbrances or
restrictions created by or through Valley, with no personal liability attaching
to the ownership thereof.
4.10. Legal Proceedings. Except as disclosed in the Valley
Disclosure Schedule, neither Valley nor its Subsidiaries is a party to any, and
there are no pending or, to Valley's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against Valley or any of its Subsidiaries which, if
decided adversely to Valley, or any of its Subsidiaries, would have a material
adverse effect on the business, operations, assets or financial condition of
Valley and its Subsidiaries on a consolidated basis. Except as disclosed in the
Valley Disclosure Schedule, neither Valley nor any of Valley's Subsidiaries is a
party to any order, judgment or decree entered against Valley or any such
Subsidiary in any lawsuit or proceeding which would have a material adverse
effect on the business, operations, assets or financial condition of Valley and
its Subsidiaries on a consolidated basis.
4.11. Taxes and Tax Returns. To the knowledge of Valley,
Valley and its Subsidiaries have duly filed (and until the Effective Time will
so file) all Returns required to be filed by them in respect of any federal,
state and local taxes (including withholding taxes, penalties or other payments
required) and have duly paid (and until the Effective Time will so pay) all such
taxes due and payable, other than taxes or other charges which are being
contested in good faith. Valley and its Subsidiaries have established (and until
the Effective Time will establish) on their books and records reserves for the
payment of all federal, state and local taxes not yet due and payable, but
incurred in respect of Valley and its Subsidiaries through such date, which
reserves are, to the knowledge of Valley, adequate for such purposes. No
deficiencies exist or have been asserted based upon the federal income tax
returns of Valley and VNB.
4.12. Employee Benefit Plans.
(a) Valley and its Subsidiaries maintain or contribute to
certain "employee pension benefit plans" (the "Valley Pension Plans"), as such
term is defined in Section 3 of ERISA, and "employee welfare benefit plans" (the
"Valley Welfare Plans"), as such term is defined in Section 3 of ERISA. Since
September 2, 1974, neither Valley nor its Subsidiaries have contributed to any
"Multiemployer Plan", as such term is defined in Section 3(37) of ERISA.
(b) Except as set forth in Valley Disclosure Schedule, to the
knowledge of Valley, each of the Valley Pension Plans and each of the Valley
Welfare Plans has been operated in compliance in all material respects with the
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder, and all other applicable governmental laws and
regulations.
(c) To the knowledge of Valley, no "accumulated funding
deficiency" within the meaning of Section 412 of the Code has been incurred with
respect to any of the Valley Pension Plans.
(d) Except with respect to customary health, life and
disability benefits or as disclosed on the Valley Disclosure Schedule, there are
no unfunded benefit obligations which are not accounted for by reserves shown on
the financial statements of Valley and established under GAAP or otherwise noted
on such financial statements.
4.13. Reports.
(a) Each communication mailed by Valley to its stockholders
since January 1, 1993, and each annual, quarterly or special report, proxy
statement or communication, as of its date, complied in all material respects
with all applicable statutes, rules and regulations enforced or promulgated by
the applicable regulatory agency and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
disclosures as of a later date shall be deemed to modify disclosures as of an
earlier date.
(b) Valley and VNB have, since January 1, 1993, duly filed
with the OCC and the FRB in correct form in all material respects the monthly,
quarterly and annual reports required to be filed under applicable laws and
regulations, and Valley, upon written request from Midland, promptly will
deliver or make available to Midland accurate and complete copies of such
reports. The Valley Disclosure Schedule lists the dates of all examinations of
Valley or VNB conducted by either the OCC, the FRB or the FDIC since January 1,
1993, and the dates of any responses thereto submitted by Valley or VNB.
4.14. Compliance with Applicable Law. Valley and its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and has complied with and is not in default in any respect
under any, applicable law, statute, order, rule, regulation, policy and/or
guideline of any federal, state or local governmental authority relating to
Valley and its Subsidiaries (other than where such default or non-compliance
will not result in a material adverse effect on the business, operations, assets
or financial condition of Valley and its Subsidiaries on a consolidated basis)
and Valley has not received notice of violations of, and does not know of any
violations of, any of the above. Without limiting the foregoing, to its
knowledge VNB has complied in all material respects with the CRA and Valley has
no reason to believe that any person or group would object to the consummation
of the Merger due to the CRA performance or rating of VNB. To the knowledge of
Valley, except as listed on the Valley Disclosure Schedule, no person or group
has adversely commented upon VNB's CRA performance.
4.15. Properties and Insurance.
(a) Valley and its Subsidiaries have good and, as to owned
real property, marketable title to all material assets and properties, whether
real or personal, tangible or intangible, reflected in Valley's consolidated
balance sheet as of June 30, 1996, or owned and acquired subsequent thereto
(except to the extent that such assets and properties have been disposed of for
fair value in the ordinary course of business since June 30, 1996), subject to
no encumbrances, liens, mortgages, security interests or pledges, except (i)
those items that secure liabilities that are reflected in such balance sheet or
the notes thereto or incurred in the ordinary course of business after the date
of such balance sheet, (ii) statutory liens for amounts not yet delinquent or
which are being contested in good faith, (iii) such encumbrances, liens,
mortgages, security interests, pledges and title imperfections that are not in
the aggregate material to the business, operations, assets, and financial
condition of Valley and its subsidiaries taken as a whole and (iv) with respect
to owned real property, title imperfections noted in title reports delivered to
Midland prior to the date hereof. Valley and its Subsidiaries as lessees have
the right under valid and subsisting leases to occupy, use, possess and control
all property leased by them in all material respects as presently occupied,
used, possessed and controlled by them.
(b) The business operations and all insurable properties and
assets of Valley and its Subsidiaries are insured for their benefit against all
risks which, in the reasonable judgment of the management of Valley should be
insured against, in each case under valid, binding and enforceable policies or
bonds, with such deductibles and against such risks and losses as are in the
opinion of the management of Valley adequate for the business engaged in by
Valley and its Subsidiaries. As of the date hereof, neither Valley nor any of
its Subsidiaries has received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond or is in default under such
policy or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.
4.16. Minute Books. The minute books of Valley and its
Subsidiaries contain records that are accurate in all material respects of all
meetings and other corporate action held of their respective stockholders and
Boards of Directors (including committees of their respective Boards of
Directors).
4.17. Environmental Matters. Except as disclosed in the Valley
Disclosure Schedule, neither Valley nor any of its Subsidiaries has received any
written notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that Valley or any of its Subsidiaries (either directly or as
a successor-in-interest in connection with the enforcement of remedies to
realize the value of properties serving as collateral for outstanding loans) is
responsible for the correction or clean-up of any condition material to the
business, operations, assets or financial condition of Valley or its
Subsidiaries. Except as disclosed in the Valley Disclosure Schedule, Valley has
no knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any property owned or leased by
Valley or any of its Subsidiaries in any manner that violates or, after the
lapse of time may violate, any presently existing federal, state or local law or
regulation governing or pertaining to such substances and materials, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of Valley and its Subsidiaries on a
consolidated basis.
4.18. Reserves. As of the date hereof, the reserve for loan
and lease losses in the Valley Financial Statements is, to Valley's knowledge,
adequate based upon past loan loss experiences and potential losses in the
current portfolio to cover all known or anticipated loan losses.
4.19. Disclosures. Except for other acquisition transactions
which Valley may not yet have publicly disclosed, there are no material facts
concerning the business, operations, assets or financial condition of Valley
which could have a material adverse effect on the business, operations or
financial condition of Valley which have not been disclosed to Midland directly
or indirectly by access to any filing by Valley under the 1934 Act. The
representations and warranties contained in Article IV of this Agreement are
accurate in all material respects.
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Conduct of the Business of Midland. During the period
from the date of this Agreement to the Effective Time, Midland shall, and shall
cause each of its Subsidiaries to, conduct its respective business and engage in
transactions permitted hereunder only in the ordinary course and consistent with
prudent banking practice, except with the prior written consent of Valley, which
consent will not be unreasonably withheld. Midland also shall use its best
efforts to (i) preserve its business organization and that of each Midland
Subsidiary intact, (ii) keep available to itself the present services of its
employees and those of its Subsidiaries, provided that neither Midland nor any
of its Subsidiaries shall be required to take any unreasonable or extraordinary
act or any action which would conflict with any other term of this Agreement,
and (iii) preserve for itself and Valley the goodwill of its customers and those
of its Subsidiaries and others with whom business relationships exist.
5.2. Negative Covenants and Dividend Covenants.
(a) Midland agrees that from the date hereof to the Effective
Time, except as otherwise approved by Valley in writing or as permitted or
required by this Agreement, it will not, nor will it permit any of its
Subsidiaries to:
(i) change any provision of its Certificate of Incorporation
or Bylaws or any similar governing documents;
(ii) except for the issuance of Midland Common Stock pursuant
to the present terms of the outstanding Midland Options and the Valley Stock
Option, change the number of shares of its authorized or issued common or
preferred stock or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to the
authorized or issued capital stock of Midland or any Midland Subsidiary or any
securities convertible into shares of such stock, or split, combine or
reclassify any shares of its capital stock, or redeem or otherwise acquire any
shares of such capital stock, or declare, set aside or pay any dividend, or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock; provided, however, from the date
hereof to the Effective Time, Midland may declare, set aside or pay cash
dividends per share of Midland Common Stock equivalent to the cash dividends per
share declared, set aside or paid by Valley during such period multiplied by the
Exchange Ratio, and such dividends by Midland shall conform to the record dates
and payment dates as used by Valley;
(iii) grant any severance or termination pay (other than
pursuant to policies of Midland in effect on the date hereof and disclosed to
Valley in the Midland Disclosure Schedule or as agreed to by Valley in writing)
to, or enter into or amend any employment agreement with, any of its directors,
officers or employees, adopt any new employee benefit plan or arrangement of any
type or amend any such existing benefit plan or arrangement; or award any
increase in compensation or benefits to its directors, officers or employees
(including by any change in the "Target Value" as defined in Midland's Long-Term
Incentive Plan, which Target Value is currently $10.00); provided, however,
Midland and the Bank may continue to award regular and customary pay increases
in compensation to its non-officer employees and may award and pay bonuses to
its officers as set forth in a written schedule previously delivered to Valley
if such bonuses are fully accrued on its books for 1996;
(iv) sell or dispose of any substantial amount of assets or
incur any significant liabilities other than in the ordinary course of business
consistent with past practices and policies;
(v) make any capital expenditures in excess of $100,000 other
than pursuant to binding commitments existing on the date hereof, expenditures
necessary to maintain existing assets in good repair and expenditures to
renovate or relocate the Bank's branch located at the Bergen Mall in Paramus,
New Jersey;
(vi) file any applications or make any contract with respect
to branching or site location or relocation.
(vii) agree to acquire in any manner whatsoever (other than to
foreclose on collateral for a defaulted loan) any business or entity;
(viii) make any material change in its accounting methods or
practices, other than changes required in accordance with generally accepted
accounting principles;
(ix) take any action that would result in any of the
representations and warranties contained in Article III of this Agreement not
being true and correct in any material respect at the Effective Time; or
(x) agree to do any of the foregoing.
(b) Valley agrees that from the date hereof to the Effective
Time, except as otherwise approved by Midland in writing or as permitted or
required by this Agreement, it will not, nor will it permit any of it
Subsidiaries to:
(i) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or that may
result in any condition, agreement or covenant set forth in this Agreement not
being satisfied;
(ii) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368 of the
Code;
(iii) consolidate with or merge with any other person or
entity in which Valley is not the surviving entity, or convey, transfer or lease
its properties and assets substantially as an entirety to any person or entity
unless such person or entity shall expressly assume the obligations of Valley
under this Agreement; or
(iv) authorize or enter into any agreement or commitment to do
any of the foregoing.
5.3. No Solicitation. Midland and the Bank shall not, directly
or indirectly, encourage or solicit or hold discussions or negotiations with, or
provide any information to, any person, entity or group (other than Valley)
concerning any merger or sale of shares of capital stock or sale of substantial
assets or liabilities not in the ordinary course of business, or similar
transactions involving Midland or the Bank (an "Acquisition Transaction").
Midland will promptly communicate to Valley the terms of any proposal, whether
written or oral, which it may receive in respect of any Acquisition Transaction.
5.4. Current Information. During the period from the date of
this Agreement to the Effective Time, Midland will cause one or more of its
designated representatives to confer on a monthly or more frequent basis with
representatives of Valley regarding Midland's business, operations, properties,
assets and financial condition and matters relating to the completion of the
transactions contemplated herein. Without limiting the foregoing, Midland will
send to Valley a monthly list of each new loan or extension of credit, and each
renewal of an existing loan or extension of credit, in excess of $500,000, made
during such month, and provide Valley with a copy of the loan offering for any
such loan, extension of credit, or renewal upon request. As soon as reasonably
available, but in no event more than 45 days after the end of each fiscal
quarter (other than the last fiscal quarter of each fiscal year) ending after
the date of this Agreement, Midland will deliver to Valley the Bank's call
reports filed with the Commissioner and FDIC and Midland's quarterly reports as
filed with the FRB and/or delivered to its shareholders, and Valley will deliver
to Midland Valley's quarterly reports on Form 10-Q, as filed with the SEC under
the 1934 Act, and VNB's call reports filed with the OCC and the FDIC. As soon as
reasonably available, but in no event more than 80 days after the end of each
fiscal year, Midland will deliver to Valley and Valley will deliver to Midland
their respective audited Annual Reports, in the case of Valley as filed on Form
10-K with the SEC under the 1934 Act.
5.5. Access to Properties and Records; Confidentiality.
(a) Midland and the Bank shall permit Valley and its
representatives, and Valley and VNB shall permit Midland and its
representatives, accompanied by an officer of the respective party, reasonable
access to their respective properties, and shall disclose and make available to
Valley and its representatives or Midland and its representatives as the case
may be, all books, papers and records relating to their respective assets, stock
ownership, properties, operations, obligations and liabilities, including, but
not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings, organizational
documents, bylaws, material contracts and agreements, filings with any
regulatory authority, independent auditors' work papers (subject to the receipt
by such auditors of a standard access representation letter), litigation files,
plans affecting employees, and any other business activities or prospects in
which Valley and its representatives or Midland and its representatives may have
a reasonable interest. Neither party shall be required to provide access to or
to disclose information where such access or disclosure would violate or
prejudice the rights of any customer or would contravene any law, rule,
regulation, order or judgment. The parties will use their best efforts to obtain
waivers of any such restriction and in any event make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Midland acknowledges that Valley may be involved in
discussions concerning other potential acquisitions and Valley shall not be
obligated to disclose such information to Midland except as such information is
publicly disclosed by Valley.
(b) All information furnished by the parties hereto previously
in connection with transactions contemplated by this Agreement or pursuant
hereto shall be used solely for the purpose of evaluating the Merger
contemplated hereby and shall be treated as the sole property of the party
delivering the information until consummation of the Merger contemplated hereby
and, if such Merger shall not occur, each party and each party's advisors shall
return to the other party all documents or other materials containing,
reflecting or referring to such information, will not retain any copies of such
information, shall use its best efforts to keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purposes. In the event that the Merger
contemplated hereby is abandoned, all documents, notes and other writings
prepared by a party hereto or its advisors based on information furnished by the
other party shall be promptly destroyed. The obligation to keep such information
confidential shall continue for five years from the date the proposed Merger is
abandoned but shall not apply to (i) any information which (A) the party
receiving the information can establish by convincing evidence was already in
its possession prior to the disclosure thereof to it by the other party; (B) was
then generally known to the public; (C) became known to the public through no
fault of the party receiving such information; or (D) was disclosed to the party
receiving such information by a third party not bound by an obligation of
confidentiality; or (ii) disclosures pursuant to a legal requirement or in
accordance with an order of a court of competent jurisdiction.
(c) Without limiting the rights provided under Section 5.5(a),
each of Valley and Midland shall have the right to conduct a full and complete
acquisition audit and to perform such due diligence as it deems appropriate,
using its own officers and employees or third parties, for purposes of
determining whether there is a material breach of any representation or warranty
hereunder or a material adverse change in the business or financial condition of
the other party. Such acquisition audit or due diligence shall not be limited or
restricted by virtue of any audit or due diligence performed before the date
hereof or for any other reason, but shall not unduly interfere with the business
of the other party.
5.6. Regulatory Matters.
(a) For the purposes of holding the meeting of Midland
shareholders referred to in Section 5.7 hereof and registering or otherwise
qualifying under applicable federal and state securities laws Valley Common
Stock to be issued to Record Holders and optionees in connection with the
Merger, the parties hereto shall cooperate in the preparation and filing by
Valley of a Registration Statement with the SEC which shall include an
appropriate proxy statement and prospectus satisfying all applicable
requirements of applicable state and federal laws, including the Securities Act
of 1933, as amended (the "1933 Act"), the 1934 Act and applicable state
securities laws and the rules and regulations thereunder. (Such proxy statement
and prospectus in the form mailed by Midland to the Midland shareholders and
optionees together with any and all amendments or supplements thereto, is herein
referred to as the "Proxy Statement/Prospectus" and the various documents to be
filed by Valley under the 1933 Act with the SEC to register for sale the Valley
Common Stock to be issued to Record Holders and optionees, including the Proxy
Statement/Prospectus, are referred to herein as the "Registration Statement").
(b) Valley shall furnish information concerning Valley as is
necessary in order to cause the Proxy Statement/Prospectus, insofar as it
relates to Valley, to comply with Section 5.6(a) hereof. Valley agrees promptly
to advise Midland if at any time prior to the Midland shareholder meeting
referred to in Section 5.7 hereof, any information provided by Valley in the
Proxy Statement/Prospectus becomes incorrect or incomplete in any material
respect and to provide Midland with the information needed to correct such
inaccuracy or omission. Valley shall furnish Midland with such supplemental
information as may be necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to Valley, to comply with Section
5.6(a) after the mailing thereof to Midland shareholders.
(c) Midland shall furnish Valley with such information
concerning Midland and the Bank as is necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to such corporations, to comply with
Section 5.6(a) hereof. Midland agrees promptly to advise Valley if, at any time
prior to the Midland shareholder's meeting referred to in Section 5.6(a) hereof,
information provided by Midland in the Proxy Statement/Prospectus becomes
incorrect or incomplete in any material respect and to provide Valley with the
information needed to correct such inaccuracy or omission. Midland shall furnish
Valley with such supplemental information as may be necessary in order to cause
the Proxy Statement/Prospectus, insofar as it relates to Midland and the Bank,
to comply with Section 5.6(a) after the mailing thereof to Midland shareholders.
(d) Valley shall as promptly as practicable, at its sole
expense, make such filings as are necessary in connection with the offering of
the Valley Common Stock with applicable state securities agencies and shall use
all reasonable efforts to qualify the offering of the Valley Common Stock under
applicable state securities laws at the earliest practicable date. Midland shall
promptly furnish Valley with such information regarding the Midland shareholders
as Valley requires to enable it to determine what filings are required
hereunder. Midland authorizes Valley to utilize in such filings the information
concerning Midland and the Bank provided to Valley in connection with, or
contained in, the Proxy Statement/ Prospectus. Valley shall furnish Midland with
copies of all such filings and keep Midland advised of the status thereof.
Valley and Midland shall as promptly as practicable file the Registration
Statement containing the Proxy Statement/Prospectus with the SEC, and each of
Valley and Midland shall promptly notify the other of all communications, oral
or written, with the SEC concerning the Registration Statement and the Proxy
Statement/Prospectus.
(e) Valley shall cause the Valley Common Stock to be issued in
connection with the Merger to be listed on the New York Stock Exchange.
(f) The parties hereto will cooperate with each other and use
their best efforts to prepare all necessary documentation, to effect all
necessary filings and to obtain all necessary permits, consents, waivers,
approvals and authorizations of all third parties and governmental bodies
necessary to consummate the transactions contemplated by this Agreement as soon
as possible, including, without limitation, those required by the OCC and the
FRB. The parties shall each have the right to review in advance all information
relating to the other, as the case may be, and any of their respective
subsidiaries, which appears in any filing made with, or written material
submitted to, any third party or governmental body in connection with the
transactions contemplated by this Agreement. Valley and VNB shall cause at least
a draft of their respective applications to the FRB and an actual application to
the OCC to be filed within 60 days of the date hereof, so long as Midland and
the Bank provide all information necessary to complete the application within 45
days of the date hereof.
(g) Each of the parties will promptly furnish each other with
copies of written communications received by them or any of their respective
subsidiaries from, or delivered by any of the foregoing to, any governmental
body in respect of the transactions contemplated hereby.
5.7. Approval of Shareholders. Midland will (a) take all steps
necessary duly to call, give notice of, convene and hold a meeting of the
shareholders of Midland as soon as reasonably practicable for the purpose of
securing the approval by such shareholders of this Agreement, (b) recommend to
the shareholders of Midland the approval of this Agreement and the transactions
contemplated hereby and use its best efforts to obtain, as promptly as
practicable, such approvals, and (c) cooperate and consult with Valley with
respect to each of the foregoing matters. In connection therewith, Midland will
use reasonable efforts to cause each director of Midland to agree, and Norwood
Associates II will agree, (i) to vote in favor of the Merger, and (ii) take such
action as is necessary or is reasonably required by Valley to consummate the
Merger.
5.8. Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
satisfy the conditions to Closing and to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using reasonable efforts to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated by this Agreement and using its best efforts to
prevent the breach of any representation, warranty, covenant or agreement of
such party contained or referred to in this Agreement and to promptly remedy the
same. Nothing in this section shall be construed to require any party to
participate in any threatened or actual legal, administrative or other
proceedings (other than proceedings, actions or investigations to which it is
otherwise a party or subject or threatened to be made a party or subject) in
connection with consummation of the transactions contemplated by this Agreement
unless such party shall consent in advance and in writing to such participation
and the other party agrees to reimburse and indemnify such party for and against
any and all costs and damages related thereto.
5.9. Public Announcements. The parties hereto shall cooperate
with each other in the development and distribution of all news releases and
other public disclosures with respect to this Agreement or any of the
transactions contemplated hereby, except as may be otherwise required by law or
regulation or as to which the party releasing such information has used its best
efforts to discuss with the other party in advance.
5.10. Failure to Fulfill Conditions. In the event that Valley
or Midland determines that a material condition to its obligation to consummate
the transactions contemplated hereby cannot be fulfilled on or prior to April
30, 1997 and that it will not waive that condition, it will promptly notify the
other party. Except for any acquisition or merger discussions Valley may enter
into with other parties, Midland and Valley will promptly inform the other of
any facts applicable to Midland or Valley, respectively, or their respective
directors or officers, that would be likely to prevent or materially delay
approval of the Merger by any governmental authority or which would otherwise
prevent or materially delay completion of the Merger.
5.11. Disclosure Supplements. From time to time prior to the
Effective Time, each party hereto will promptly supplement or amend (by written
notice to the other) its respective Disclosure Schedules delivered pursuant
hereto with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Schedules or which is necessary to correct any
information in such Schedules which has been rendered materially inaccurate
thereby. For the purpose of determining satisfaction of the conditions set forth
in Article VI, no supplement or amendment to such Schedules shall correct or
cure any warranty which was untrue when made, but supplements or amendments may
be used to disclose subsequent facts or events to maintain the truthfulness of
any warranty.
5.12. Printing Arrangements. Valley, in reasonable
consultation with Midland, shall make all arrangements with respect to the
printing and mailing of the Proxy Statement/Prospectus.
5.13. Closing. The parties hereto shall cooperate and use
reasonable efforts to try to cause the Effective Time to occur on March 1, 1997.
5.14. Indemnification. After the Effective Time, to the extent
permitted by applicable law, and the Certificate of Incorporation or Articles of
Association, Valley agrees that it will, or will cause VNB to, provide to the
directors and officers of Midland and the Bank indemnification equivalent to
that provided by the Certificate of Incorporation and Bylaws of each of Midland
and the Bank with respect to acts or omissions occurring prior to the Effective
Time, including without limitation, the authorization of this Agreement and the
transactions contemplated hereby, for a period of six years from the Effective
Time, or in the case of matters occurring prior to the Effective Time which have
not been resolved prior to the sixth anniversary of the Effective Time, until
such matters are finally resolved. To the extent permitted by applicable law,
and the Certificate of Incorporation or Articles of Association, Valley or VNB
(as applicable) shall advance expenses in connection with the foregoing
indemnification.
5.15. New Valley Directors; Officers.
(a) Directors. As of the Effective Time, Valley and VNB each
shall cause its respective Board of Directors to take action to appoint at the
Effective Time Walter H. Jones, III and Graham O. Jones to the Board of
Directors of Valley and VNB, respectively.
(b) Officers. As of the Effective Time, VNB shall appoint
Robert M. Meyer, Midland's Chief Executive Officer, as a member of VNB's senior
management and Valley shall assume in writing Mr. Meyer's employment contract, a
copy of which is included in the Midland Disclosure Schedule.
5.16. Employment Matters. Valley intends, to the extent
practical, to continue the employment of all officers and employees of the Bank,
at the same location, with the same or equivalent salary and benefits. Valley
intends, to the extent practical, to have all Midland employees participate in
the benefits and opportunities available to all Valley employees.
5.17. Pooling and Tax-Free Reorganization Treatment. Neither
Valley nor Midland shall intentionally take, fail to take or cause to be taken
or not be taken, any action within its control, whether before or after the
Effective Time, which would disqualify the Merger as a "pooling of interests"
for accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
5.18. Midland Option Plan. From and after the Effective Time,
each Midland Option which is converted to an option to purchase Valley Common
Stock under Section 2.1(b)(i) shall be administered, operated and interpreted by
a committee comprised of members of the Board of Directors of Valley appointed
by the Board of Directors of Valley. Valley shall reserve for issuance the
number of shares of Valley Common Stock necessary to satisfy Valley's
obligations. Valley shall also register, if not previously registered pursuant
to the 1933 Act, the shares authorized for issuance under the Midland Options so
converted.
5.19. Affiliates.
(a) Promptly, but in any event within 30 days, after the
execution and delivery of this Agreement, (i) Midland shall deliver to Valley
(x) a letter identifying all persons who, to the knowledge of Midland, may be
deemed to be affiliates of Midland under Rule 145 of the 1933 Act, including
without limitation all directors and executive officers of Midland and (y) a
letter identifying all persons who, to the knowledge of Midland, may be deemed
to be affiliates of Midland as that term (affiliate) is used for purposes of
qualifying for pooling-of-interests accounting treatment; and (ii) Valley shall
identify to Midland all persons who, to the knowledge of Valley, may be deemed
affiliates of Valley as that term (affiliates) is used for purposes of
qualifying for pooling-of-interests accounting treatment.
(b) Midland shall cause each director of Midland to, and
Midland shall use its best efforts to cause each executive officer of Midland
and each other person who may be deemed an affiliate of Midland (under either
Rule 145 of the 1933 Act or the accounting treatment rules) to, execute and
deliver to Valley within 30 days after the execution and delivery of this
Agreement, a letter substantially in the form of Exhibit 5.19 hereto agreeing to
be bound by the restrictions of Rule 145 and agreeing to be bound by the rules
which permit the Merger to be treated as a pooling of interests for accounting
purposes. In addition, Valley shall cause each director and executive officer of
Valley to, and Valley shall use its best efforts to cause each other person who
may be deemed an affiliate of Valley (as that term is used for purposes of
qualifying for pooling of interests) to, execute and deliver to Valley within 30
days after the execution and delivery of this Agreement, a letter in which such
persons agree to be bound by the rules which permit the Merger to be treated as
a pooling of interests for accounting treatment.
(c) Valley agrees to publish financial results covering at
least 30 days of combined operations of Valley and Midland as soon as
practicable after consummation of the Merger.
5.20. Compliance with the Industrial Site Recovery Act.
Midland, at its sole cost and expense, shall use its best efforts to obtain
prior to the Effective Time, with respect to each facility located in New Jersey
owned or operated by Midland or any Midland Subsidiary (each, a "Facility"),
either: (a) a Letter of Non-Applicability ("LNA") from the New Jersey Department
of Environmental Protection ("NJDEP") stating that the Facility is not an
"industrial establishment," as such term is defined under the Industrial Site
Recovery Act ("ISRA"); (b) a Remediation Agreement issued by the NJDEP pursuant
to ISRA authorizing the consummation of the transactions contemplated by this
Agreement; (c) a Negative Declaration approval, Remedial Action Workplan
approval, No Further Action letter or other document or documents issued by the
NJDEP advising that the requirements of ISRA have been satisfied with respect to
the Facility; or (d) an opinion addressed to Valley from New Jersey legal
counsel reasonably acceptable to Valley to the effect that ISRA has been
complied with, or is inapplicable, with respect to the Facility. In the event
Midland obtains a Remediation Agreement, Midland will post or have posted an
appropriate Remediation Funding Source or will have obtained the NJDEP's
approval to self-guaranty any Remediation Funding Source required under any such
Remediation Agreement.
ARTICLE VI
CLOSING CONDITIONS
6.1. Conditions of Each Party's Obligations Under this
Agreement. The respective obligations of each party under this Agreement to
consummate the Merger shall be subject to the satisfaction, or, where
permissible under applicable law, waiver at or prior to the Effective Time of
the following conditions:
(a) Approval of Midland Shareholders; SEC Registration. This
Agreement and the transactions contemplated hereby shall have been approved by
the requisite vote of the shareholders of Midland. The Registration Statement
shall have been declared effective by the SEC and shall not be subject to a stop
order or any threatened stop order, and the issuance of the Valley Common Stock
shall have been qualified in every state where such qualification is required
under the applicable state securities laws. The Valley Common Stock to be issued
in connection with the Merger, including Valley Common Stock to be issued for
the Midland Options, shall have been approved for listing on the New York Stock
Exchange.
(b) Regulatory Filings. All necessary regulatory or
governmental approvals and consents (including without limitation any required
approval of the OCC and any approval or waiver required by the FRB) required to
consummate the transactions contemplated hereby shall have been obtained without
any term or condition which would materially impair the value of Midland and the
Bank, taken as a whole, to Valley. All conditions required to be satisfied prior
to the Effective Time by the terms of such approvals and consents shall have
been satisfied; and all statutory waiting periods in respect thereof shall have
expired.
(c) Suits and Proceedings. No order, judgment or decree shall
be outstanding against a party hereto or a third party that would have the
effect of preventing completion of the Merger; no suit, action or other
proceeding shall be pending or threatened by any governmental body in which it
is sought to restrain or prohibit the Merger or the Bank Merger; and no suit,
action or other proceeding shall be pending before any court or governmental
agency in which it is sought to restrain or prohibit the Merger or the Bank
Merger or obtain other substantial monetary or other relief against one or more
parties hereto in connection with this Agreement and which Valley or Midland
determines in good faith, based upon the advice of their respective counsel,
makes it inadvisable to proceed with the Merger because any such suit, action or
proceeding has a significant potential to be resolved in such a way as to
deprive the party electing not to proceed of any of the material benefits to it
of the Merger or the Bank Merger.
(d) Tax Free Exchange. Valley and Midland shall have received
an opinion, satisfactory to Valley and Midland, of Pitney, Hardin, Kipp & Szuch,
counsel for Valley, to the effect that the transactions contemplated hereby will
result in a reorganization (as defined in Section 368(a) of the Code), and
accordingly no gain or loss will be recognized for federal income tax purposes
to Valley, Midland, VNB or the Bank or to the shareholders of Midland who
exchange their shares of Midland for Valley Common Stock (except to the extent
that cash is received in lieu of fractional shares of Valley Common Stock).
(e) Pooling of Interests. The Merger shall be qualified to be
treated by Valley as a pooling-of-interests for accounting purposes and Valley
shall have received a letter from KPMG Peat Marwick LLP to the effect that the
Merger will qualify for pooling-of-interests accounting treatment if closed and
consummated in accordance with the Agreement.
6.2. Conditions to the Obligations of Valley Under this
Agreement. The obligations of Valley under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties; Performance of Obligations
of Midland and Bank. The representations and warranties of Midland contained in
this Agreement shall be true and correct in all material respects on the Closing
Date as though made on and as of the Closing Date. Midland shall have performed
in all material respects the agreements, covenants and obligations necessary to
be performed by it prior to the Closing Date. With respect to any representation
or warranty which as of the Closing Date has required a supplement or amendment
to the Midland Disclosure Schedule to render such representation or warranty
true and correct as of the Closing Date, the representation and warranty shall
be deemed true and correct as of the Closing Date only if (i) the information
contained in the supplement or amendment to the Disclosure Schedule related to
events occurring following the execution of this Agreement and (ii) the facts
disclosed in such supplement or amendment would not either alone, or together
with any other supplements or amendments to the Midland Disclosure Schedule,
materially adversely effect the representation as to which the supplement or
amendment relates.
(b) Consents. Valley shall have received the written consents
of any person whose consent to the transactions contemplated hereby is required
under the applicable instrument.
(c) Opinion of Counsel. Valley shall have received an opinion
of counsel to Midland, dated the date of the Closing, in form and substance
reasonably satisfactory to Valley, covering the matters set forth on Schedule
6.2 hereto and any other matters reasonably requested by Valley.
(d) Bank Action. The Bank shall have taken all necessary
corporate action to effectuate the Bank Merger immediately following the
Effective Time.
(e) Certificates. Midland shall have furnished Valley with
such certificates of its officers or other documents to evidence fulfillment of
the conditions set forth in this Section 6.2 as Valley may reasonably request.
(f) Environmental Law Compliance. Midland shall have obtained,
with respect to each Facility, an LNA, a Remediation Agreement, a Negative
Declaration approval, a Remedial Action Workplan approval (in which event
Midland will post or have posted an appropriate Remediation Funding Source or
will have obtained the NJDEP's approval to self-guaranty any Remediation Funding
Source required under any such Remediation Agreement), a No Further Action
letter or other document or documents issued by the NJDEP advising that the
requirements of ISRA have been satisfied with respect to the Facility or an
opinion of the type referred to in Section 5.20(d) hereof.
6.3. Conditions to the Obligations of Midland Under this
Agreement. The obligations of Midland under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties; Performance of Obligations
of Valley. The representations and warranties of Valley contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date. Valley shall have performed in all
material respects, the agreements, covenants and obligations to be performed by
it prior to the Closing Date. With respect to any representation or warranty
which as of the Closing Date has required a supplement or amendment to the
Valley Disclosure Schedule to render such representation or warranty true and
correct as of the Closing Date, the representation and warranty shall be deemed
true and correct as of the Closing Date only if (i) the information contained in
the supplement or amendment to the Disclosure Schedule related to events
occurring following the execution of this Agreement and (ii) the facts disclosed
in such supplement or amendment would not either alone, or together with any
other supplements or amendments to the Valley Disclosure Schedule, materially
adversely effect the representation as to which the supplement or amendment
relates.
(b) Opinion of Counsel to Valley. Midland shall have received
an opinion of counsel to Valley, dated the date of the Closing, in form and
substance reasonably satisfactory to Midland, covering the matters set forth on
Schedule 6.3 hereto and any other matter reasonably requested by Midland.
(c) Fairness Opinion. Midland shall have received an opinion
from Capital Consultants as of the date of this Agreement and the date the Proxy
Statement/Prospectus is mailed to Midland's stockholders, to the effect that, in
its opinion, the consideration to be paid to stockholders of Midland hereunder
is fair to such stockholders from a financial point of view.
(d) Midland Directors and Officers. Valley and VNB each shall
have taken all action necessary to appoint Walter H. Jones, III and Graham O.
Jones to its Board of Directors as specified in Section 5.15, VNB shall have
appointed Robert M. Meyer as a member of senior management of VNB and Valley
shall have assumed in writing the contract of Robert M. Meyer, all as provided
in Section 5.15.
(e) Certificates. Valley shall have furnished Midland with
such certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 6.3 as Midland may
reasonably request.
(f) VNB Action. VNB shall have taken all necessary corporate
action to effectuate the Bank Merger immediately following the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated prior to
the Effective Time, whether before or after approval of this Agreement by the
stockholders of Midland:
(a) By mutual written consent of the parties hereto.
(b) By Valley or Midland (i) if the Effective Time shall not
have occurred on or prior to April 30, 1997 or (ii) if a vote of the
stockholders of Midland is taken and such stockholders fail to approve this
Agreement at the meeting (or any adjournment thereof) held for such purpose,
unless in each case the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe its
agreements set forth herein to be performed or observed by such party (or, in
the case of Midland, to be performed or observed by the directors of Midland) at
or before the Effective Time.
(c) By Valley or Midland upon written notice to the other if
any application for regulatory or governmental approval necessary to consummate
the Merger and the other transactions contemplated hereby shall have been denied
or withdrawn at the request or recommendation of the applicable regulatory
agency or governmental authority or by Valley upon written notice to Midland if
any such application is approved with conditions which materially impair the
value of Midland and the Bank, taken as a whole, to Valley.
(d) By Valley if (i) there shall have occurred a material
adverse change in the business, operations, assets, or financial condition of
Midland or the Bank, taken as a whole, from that disclosed by Midland on the
date of this Agreement; or (ii) if at the Closing the stockholders equity of
Midland (prepared in accordance with GAAP consistently applied during the
periods involved, except that (A) intangibles and all merger related charges
which are anticipated to be expensed at the Effective Time shall be deducted
from stockholders equity, (B) the amount of dividends paid by Midland after the
date hereof in excess of the amount of dividends paid by Midland during the same
period a year ago shall be added to stockholders equity and (C) stockholders
equity shall be calculated without taking into account any changes (positive or
negative) in unrealized gain or loss on securities available for sale or
securities held in a trading account between June 30, 1996 and the Closing) is
less than the stockholders equity of Midland (less intangibles) reported in
Financial Statements for the period ended June 30, 1996; or (iii) there was a
material breach in any representation, warranty, covenant, agreement or
obligation of Midland hereunder.
(e) By Midland, if (i) there shall have occurred a material
adverse change in the business, operations, assets or financial condition of
Valley or VNB from that disclosed by Valley on the date of this Agreement; or
(ii) there was a material breach in any representation, warranty, covenant,
agreement or obligation of Valley hereunder.
(f) By Valley or Midland if any condition to Closing specified
under Article VI hereof applicable to such party cannot reasonably be met after
giving the other party a reasonable opportunity to cure any such condition.
(g) By Midland if (A) the Average Closing Price is less than
$19.50 and (B) Valley has not delivered a written notice to Midland unilaterally
agreeing to increase the Exchange Ratio such that the value (measured by the
Average Closing Price) of the number of shares of Valley Common Stock to be
exchanged for one share of Midland Common Stock in the Merger, based on the new
Exchange Ratio, is at least as high as the value would have been if the Exchange
Ratio were unchanged and the Average Closing Price were $19.50.
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement by either Valley or Midland pursuant to
Section 7.1, this Agreement shall forthwith become void and have no effect,
without any liability on the part of any party or its officers, directors or
stockholders, except that Sections 5.5(b) and 8.1 hereof shall have continuing
effect as set forth therein. Nothing contained herein, however, shall relieve
any party from any liability for any breach of this Agreement.
7.3. Amendment. This Agreement may be amended by mutual action
taken by the parties hereto at any time before or after adoption of this
Agreement by the stockholders of Midland but, after any such adoption, no
amendment shall be made which reduces or changes the amount or form of the
consideration to be delivered to the shareholders of Midland without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of Valley and Midland.
7.4. Extension; Waiver. The parties may, at any time prior to
the Effective Time of the Merger, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.
ARTICLE VIII
MISCELLANEOUS
8.1. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including legal,
accounting and investment banking fees and expenses) shall be borne by the party
incurring such costs and expenses, except that the cost of printing and mailing
the Proxy Statement/Prospectus shall be borne equally by the parties hereto if
the transaction is terminated.
8.2. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by telecopier with confirming copy sent the same day by
registered or certified mail, postage prepaid, as follows: (a) If to Valley, to:
Valley National Bancorp
1445 Valley Road
Wayne, New Jersey 07474-0558
Attn.: Gerald H. Lipkin
Chairman and Chief Executive Officer
Telecopier No. (201) 305-0024
Copy to:
Pitney, Hardin, Kipp & Szuch
Attn.: Ronald H. Janis, Esq.
Delivery:
200 Campus Drive
Florham Park, New Jersey 07932
Mail:
P.O. Box 1945
Morristown, New Jersey 07962-1945
Telecopier No. (201) 966-1550
(b) If to Midland, to:
Midland Bancorporation, Inc.
80 East Ridgewood Avenue
Paramus, New Jersey 07652-3661
Attn.: Robert M. Meyer
President and Chief Executive Officer
Telecopier No. (201) 599-0785
Copy to:
Herbert H. Davis III
Rothgerber, Appel, Powers & Johnson LLP
One Tabor Center, Suite 3000
1200 Seventeenth Street
Denver, Colorado 80202
Telecopier No. 303-623-9222
or such other addresses as shall be furnished in writing by
any party, and any such notice or communications shall be deemed to have been
given as of the date so delivered or telecopied and mailed.
8.3. Parties in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement is intended to
confer, expressly or by implication, upon any other person any rights or
remedies under or by reason of this Agreement, except for the indemnitees
covered by Section 5.14 hereof. No assignment of this Agreement may be made
except upon the written consent of the other parties hereto.
8.4. Entire Agreement. This Agreement, the Disclosure
Schedules hereto and the other documents, agreements and instruments executed
and delivered pursuant to or in connection with this Agreement, contains the
entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior negotiations,
arrangements or understandings, written or oral, with respect thereto. If any
provision of this Agreement is found invalid, it shall be considered deleted and
shall not invalidate the remaining provisions.
8.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
8.6. Governing Law. This Agreement shall be governed by the
laws of the State of New Jersey, without giving effect to the principles of
conflicts of laws thereof.
8.7. Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
8.8. Survival. All representations, warranties and, except to
the extent specifically provided otherwise herein, agreements and covenants,
other than those agreements and covenants set forth in Sections 5.14 and 5.18
which shall survive the Merger, shall terminate as of the Effective Time.
8.9. Knowledge. Representations made herein which are
qualified by the phrase to the best of Midland's knowledge or similar phrases
refer as of the date hereof to the best knowledge of the Chief Executive Officer
and the Chief Lending Officer of Midland and thereafter refer to the best
knowledge of any senior officer of Midland or any Midland subsidiary.
Representations made herein which are qualified by the phrase to the best of
Valley's knowledge or similar phrases refer as of the date hereof to the best
knowledge of the President and Chief Executive Officer, the Executive Vice
President/Legal and the Chief Financial Officer of Valley and thereafter refer
to the best knowledge of any senior officer of Valley or any Valley subsidiary.
IN WITNESS WHEREOF, Valley, VNB, the Bank and Midland have
caused this Agreement to be executed by their duly authorized officers as of the
day and year first above written.
ATTEST: VALLEY NATIONAL BANCORP
/S/PETER SOUTHWAY By: /S/GERALD H. LIPKIN
- ------------------------- -------------------------------------
Peter Southway, Secretary Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
ATTEST: MIDLAND BANCORPORATION, INC.
/S/NELA GOVIC By: /S/ROBERT M. MEYER
- --------------------- -------------------------------------
Nela Govic, Secretary Robert M. Meyer, President
and Chief Executive Officer
ATTEST: VALLEY NATIONAL BANK
/S/PETER SOUTHWAY By: /S/GERALD H. LIPKIN
- ----------------------- -------------------------------------
Peter Southway, Cashier Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
ATTEST: MIDLAND BANK
/S/NELA GOVIC By: /S/ROBERT M. MEYER
- ------------------------ --------------------------------------
Nela Govic, Secretary Robert M. Meyer, President
and Chief Executive Officer
<PAGE>
CERTIFICATE OF NORWOOD ASSOCIATES II
Reference is made to the Agreement and Plan of Merger, dated
as of September 13, 1996 (the "Agreement"), among Valley National Bancorp,
Valley National Bank, Inc. Midland Bancorporation, Inc. and Midland Bank.
Capitalized terms used herein have the meanings given to them in the Agreement.
Each of the following persons, being all of the owners of
Norwood Associates II, agrees to vote or cause to be voted all shares of Midland
Common Stock which are held by such person, or over which such person exercises
full voting control, in favor of the Merger.
/S/ GRAHAM O. JONES
- -----------------------------
/S/ WALTER H. JONES III
- -----------------------------
/S/ DEBORAH BOILLOT
- -----------------------------
/S/ SUSAN H. JONES
- -----------------------------
/S/
- -----------------------------
/S/
- -----------------------------
/S/
- -----------------------------
/S/
- -----------------------------
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") dated September 13,
1996, is by and between Valley National Bancorp, a New Jersey corporation and
registered bank holding company ("Valley"), and Midland Bancorporation, Inc. a
New Jersey corporation ("Midland") and registered bank holding company for
Midland Bank ("Bank").
BACKGROUND
1. Valley, Midland, the Bank and Valley Bank ("Valley Bank"),
a wholly-owned subsidiary of Valley, as of the date hereof, have executed an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Valley
will acquire Midland through a merger of Midland with and into Valley (the
"Merger").
2. As an inducement to Valley to enter into the Merger
Agreement and in consideration for such entry and negotiation, Midland has
agreed to grant to Valley an option to purchase authorized but unissued shares
of common stock of Midland in an amount and on the terms and conditions
hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Merger Agreement, Valley and Midland,
intending to be legally bound hereby, agree:
1. Grant of Option. Midland hereby grants to Valley the option
to purchase 35,000 shares (the "Option Shares") of Midland's common stock,
$15.00 par value ("Common Stock") at an exercise price of $301.00 per share (the
"Option Price"), on the terms and conditions set forth herein (the "Option").
2. Exercise of Option. This Option shall not be exercisable
until the occurrence of a Triggering Event (as such term is hereinafter
defined). Upon or after the occurrence of a Triggering Event (as such term is
hereinafter defined), Valley may exercise the Option, in whole or in part, at
any time or from time to time in accordance with the terms and conditions
hereof.
The term "Triggering Event" means the occurrence of any of the
following events:
A person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) other than Valley or an affiliate of Valley:
a. acquires beneficial ownership (as such term is
defined in Rule 13d-3 as promulgated under the Exchange Act) of at least 20% of
the then outstanding shares of Common Stock; provided, however, that the
continuing ownership by a person or group which as of the date hereof owns more
than 20% of the outstanding Common Stock shall not constitute a Triggering
Event;
b. enters into a written letter of intent or an
agreement with Midland pursuant to which such person or any affiliate of such
person would (i) merge or consolidate, or enter into any similar transaction
with Midland or Midland Bank, (ii) acquire all or a significant portion of the
assets or liabilities of Midland or Midland Bank, or (iii) acquire beneficial
ownership of securities representing, or the right to acquire beneficial
ownership or to vote securities representing 20% or more of the then outstanding
shares of Common Stock;
c. makes a filing with any bank or thrift regulatory
authorities or publicly announces a bona fide proposal (a "Proposal") for (i)
any merger, consolidation or acquisition of all or a significant portion of all
the assets or liabilities of Midland or any other business combination involving
Midland or Midland Bank, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 20% or more of the
outstanding shares of Common Stock, and thereafter, if such Proposal has not
been Publicly Withdrawn (as such term is hereinafter defined) at least 15 days
prior to the meeting of stockholders of Midland called to vote on the Merger and
Midland stockholders fail to approve the Merger by the vote required by
applicable law at the meeting of stockholders called for such purpose; or
d. makes a bona fide Proposal and thereafter, but before
such Proposal has been Publicly Withdrawn, Midland willfully takes any action in
any manner which would materially interfere with its ability to consummate the
Merger or materially reduce the value of the Merger to Valley.
The term "Triggering Event" also means the taking of any
direct or indirect action by Midland or any of its directors, officers or agents
to invite, encourage or solicit any proposal which has as its purpose a tender
offer for the shares of Common Stock, a merger, consolidation, plan of exchange,
plan of acquisition or reorganization of Midland or Midland Bank, or a sale of
shares of Common Stock or stock of Midland Bank or any significant portion of
the assets or liabilities of Midland or Midland Bank.
The term "significant portion" means 20% of the assets or
liabilities of Midland.
"Publicly Withdrawn", for purposes of clauses (c) and (d)
above, shall mean an unconditional bona fide withdrawal of the Proposal coupled
with a public announcement of no further interest in pursuing such Proposal or
in acquiring any controlling influence over Midland or in soliciting or inducing
any other person (other than Valley or any affiliate of Valley) to do so.
Notwithstanding the foregoing, the Option may not be exercised
at any time (i) in the absence of any required governmental or regulatory
approval or consent necessary for Midland to issue the Option Shares or Valley
to exercise the Option or prior to the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or other order, decree
or ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares.
Midland shall notify Valley promptly in writing of the
occurrence of any Triggering Event known to it, it being understood that the
giving of such notice by Midland shall not be a condition to the right of Valley
to exercise the Option. Midland will not take any action which would have the
effect of preventing or disabling Midland from delivering the Option Shares to
Valley upon exercise of the Option or otherwise performing its obligations under
this Agreement.
In the event Valley wishes to exercise the Option, Valley
shall send a written notice to Midland (the date of which is hereinafter
referred to as the "Notice Date") specifying the total number of Option Shares
it wishes to purchase and a place and date for the closing of such a purchase (a
"Closing"); provided, however, that a Closing shall not occur prior to two days
after the later of receipt of any necessary regulatory approvals and the
expiration of any legally required notice or waiting period, if any.
3. Payment and Delivery of Certificates. At any Closing
hereunder (a) Valley will make payment to Midland of the aggregate price for the
Option Shares so purchased by wire transfer of immediately available funds to an
account designated by Midland, (b) Midland will deliver to Valley a stock
certificate or certificates representing the number of Option Shares so
purchased, free and clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever created by or through Midland, registered in the name
of Valley or its designee, in such denominations as were specified by Valley in
its notice of exercise and bearing a legend as set forth below and (c) Valley
shall pay any transfer or other taxes required by reason of the issuance of the
Option Shares so purchased.
Unless a registration statement is filed and declared
effective under Section 4 hereof, a legend will be placed on each stock
certificate evidencing Option Shares issued pursuant to this Agreement, which
legend will read substantially as follows:
The shares of stock evidenced by this certificate have not
been registered for sale under the Securities Act of 1933 (the "1933
Act"). These shares may not be sold, transferred or otherwise disposed
of unless a registration statement with respect to the sale of such
shares has been filed under the 1933 Act and declared effective or, in
the opinion of counsel reasonably acceptable to Midland Bancorporation,
Inc., said transfer would be exempt from registration under the
provisions of the 1933 Act and the regulations promulgated thereunder.
4. Registration Rights. Upon or after the occurrence of a
Triggering Event and upon receipt of a written request from Valley, Midland
shall prepare and file a registration statement with the Securities and Exchange
Commission, covering the Option and such number of Option Shares as Valley shall
specify in its request, and Midland shall use its best efforts to cause such
registration statement to be declared effective in order to permit the sale or
other disposition of the Option and the Option Shares, provided that Valley
shall in no event have the right to have more than one such registration
statement become effective and further provided that Midland shall have the
right to delay for up to six months such registration if the Option Shares can
and will be registered in connection with the filing of a Registration Statement
on Form S-4 (or a successor form) by any person acquiring Midland.
In connection with such filing, Midland shall use its best
efforts to cause to be delivered to Valley such certificates, opinions,
accountant's letters and other documents as Valley shall reasonably request and
as are customarily provided in connection with registrations of securities under
the Securities Act of 1933, as amended. All expenses incurred by Midland in
complying with the provisions of this Section 4, including without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for Midland and blue sky fees and expenses shall be paid by Valley.
Underwriting discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to Valley and any other
expenses incurred by Valley in connection with such registration shall be borne
by Valley. In connection with such filing, Midland shall indemnify and hold
harmless Valley against any losses, claims, damages or liabilities, joint or
several, to which Valley may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement with respect to Midland or alleged untrue statement
with respect to Midland of any material fact with respect to Midland contained
in any preliminary or final registration statement or any amendment or
supplement thereto, or arise out of a material fact with respect to Midland
required to be stated therein or necessary to make the statements therein with
respect to Midland not misleading; and Midland will reimburse Valley for any
legal or other expense reasonably incurred by Valley in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that Midland will not be liable in any case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement of omission or alleged omission
made in such preliminary or final registration statement or such amendment or
supplement thereto in reliance upon and in conformity with written information
furnished by or on behalf of Valley specifically for use in the preparation
thereof. Valley will indemnify and hold harmless Midland to the same extent as
set forth in the immediately preceding sentence but only with reference to
written information specifically furnished by or on behalf of Valley for use in
the preparation of such preliminary or final registration statement or such
amendment or supplement thereto; and Valley will reimburse Midland for any legal
or other expense reasonably incurred by Midland in connection with investigating
or defending any such loss, claim, damage, liability or action.
5. Adjustment Upon Changes in Capitalization. In the event of
any change in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
then the number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
In the event any capital reorganization or reclassification of
the Common Stock, or any consolidation, merger or similar transaction of Midland
with another entity, or in the event any sale of all or substantially all of the
assets of Midland shall be effected in such a way that the holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
(in form reasonably satisfactory to the holder hereof) shall be made whereby the
holder hereof shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified herein and in lieu of the
Common Stock immediately theretofore purchasable and receivable upon exercise of
the rights represented by this Option, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore purchasable and receivable
upon exercise of the rights represented by this Option had such reorganization,
reclassification, consolidation, merger or sale not taken place; provided,
however, that if such transaction results in the holders of Common Stock
receiving only cash, the holder hereof shall be paid the difference between the
Option Price and such cash consideration without the need to exercise the
Option.
6. Filings and Consents. Each of Valley and Midland will use
its best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement.
Exercise of the Option herein provided shall be subject to
compliance with all applicable laws including, in the event Valley is the holder
hereof, approval of the Board of Governors of the Federal Reserve System and
Midland agrees to cooperate with and furnish to the holder hereof such
information and documents as may be reasonably required to secure such
approvals.
7. Representations and Warranties of Midland. Midland hereby
represents and warrants to Valley as follows:
a. Due Authorization. Midland has full corporate power
and authority to execute, deliver and perform this Agreement and all corporate
action necessary for execution, delivery and performance of this Agreement has
been duly taken by Midland.
b. Authorized Shares. Midland has taken and, as long as
the Option is outstanding, will take all necessary corporate action to authorize
and reserve for issuance all shares of Common Stock that may be issued pursuant
to any exercise of the Option.
c. No Conflicts. Neither the execution and delivery of
this Agreement nor consummation of the transactions contemplated hereby
(assuming all appropriate regulatory approvals) will violate or result in any
violation or default of or be in conflict with or constitute a default under any
term of the certificate of incorporation or by-laws of Midland or, to its
knowledge, any agreement, instrument, judgment, decree, statute, rule or order
applicable to Midland.
8. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
Notwithstanding the foregoing, Valley shall have the right to seek money damages
against Midland for a breach of this Agreement.
9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
10. Assignment or Transfer. Valley may not sell, assign or
otherwise transfer its rights and obligations hereunder, in whole or in part, to
any person or group of persons other than to an affiliate of Valley. Valley
represents that it is acquiring the Option for Valley's own account and not with
a view to or for sale in connection with any distribution of the Option. Valley
is aware that presently neither the Option nor the Option Shares are being
offered by a registration statement filed with, and declared effective by, the
Securities and Exchange Commission, but instead are being offered in reliance
upon the exemption from the registration requirements pursuant to Section 4(2)
of the Securities Act of 1933, as amended.
11. Amendment of Agreement. By mutual consent of the parties
hereto, this Agreement may be amended in writing at any time, for the purpose of
facilitating performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any court or for any
other purpose.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
13. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, by express service,
cable, telegram or telex, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
If to Valley, to:
Valley National Bancorp
1445 Valley Road
Wayne, New Jersey 07474-0558
Attn.: Gerald H. Lipkin
Chairman and Chief Executive Officer
Telecopier No. (201) 305-0024
Copy to:
Pitney, Hardin, Kipp & Szuch
Attn.: Ronald H. Janis, Esq.
Delivery:
200 Campus Drive
Florham Park, New Jersey 07932
Mail:
P.O. Box 1945
Morristown, New Jersey 07962-1945
Telecopier No. (201) 966-1550
If to Midland, to:
Midland Bancorporation, Inc.
80 East Ridgewood Avenue
Paramus, New Jersey 07653
Attn.: Robert M. Meyer
President and Chief Executive Officer
Telecopier No. (201) 599-0785
Copy to:
Herbert H. Davis III
Rothgerber, Appel, Powers & Johnson LLP
One Tabor Center, Suite 3000
1200 Seventeenth Street
Denver, Colorado 80202
Telecopier No. 303-623-9222
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
15. Captions. The captions in the Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
16. Waivers and Extensions. The parties hereto may, by mutual
consent, extend the time for performance of any of the obligations or acts of
either party hereto. Each party may waive (i) compliance with any of the
covenants of the other party contained in this Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Agreement.
17. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement, except as provided in Section 10 permitting Valley to assign its
rights and obligations hereunder only to an affiliate of Valley.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
19. Termination. The Option granted hereby, to the extent not
previously exercised, shall terminate upon either the termination of the Merger
Agreement as provided therein or the consummation of the transactions
contemplated by the Merger Agreement; provided, however, that if termination of
the Merger Agreement occurs after the occurrence of a Triggering Event, this
Agreement and the Option granted hereby shall not terminate until 18 months
following the date of the termination of the Merger Agreement.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to
resolutions adopted by its Board of Directors, has caused this Agreement to be
executed by its duly authorized officer, all as of the day and year first above
written.
MIDLAND BANCORPORATION, INC.
By: /S/ ROBERT M MEYER
------------------------------------
Robert M. Meyer, President and
Chief Executive Officer
VALLEY NATIONAL BANCORP
By: /S/ GERALD H. LIPKIN
------------------------------------
Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
<PAGE>
APPENDIX C
CAPITAL CONSULTANTS OF PRINCETON, INC.
Investment Bankers & Bank/Thrisft Consultants
1000 Herrontown Road
Princeton, N.J. 08540-7716
609-921-3293
December 26, 1996
PRIVATE AND CONFIDENTIAL
Board of Directors
Midland Bancorporation, Inc.
80 East Ridgewood Avenue
Paramus, NJ 07652-3661
Members of the Board:
Midland Bancorporation, Inc. ("MIDLAND") and The Midland Bank & Trust Company
("MIDLAND BANK") have entered into an Agreement and Plan of Merger dated
September 13, 1996, ("MERGER AGREEMENT") with Valley National Bancorp ("VALLEY")
and Valley National Bank ("VNB") which provides for the merger of MIDLAND with
and into VALLEY ("MERGER") and the merger of Midland Bank into VNB.
If the MERGER is approved and consummated, subject to the provisions of MERGER
AGREEMENT, each share of MIDLAND Common Stock issued and outstanding (excluding
shares held by VALLEY) shall be converted at the Effective Time into the right
to receive 30.00 shares ("EXCHANGE RATIO") of common stock, no par value, of
VALLEY.
You have requested our opinion as to whether the consideration offered in the
MERGER is fair, from a financial point of view, to the stockholders of MIDLAND.
Capital Consultants of Princeton, Inc. ("CAPITAL CONSULTANTS"), as a customary
part of its investment banking business, is engaged in the valuation of
commercial banking and thrift institutions and their securities in connection
with mergers and acquisitions, private placements and valuations for estate,
corporate and other purposes.
In arriving at our opinion we have reviewed and analyzed, among other things:
(i) the MERGER AGREEMENT; (ii) the VALLEY Registration Statement on Form S-4 of
which this Proxy Statement-Prospectus is a part; (iii) publicly available
information relating to VALLEY and MIDLAND including, for VALLEY, annual reports
to shareholders and annual reports on Form 10-K filed with the SEC for the years
ended December 31, 1993 through 1995, the Consolidated Financial Statements of
December 31, 1995, 1994, and 1993, and the quarterly report to shareholders and
quarterly reports on Form 10-Q filed with the SEC for the periods ended March
31, June 30, and September 30, 1996, and for MIDLAND annual reports to
stockholders for the years ended December 31, 1993 through 1995, Consolidated
Financial Statements as of December 31, 1995, 1994, and 1993 together with the
Report of Independent Public Accountants and quarterly reports of Consolidated
Conditions and Income as filed with the Federal Deposit Insurance Corporation
for the periods ended March 31, June 30, and September 30, 1996; (iv) certain
historical operating and financial information provided to CAPITAL CONSULTANTS
by the managements of MIDLAND and VALLEY; (v) historical and current market data
for the MIDLAND Common Stock and the VALLEY Common Stock; (vi) the publicly
available financial data and stock market performance data of publicly traded
banking and thrift institutions which CAPITAL CONSULTANTS deemed generally
comparable to MIDLAND and VALLEY; (vii) the nature and terms of recent
acquisitions and merger transactions involving banking institutions and bank and
thrift holding companies that CAPITAL CONSULTANTS considered reasonably similar
to MIDLAND and VALLEY in financial character, operating character, historical
performance, geographic market and economy; and (viii) such other studies,
analyses, inquiries and reports as CAPITAL CONSULTANTS deemed appropriate. In
addition, CAPITAL CONSULTANTS conducted meetings with members of senior
management of MIDLAND and VALLEY for purposes of reviewing the future prospects
of MIDLAND and VALLEY. CAPITAL CONSULTANTS evaluated the pro forma ownership of
the VALLEY Common Stock by MIDLAND stockholders, relative to the pro forma
contribution of MIDLAND assets, deposits, equity, and earnings to the pro forma
resulting company in the MERGER. CAPITAL CONSULTANTS also took into account its
experience in other transactions, as well as its knowledge of the banking and
thrift industries and its experience in securities valuations.
While we have taken care in our investigation and analysis, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us or publicly available, and have not attempted to
verify same. We have not made or obtained any independent evaluations or
appraisals of the assets or liabilities of MIDLAND or VALLEY.
In conducting our analysis and arriving at our opinion, we have considered such
financial and other factors as we have deemed appropriate in the circumstances.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary regulatory approvals for the MERGER, no conditions will be imposed
that would have a material adverse effect on the contemplated benefits of
MERGER. Our opinion is necessarily based upon market, economic, and other
conditions as they exist and can be evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that the consideration to be paid in the MERGER is fair, from a financial point
of view, to the stockholders of MIDLAND.
Very truly yours,
CAPITAL CONSULTANTS OF PRINCETON, INC.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS OF MIDLAND BANCORPORATION, INC
<S> <C>
Independent Auditors' Report......................................................................... F - 1
Consolidated Balance Sheets as of December 31, 1995 and 1994............................................. F - 2
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993......................... F - 3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993........... F - 4
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993..................... F - 5
Notes to consolidated financial statements for the years ended December 31, 1995, 1994, 1993................... F - 6
Consolidated Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995......................... FF - 1
Consolidated Statements of Income for the three-month periods ended September 30, 1996 and 1995 (unaudited).... FF - 2
Consolidated Statements of Income for the nine-month periods ended September 30, 1996 and 1995 (unaudited)..... FF - 3
Consolidated Statements of Stockholders' Equity for the nine-month periods ended September 30, 1996
and 1995 (unaudited)......................................................................................... FF - 4
Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 1996 and 1995
(unaudited).................................................................................................. FF - 5
Note to consolidated financial statements for the nine-month periods ended September 30, 1996
and 1995 (unaudited)......................................................................................... FF - 6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Midland Bancorporation, Inc.:
We have audited the accompanying consolidated balance sheets of Midland
Bancorporation, Inc. and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period
ended December 31, 1995. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility
is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Midland Bancorporation, Inc. and subsidiary at December 3l, 1995 and
1994, and the results of their operations and their cash flows for each
of the years in the three year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the
Corporation changed its method of accounting for investments in 1994 to
adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Additionally, as
discussed in notes 1 and 9 to the consolidated financial statements,
the Corporation changed its method of accounting for income taxes in
1993 to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
January 29, 1996
<PAGE>
<TABLE>
<CAPTION>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
- ------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks (Note 3)............................... $ 31,508 $ 32,069
Federal funds................................................ 15,550 2,675
Interest-bearing deposits with banks........................... 12,000 --
--------- -------
59,058 34,744
SECURITIES (Note 4):
Held to maturity, market value
of $58,490,000 in 1995 and $61,593,000
in 1994.................................................... 58,225 64,184
Available for sale........................................... 39,811 51,238
LOANS (Notes 5 and 6):
Commercial................................................... 152,826 143,507
Installment.................................................. 46,651 43,543
Real estate mortgage......................................... 59,188 55,011
--------- -------
258,665 242,061
Less:
Allowance for loan........................................... (4,321) (3,881)
--------- -------
Net loans................................................... 254,344 238,180
PREMISES AND EQUIPMENT, net (Notes 7 and 10)................... 7,659 7,765
ACCRUED INTEREST RECEIVABLE.................................... 3,211 3,169
OTHER ASSETS (Note 5).......................................... 1,784 2,450
--------- -------
Total assets................................................ $ 424,092 $ 401,730
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS (Note 8):
Demand....................................................... $ 111,542 $ 109,148
Money Market Accounts........................................ 60,936 65,619
Savings...................................................... 85,472 92,572
Certificates of Deposit...................................... 130,310 102,896
--------- --------
Total deposits............................................. 388,260 370,235
NOTE PAYABLE (Note 10)......................................... 446 487
ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES (Note 9)........ 3,014 2,729
------------ ---------
Total liabilities.......................................... 391,720 373,451
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY
Common stock, par value $15.00 per share;
authorized 300,000 shares: issued 129,220 shares............ 1,938 1,938
Surplus...................................................... 565 565
Retained earnings (Note 12).................................... 30,836 28,041
----------- ----------
33,339 30,544
Less - Net unrealized loss on securities available for sale,
net of tax............................................ (178) (1,792)
Less - Treasury stock at cost, 3,477 shares in 1995 and
2,327 shares in 1994....................................... (789) (473)
--------- ----------
Total stockholders' equity..................................... $ 32,372 $ 28,279
Total liabilities and stockholders' equity................. $ 424,092 $ 401,730
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans (Note 5)......................................................... $ 23,210 $ 18,799 $ 17,248
Money market investments and cash equivalents.......................... 528 122 310
Securities:
Held to maturity................................................... 3,208 3,197 7,062
Available for sale................................................. 2,296 3,382 --
------- ------- -----
Total interest income.......................................... 29,242 25,500 24,620
INTEREST EXPENSE (Note 8):
Deposits............................................................... 10,000 7,284 8,482
Federal funds purchased................................................ 17 40 -
Other borrowed funds................................................... 38 41 22
------ ------ ------
Total interest expense......................................... 10,055 7,365 8,504
------ ------ ------
Net interest income............................................ 19,187 18,135 16,116
PROVISION FOR LOAN LOSSES (Note 5) .................................... 500 787 1,036
------ ------ ------
Net interest income after provision for loan losses............ 18,687 17,348 15,080
------ ------ ------
OTHER OPERATING INCOME:
Service charges on deposit accounts................................ 2,457 2,508 2,302
Loan fees.......................................................... 17 32 40
Commissions and fees............................................... 244 237 272
Other income....................................................... 215 227 510
Gain (loss) on sale of securities.................................. 1 (25) 255
------ ------- ------
Total other operating income................................... 2,934 2,979 3,379
------ ------ ------
OTHER OPERATING EXPENSES (Notes 6, 7 and 11):
Salaries and related expense........................................... 8,202 7,739 7,327
Occupancy expense...................................................... 1,754 1,715 1,675
Premises and equipment expense......................................... 1,802 1,715 1,807
Federal deposit insurance expense...................................... 414 804 761
Other.................................................................. 2,348 2,514 2,932
------ ------ ------
Total other operating expenses..................................... 14,520 14,487 14,502
------- ------ ------
Income before income taxes and cumulative effect of accounting change.. 7,101 5,840 3,957
Income taxes (Note 9).................................................. 2,664 2,137 1,256
------ ------ ------
Net income before cumulative effect of accounting change............... 4,437 3,703 2,701
Cumulative effect of accounting change................................. -- -- 151
----- ----- ------
NET INCOME............................................................. $ 4,437 $ 3,703 $ 2,852
Income per share....................................................... $ 34.99 $ 29.16 $ 22.45
Weighted average shares outstanding.................................... 126,805 126,987 127,023
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
Net Unrealized
Loss on
Securities
Available Total
Retained Treasury for Sale Stockholders
Common Stock Surplus Earnings Stock Net of Tax Equity
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992............. $ 1,938 $ 565 $ 23,836 $ (445) $ - $ 25,894
Net income............................ - - 2,852 - - 2,852
Cash dividends ($6.50 per share)..... - - (826) - - (826)
---------- -------- --------- - -------- ---------- ----------
Balance, December 31, 1993........... $ 1,938 $ 565 $ 25,862 $ (445) $ - $ 27,920
-------- ------- --------- --------- ---------- ---------
Net income................. - - 3,703 - - 3,703
Cash dividends ($12.00 per share)..... - - (1,524) - - (1,524)
Treasury stock acquired............. - - - (28) - (28)
Net unrealized loss on securities
available for sale, net of tax - - - - (1,792) (1,792)
-------- ------- --------- -------- ---------- ----------
Balance, December 31, 1994 $ 1,938 $ 565 $ 28,041 $ (473) $ (1,792) $ 28,279
-------- ------ --------- --------- ---------- ---------
Net income................. - - 4,437 - - 4,437
Cash dividends ($13.00 per share)..... - - (1,642 ) - - (1,642)
Treasury stock acquired............... - - - (316) - (316)
Net decrease in unrealized loss on securities
available for sale, net of tax........ - - - - 1,614 1,614
--------- ------- ------------ ---------- -------- ---------
Balance, December 31, 1995............ $ 1,938 $ 565 $ 30,836 $ (789) $ (178) $ 32,372
======== ====== ========= ========= ========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities (Dollars in Thousands)
Net income..................................................... $ 4,437 $ 3,703 $ 2,852
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation................................................. 1,069 1,052 856
Net amortization and accretion - securities.................. 822 1,065 1,142
Provision for loan losses.................................... 500 787 1,036
Provision for valuation allowance for other real estate...... 30 121 245
Deferred income tax.......................................... (416) (215) (314)
Loss (gain) on sales and calls of securities................. (1) 25 (255)
Increase in accrued interest receivable...................... (42) (55) (267)
(Increase) decrease in other assets.......................... 222 (266) 1,136
Increase (decrease) in accrued interest payable and other
liabilities................................................ (90) 262 (498)
-------- ------- -------
Net cash provided by operating activities................. 6,531 6,479 5,933
------- ------- -------
Investing Activities
Proceeds from sales of securities - held to maturity........... - - 10,712
Proceeds from maturities of securities held to maturity........ 19,313 8,465 41,991
Proceeds from sales of securities - available for sale......... 2,995 13,712 -
Proceeds from maturities of securities - available for sale.... 10,450 13,888 -
Purchases of securities held to maturity....................... (13,749) (9,980) (76,233)
Purchases of securities - available for sale................... - (3,523) -
Net (increase) decrease in loans............................... (16,664) (24,166) (7,566)
Purchase of premises and equipment, net........................ (963) (596) (3,944)
------- ------- --------
Net cash (used) provided by investing activities.......... 1,382 (2,200) (35,040)
------- ------- --------
Financing Activities
Net (decrease) increase in demand deposits
and other interest bearing deposits.......................... (9,389) (8,103) 45,285
Net increase (decrease) in certificates of deposit............. 27,414 1,035 (14,435)
Principal payments on long-term debt........................... (41) (38) (92)
Increase in long-term debt..................................... - - 540
Dividends paid................................................. (1,267) (1,270) (826)
Treasury stock acquired........................................ (316) (28) -
--------- ----------- ---------
Net cash (used) provided by financing activities.......... 16,401 (8,404) 30,472
--------- ------ --------
Increase (decrease) in cash and cash equivalents............... 24,314 (4,125) 1,365
Cash and cash equivalents at beginning of year................. 34,744 38,869 37,504
--------- ------ ---------
Cash and cash equivalents at end of year....................... $ 59,058 $ 34,744 $ 38,869
========= ========= =========
Noncash investing - additions to
real estate owned, net......................................... $ - $ - $ 266
========== =========== =========
Transfer of investment securities to the
available for sale portfolio................................... $ - $ - $ 77,704
========== =========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies: Principles of consolidation The
accompanying consolidated financial statements include the accounts of
Midland Bancorporation, Inc. and its direct and indirect wholly-owned
subsidiaries (the Corporation), The Midland Bank and Trust Company, Midland
Realty Co., Inc. and Midpar Investment, Inc. (together, the Bank). All
significant intercompany accounts and transactions have been eliminated
from the accompanying consolidated financial statements.
Business
The Bank provides a full range of banking services to individual and
corporate customers through its branches in Northern New Jersey. The Bank
is subject to competition from other financial institutions and to the
regulations of certain Federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
Basis of financial statement presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from these estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for loan losses and real estate owned,
management generally obtains independent appraisals for significant
properties.
Cash and cash equivalents
For the purposes of cash flow, cash and cash equivalents include cash on
hand, demand and interest-bearing deposits with banks and Federal funds
sold with maturities of three months or less from date of purchase.
Securities
Effective January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS No. 115). Securities that may be sold in
response to or in anticipation of changes in interest rates or other
factors, are classified as available for sale and carried at fair value.
The unrealized gains and losses on these securities are reported net of
applicable taxes as a separate component of stockholders' equity. If
management has the intent and the Bank has the ability at the time of
purchase to hold securities until maturity, they are classified as
held-to-maturity and carried at amortized historical cost.
Interest income on securities, adjusted for amortization of premiums and
accretion of discounts, is recognized using the straight line method which
generally approximates the interest method, over the term of the
investment.
Loans
Loans are stated at their principal amounts outstanding, net of unearned
income and loan origination fees and costs. Interest on loans is accrued
and credited to interest income based on loan principal amounts outstanding
at appropriate interest rates. Loan origination fees and certain direct
loan origination costs are deferred and recognized over the life of the
loan as an adjustment to the loan's yield. When management believes there
is sufficient doubt as to the ultimate collectibility of interest on any
loan, the accrual of applicable interest is discontinued. Any subsequent
payments are credited to income as received. Other loan fees are recorded
as earned and included in non-interest income.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," (SFAS No. 114) as amended by Statement
of Financial Standards No. 118, "Accounting by Creditors for Impairment of
a Loan Income Recognition and Disclosures," (SFAS No. 118) were adopted
prospectively by the Bank on January 1, 1995. SFAS No. 114 defines an
impaired loan as a loan for which it is probable based on current
information, that the lender will not collect all amounts due under the
contractual terms of the loan agreement. The Bank has defined
F-6
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the population of impaired loans to be all non-accrual loans. Commercial
and mortgage impaired loans are individually assessed to determine that
each loan's carrying value is not in excess of the fair value of the
related collateral or the present value of the expected future cash flows.
Allowance for loan losses
The allowance for loan losses is established through a provision for loan
losses charged to income. Losses on loans are charged against the allowance
when management believes the collectibility of principal is unlikely.
Subsequent recoveries, if any, are credited to the allowance. The allowance
for loan losses is based upon factors such as individual loan
characteristics, changes in composition and volume of the loan portfolio,
economic conditions and other factors that may warrant recognition in
maintaining an allowance at a level sufficient to provide for estimated
loan losses. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses
on loans, future additions to the allowance may be necessary based on
changes in economic conditions, particularly in Northern New Jersey. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at
the time of their examination.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the life of the lease or the
estimated useful life of the improvement, whichever is shorter. The costs
for improvements and major renovations are capitalized, while repairs and
maintenance costs are expensed as incurred. Gains and losses are realized
upon disposition and are reflected in current earnings.
Other real estate owned
Other real estate owned is property acquired through foreclosure or deed in
lieu of foreclosure. These properties are carried at fair value, less
estimated costs to sell. When a property is acquired, the excess of the
loan balance over fair value is charged to the allowance for loan losses. A
reserve for real estate owned has been established to provide for
subsequent write downs that may be required. Real estate owned is carried
net of the related reserve. Operating results from real estate owned,
including rental income, operating expenses, and gains and losses realized
from the sales of real estate owned are recorded as incurred. Other real
estate owned in 1994 is included in other assets in the accompanying
consolidated balance sheets.
Employee benefit plans
The Bank has an incentive savings plan, which includes a non-contributory
profit sharing plan, in effect for the benefit of eligible employees. The
incentive savings plan allows eligible employees to make personal
contributions by means of payroll deductions and the Bank makes matching
contributions out of current year earnings. The Bank's contributions
($495,000 in 1995, $491,000 in 1994 and $450,000 in 1993) to the plans are
at the discretion of the Board of Directors, subject to limitations imposed
under the Internal Revenue Code. During 1993, the Bank established a long
term incentive program for key executives. The plan has been established
with the intention of providing added incentive to key executives to
increase profits of the Corporation. The executives and the amount of the
award are subject to limits as set forth in the plan. Contributions made by
the plan in 1995, 1994 and 1993 were $81,000, $54,000 and $27,000,
respectively.
Income taxes
The Corporation files a consolidated Federal income tax return. For
financial statement purposes, taxes of the parent and subsidiary are
recorded on the basis of filing separate returns.
The Corporation accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the estimated future tax
F-7
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Effective January 1, 1993, the Bank adopted SFAS No. 109 and has separately
reported the cumulative effect of that change in the method of accounting
for income taxes in the 1993 statement of income (See note 9).
Income per share
Income per share is calculated by dividing net income by the weighted
average number of shares outstanding during each year.
(2) Dispositions:
On February 1, 1993, the Bank signed an agreement with a New York Bank
(Purchaser) for the sale of its Visa and Credit Card Business. The Bank
will continue to offer Visa credit cards through the Purchaser and in
return will receive a fee for each new account it opens. The gain resulting
from this transaction was $215,000 which was recognized in 1993.
(3) Cash:
The Bank is required by the Federal Reserve Bank to maintain a cash reserve
balance based upon deposits. The amount of the reserve for the years ended
December 31, 1995 and 1994 was approximately $5,400,000 and $4,400,000,
respectively.
(4) Securities - held to maturity and available for sale:
The following is a comparison of the carrying value, gross unrealized gains
and losses and approximate market value of investment securities by
maturity at December 31, 1995 and 1994. Expected maturities on debt
securities may differ from contractual maturities as certain obligations
provide the issuer the right to call or prepay the obligation prior to
scheduled maturity without penalty. Equity securities do not have
contractual maturities. In December 1993, the Corporation restructured its
investment portfolio by selling securities of $10,712,000 and establishing
an available for sale portfolio through the transfers of $77,704,000 of
securities from the investment securities held to maturity portfolio.
F-8
<TABLE>
<CAPTION>
Securities - held to maturity,
December 31, 1995
(Dollars in Thousands):
Gross Gross
Within 1 Over 10 Amortized Unrealized Unrealized Market
Year 1-5 Years 5-10 Years Years Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasury..... $ 15,095 $ 23,2336 $ - $ - $ 38,331 $ 147 $ (113) $ 38,365
United States Government
agencies................. 1,015 12,793 425 2,611 16,844 211 (74) 16,981
States and political
subdivisions............. 1,282 - - 1,157 2,439 94 - 2,533
Other...................... 611 - - - 611 - - 611
--------- ---------- ------- --------- --------- ------- ------- ---------
$ 18,003 $ 36,029 $ 425 $ 3,768 $ 58,225 $ 452 $ (187) $ 58,490
========= ========= ====== ======== ========= ====== ======== =========
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Securities - available for sale
December 31, 1995
(Dollars in Thousands):
Gross Gross
Within 1 Over 10 Amortized Unrealized Unrealized Market
Year 1-5 Years 5-10 Years Years Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasury..... $ 13,111 $ 16,910 $ - $ - $ 29,301 $ 13 $ (140) $ 29,174
United States Government
agencies................. 5,033 5,036 - - 10,069 - (154) 9,915
Other...................... 175 536 - - 711 11 - 722
--------- --------- ------- --------- --------- ----- ------- ---------
$ 18,319 $ 21,762 $ $ - $ 40,081 $ 24 $ (294) $ 39,811
========= ========= ======= ========= ========= ===== ======= =========
Securities - held to maturity
December 31, 1994
(Dollars in Thousands):
Gross Gross
Within 1 Over 10 Amortized Unrealized Unrealized Market
Year 1-5 Years 5-10 Years Years Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
United States Treasury..... $ 6,016 $ 32,060 $ - $ - $ 38,076 $ - $ (1,761) $ 36,315
United States Government
agencies................. 5,999 10,617 - 3,579 20,195 14 (865) 19,344
States and political
subdivisions............. 3,327 633 - 1,199 5,519 43 (22) 5,180
Other...................... 754 - - - 754 - - 754
--------- ---------- ------ --------- --------- ------ ------- ---------
$ 16,096 $ 43,310 $ - $ 4,778 $ 64,184 $ 57 $ (2,648) $ 61,593
========= ========= ====== ======== ========= ===== ========= =========
Securities - available for sale
December 31, 1994 (Dollars in Thousands): Gross Gross
Within 1 Over 10 Amortized Unrealized Unrealized Market
Year 1-5 Years 5-10 Years Years Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
United States Treasury..... $ 5,007 $ 31,641 $ - $ - $ 36,648 $ - $ (1,901) $ 34,747
United States Government
agencies................. 5,983 10,159 - - 16,142 - (783) 15,359
Other...................... 454 709 - - 1,163 - (31) 1,132
--------- --------- ------- --------- --------- ------ --------- ---------
$ 11,444 $ 42.509 $ $ - $ 53,953 $ - $ (2,715) $ 51,238
========= ========= ======= ========= ========= ====== ========= =========
</TABLE>
Gains and losses were realized on sales and calls of securities as follows
(Dollars in Thousands):
Held to Maturity Available for Sale
---------------- ------------------
1995 1994 1993 1995 1994
------------------------------- -----------------
Gross gains.......... $ - $ - $ 256 $ 2 $ 10
Gross (losses)....... (1) - (1) - (35)
------ ----- ------- ----- -----
Net gains (losses)... $ (1) $ - $ 255 $ 2 $ (25)
======= ========= ======== ======= ======
Securities with a carrying value of $4,940,000 and $5,315,000 at December 31,
1995 and 1994, respectively, were pledged to secure public funds on deposit and
for other purposes as required by law.
F-10
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Loans and allowance for loan losses:
The following table presents information concerning loans accounted for on
a non-accrual basis, other real estate owned and loans which are
contractually past due 90 days or more as to interest or principal payments
but have not been classified as non-accrual.
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
(Dollars in Thousands)
<S> <C> <C>
Non-accrual loans..................................... $ 2,382 $ 1,223
Other real estate owned (net of valuation allowance of
$229,000 as of December 31, 1994)................... - 489
--------- --------
Total................................................. $ 2,382 $ 1,712
======== ========
Loans past due 90 days or more and still accruing
interest............................................ $ 8 $ 17
========= ========
</TABLE>
If the non-accrual loans had performed in accordance with their original terms,
interest income would have increased by $150,000, $88,000 and $81,000 in 1995,
1994 and 1993, respectively. Interest income of approximately $24,000, $6,000
and $39,000 were received on these loans for the years ended December 31, 1995,
1994 and 1993, respectively. At December 31, 1995, there were no commitments to
lend additional funds to borrowers whose loans were on non-accrual or
contractually past due in excess of 90 days and still accruing interest.
F-11
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of other real estate owned for the years ended December 31, 1995 and
1994 is as follows:
1995 1994
----------------------
(Dollars in Thousands)
Acquired in foreclosure $ - $ 718
Valuation allowance....... - (229)
Total other real estate owned, net $ - $ 489
========= =========
The following table is an analysis of the valuation allowance for other real
estate owned for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993
------------------------------------
(Dollars in Thousands)
Balance, beginning of year $ 229 $ 353 $ 125
Provision charged to expense............... 30 121 245
Chargeoffs................................. (259) (245) (17)
------ ------ ------
Balance, end of year....................... $ - $ 229 $ 353
======= ====== ======
An analysis of the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 is as follows:
1995 1994 1993
------------------------------------
(Dollars in Thousands)
Balance, beginning of $ 3,881 $ 3,211 $ 2,903
year........................................
Provision charged to 500 787 1,036
expense.....................................
Recoveries of previously charged-off loans.. 159 230 293
Loans charged off........................... (219) (347) (1,021)
------- -------- - ------
Balance, end of year $ 4,321 $ 3,881 $ 3,211
======== ======== ========
SFAS No. 114 and SFAS No. 118 were adopted prospectively on January 1, 1995.
These statements address the accounting for impaired loans and specify how the
allowance for loan losses related to these impaired loans should be determined.
The adoption of these statements did not affect the level of the overall
allowance or the Corporation's operating results. Income recognition and
charge-off policies were not changed as a result of these statements.
At December 31, 1995, the impaired loan portfolio was primarily collateral
dependent as defined under SFAS No. 114 and totaled $2,382,000 for which general
and specific allocations to the allowance for loan losses of $1,251,000 were
identified. The average balance of impaired loans during 1995 was $1,709,000.
The amount of cash basis interest income that was recognized on impaired loans
during year-end 1995 was $24,000.
The Bank grants commercial, mortgage and installment loans to those New Jersey
residents and businesses within its local trading area. Its borrowers' ability
to repay their obligations is dependent upon various factors, including the
borrower's income and net worth, cash flows generated by the underlying
collateral, value of the underlying collateral and priority of the Bank's lien
on the property. Such factors are dependent upon various economic conditions and
individual circumstances beyond the Bank's control; the Bank is therefore
subject to risk of loss. The Bank believes its lending policies and procedures
adequately minimize the potential exposure to such risks and that adequate
provisions for loan losses are provided for all known and inherent risks. During
1995, the Bank transferred other real estate owned of $420,000 at carrying
value, to Investment in Real Estate which is part of other assets on the
consolidated balance sheet.
F-12
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Related party transactions:
Loans to directors, policy making officers and their affiliated interests,
which were granted at prevailing interest rates and terms, were
approximately $6,371,000 and $9,818,000 at December 31, 1995 and 1994,
respectively. On December 31, 1995, none of the loans outstanding to
directors, policy making officers and their affiliated interests were
delinquent. In addition, the Bank paid approximately $160,000, $141,000 and
$168,000 during 1995, 1994 and 1993, respectively, for legal services to a
law firm whose partners, through interests in other entities, ultimately
are shareholders of the Corporation. In the opinion of management, such
charges are reasonable in relation to the services provided and consistent
with those that would have been received from nonaffiliated counsel.
(7) Premises and equipment, net:
An analysis of premises and equipment is as follows:
December 31,
1995 1994
--------------------------------------
(Dollars in Thousands)
Land............................................. $ 961 $ 961
Capitalized lease - land......................... 540 540
Buildings........................................ 3,099 3,028
Furniture and equipment.......................... 7,032 6,532
Leasehold improvements........................... 3,748 3,356
----- -----
$ 15,380 $ 14,417
Less accumulated depreciation and amortization... (7,721) (6,652)
--------- ----------
$ 7,659 $ 7,765
========== =========
Depreciation and amortization of premises and equipment amounted to
$1,069,000, $1,052,000 and $856,000 for the years ended December 31, 1995,
1994 and 1993:
(8) Deposits:
The following table shows the time remaining to maturity of certificates of
deposit of $100,000 or more, at December 31, 1995 and 1994, respectively:
1995 1994
---------------------------------
(Dollars in Thousands)
Three months or less.........................$ 20,267 $ 14,173
Over three months but within twelve months... 5,348 2,396
Over twelve months........................... 303 506
--------- ---------
Total........................................$ 25,918 $ 17,075
========= =========
Interest expense on time certificates of deposit in denominations of
$100,000 or more amounted to $910,000, $298,000 and $242,000 in 1995, 1994
and 1993, respectively.
Interest paid on deposits, Federal funds purchased and other borrowed funds
during 1995, 1994 and 1993 amounted to $10,086,000, $7,468,000 and
$8,744,000, respectively.
(9) Income Taxes:
The current and deferred portion of the tax provision (exclusive of the
cumulative effect of adoption of SFAS No. 109) are as follows:
F-13
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, (Dollars in Thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
Current taxes:
Federal....................................$ 2,554 $ 1,976 $ 1,413
State...................................... 526 376 6
-------- -------- --------
Total current.................................. 3,080 2,352 1,419
-------- -------- --------
Deferred taxes:
Federal.................................... (375) (142) (163)
State...................................... (41) (73) -
-------- -------- --------
Tax provision..................................$ 2,664 $ 2,137 $ 1,256
========= ======== ========
The deferred tax effect on the net unrealized loss on securities available for
sale under SFAS No. 115 as of December 31, 1995 and 1994 is $92,000 and
$923,000, respectively. The total income tax provision of $2,664,000, $2,137,000
and $1,256,000 for 1995, 1994 and 1993, respectively, reflects an effective tax
rate of 37%, 37% and 32%, respectively. The reasons for the differences between
the statutory Federal income tax rate (34%) and the effective rate are as
follows:
Year Ended December 31, (Dollars in Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Federal statutory income tax....................$ 2,414 $ 1,986 $ 1,345
Increase (decrease) in Federal income tax
resulting from:
Tax-exempt income............................ (66) (67) (112)
State income tax, net of Federal tax benefit. 320 200 4
Decrease in valuation allowance.............. - (54) -
Other, net................................... (4) 72 19
------ --------- -------
Tax provision...................................$ 2,664 $ 2,137 $ 1,256
======== ========== ========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities of December 31, 1995, 1994 and 1993
are presented below:
1995 1994 1993
-------------------------------------
Deferred assets: (Dollars in Thousands)
Provision for loan losses..............$ 600 $ 424 $ 133
Valuation of real estate owned......... 101 91 131
Deferred loan fees..................... 141 148 91
State net operating losses............. - - 54
SFAS 115............................... 92 923 -
Non-deductible accrued expenses........ 119 44 67
Other.................................. 9 3 31
------ -------- ------
Gross deferred tax assets.................. 1,062 1,633 507
Valuation allowance.................... -- -- (54)
------ ------- ------
Net deferred tax assets.................... 1,062 1,633 453
Deferred tax liabilities:
Fixed assets........................... (158) (302) (36)
Securities............................. (60) (72) (296)
------ -------- ------
Gross deferred tax liabilities............. (218) (374) (332)
Net deferred tax asset.....................$ 844 $ 1,259 $ 121
====== ========= ========
The valuation allowance for deferred tax assets as of January 1, 1994 was
$54,000. The net change in the total valuation allowance for the year ended
December 31, 1994 was a decrease of $54,000, due to utilization of state net
operating losses.
Income taxes paid amounted to $2,225,000, $1,730,000 and $1,375,000 in 1995,
1994 and 1993, respectively.
F-14
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Note payable:
The Corporation has a capitalized lease agreement for the acquisition of
land with a book value of $540,000. The lease requires a monthly payment of
$6,552 through July 2003. The present value of net minimum lease payments
for 1996, 1997, 1998, 1999 and 2000 are $45,000, $48,000, $52,000, $57,000
and $61,000, respectively. Total present value of net minimum lease
payments through 2003 amount to $183,000.
(11) Commitments and contingencies:
The Bank is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous
causes of action arising from its business. Management does not consider
that any such proceedings depart from usual routine litigation and, in its
judgment, the Bank's financial position will not be affected materially by
any present proceedings.
The Bank leases certain of its branch facilities as well as certain
equipment under noncancelable operating leases expiring at various dates
through 2017. Rent expense charged to operations was $746,000, $719,000 and
$773,000 during 1995, 1994 and 1993, respectively. The minimum annual
rentals under the terms of real property leases as of December 31, 1995 are
as follows:
1996 $ 727,000
1997 627,000
1998 527,000
1999 406,000
2000 247,000
2001 and thereafter $ 490,000
Certain of the above leases provide for increased rental payments as a
result of the increases in the cost of living index.
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit which are
not reflected in the accompanying consolidated financial statements. At
December 31, 1995, the Bank had commitments to extend credit of $31,990,000
including standby letters of credit of $3,121,000. Of these amounts,
approximately 49% related to unused home equity lines of credit. Excluded
from these amounts are commitments to extend credit in the form of check
credit or related plans.
The Bank has an agreement to repurchase mortgage loans previously sold in
the event of default of payments within the first four months in the life
of the loan. As of December 31, 1995, there were no loans subject to
recourse.
(12) Dividend and other restrictions:
Certain limitations exist on the ability of the Bank to declare dividends
to the Corporation. Under New Jersey State Law, dividends may be paid only
if capital would remain unimpaired and remaining retained earnings would be
no less than 50 percent of common stock. At December 31, 1995, this
restriction did not result in any effective limitation on the operating
effectiveness of the subsidiary.
(13) Recent accounting pronouncements:
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" (SFAS No. 122). This
Statement requires recognition of the rights to service mortgage loans for
others,whether those rights were acquired through purchase or origination.
SFAS No. 122 also requires that capitalized mortgage servicing rights be
evaluated for impairment based on the fair value of those rights with
impairment recognized through a valuation allowance. SFAS No. 122 is
effective for the fiscal years beginning after December 15, 1995 and will
not have a material effect on the Bank's consolidated financial condition
of results of operations.
F-15
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1995, FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). This
Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all
entities to adopt the "fair values based method" of accounting for employee
stock compensation plans. However, SFAS No. 123 also allows an entity to
continue to measure compensation cost under such plans using the "intrinsic
value based method". The accounting requirements of this Statement are
effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Bank anticipates accounting for compensation cost
under the intrinsic values based methods must provide pro forma disclosures
for all awards granted in fiscal years that begin after December 15, 1994.
Such disclosures include net income and earnings per share as if the fair
values based method of accounting had been applied.
(14) Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments SFAS No. 107, requires that the Bank
disclose estimated fair values for its financial instruments. The fair
value estimates are made at a discrete point in time based on relevant
market information about the financial instruments. Because no market
exists for a significant portion of the Bank's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
instruments, and such other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
In addition, the fair value estimates are based on existing on and off
balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of asset and liabilities
that are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimated and have not been
considered in many of these estimates.
Financial assets
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as residential and
commercial real estate, commercial and other consumer. Each loan category
is further segmented into fixed and adjustable rate interest terms, and by
performing, and non-performing categories. The fair value of loans is
primarily calculated by discounting contractual cash flows using estimated
market discount rates which reflect the credit and interest rate risk
inherent in the loan. For performing residential mortgage loans, fair value
is estimated by discounting contractual cash flows adjusted for prepayment
estimated using discount rates based on secondary market source adjusted to
reflect differences in servicing credit costs. Fair value of significant
nonperforming loans is based on either recent external appraisals or
estimated cash flows which are discounted using a rate which is
commensurate with the associated risk. Assumptions regarding credit risk,
cash flows, and discount rates are judgmentally determined using available
market information and specific borrower information. The fair value of
cash and cash equivalents are considered to approximate carrying value.
Cash and cash equivalents include cash on hand, demand and interest bearing
deposits with banks and Federal funds sold with maturities of three months
or less. The fair value of securities, including available for sale are
based on quoted market prices.
Financial liabilities
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, and NOW and money market accounts, is
equal to the amount payable on demand as of December 31, 1995 and 1994. The
fair value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities. The
estimated fair value of time deposits, including $100,000 and over, do not
include the benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of borrowing funds in the market.
Off-Balance sheet financial instruments
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
F-16
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
counterparties. For fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of commitments to extend credit are not deemed to be
material.
<TABLE>
<CAPTION>
The estimated fair value of financial instruments at December 31, is
summarized as follows:
1995 1995 1994 1994
Carrying Estimated Carrying Estimated
(Dollars in Thousands) Amount Fair Value Amount Fair Value
- --------------------------------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 59,058 $ 59,058 $ 34,744 $ 34,744
Securities - held to maturty 58,225 58,490 64,184 61,593
Securities - available for sale 39,811 39,811 51,238 51,238
Loans, net, 254,344 257,975 238,180 240,141
Financial liabilities:
Deposits............................ $ 388,260 $ 388,938 $ 370,235 $ 370,042
</TABLE>
(15) Midland Bancorporation, Inc. (Parent Company only):
The earnings of the Bank are recognized by the Corporation, using the
equity method of accounting. Accordingly, earnings are recorded as
increases in the Corporation's investment and dividends paid reduce the
investment in the subsidiary. Dividends payable by the Corporation are
unrestricted, although the ability of the Corporation to pay dividends will
largely depend upon the dividends paid to it by the Bank. Dividends payable
by the Bank to the Corporation are restricted under supervisory regulations
(see Note 12). Condensed financial statements of the Parent Company only
follow:
<TABLE>
<CAPTION>
Parent Company Only
Condensed Financial Statements
December 31,
Condensed Balance Sheets 1995 1994
- --------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Assets:
Investment in subsidiary................................... $ 32,843 $ 28,531
Cash....................................................... 165 9
--- -
Total.................................................. $ 33,008 $ 28,540
========= =========
Liabilities.................................................... $ 636 $ 261
Stockholders' equity........................................... 32,372 28,279
--------- ---------
Total.................................................. $ 33,008 $ 28,540
========= =========
Condensed Statements of Income
Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Income:
Dividend income........................................ $ 1,783 $ 1,320 $ 856
-------- -------- -------
Expense:
Other operating expense................................ 44 45 32
-------- -------- --------
Income before equity in undistributed income of subsidiary..... 1,739 1,275 824
Equity in undistributed income of subsidiary................... 2,698 2,428 2,028
-------- -------- --------
Net income............................................. $ 4,437 $ 3,703 $ 2,852
======== ======== ========
</TABLE>
Midland Bancorporation, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Operating Activities
Net income................................................. $ 4,437 $ 3,703 $ 2,852
Equity in undistributed income of subsidiary............... (2,698) (2,428) (2,028)
--------- ---------- --------- -
Net cash provided by operating activities.............. 1,739 1,275 824
-------- -------- --------
Financing Activities
Dividends paid............................................. (1,267) (1,270) (826)
Treasury stock acquired.................................... (316) (28) -
------- -------- -------
Net cash used by financing activities.................. (1,583) (1,298) (826)
------- -------- --------
(Decrease) increase in cash and cash equivalents....... 156 (23) (2)
Cash and cash equivalents at beginning of year......... 9 32 34
--------- ------- --------
Cash and cash equivalents at end of year............... $ 165 $ 9 $ 32
======== ======== ========
</TABLE>
F-17
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
Sept 30, 1996 Dec 31, 1995
(Unaudited)
-------------------------------------------
(Dollars in Thousands)
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks.......................... $ 36,900 31,508
Federal funds.................................... 800 15,550
Interest bearing deposits with banks............. - 12,000
----------- ----------
37,700 59,058
SECURITIES:
Held to maturity................................. 50,532 58,225
Available for sale............................... 40,183 39,811
LOANS:
Commercial....................................... 165,423 152,826
Installment...................................... 56,138 46,651
Real estate mortgage............................. 67,918 59,188
---------- ----------
289,479 258,665
Less:
Allowance for loan losses........................ (4,208) (4,321)
---------- ----------
Net loans....................................... 285,271 254,344
PREMISES AND EQUIPMENT, net....................... 7,760 7,659
ACCRUED INTEREST RECEIVABLE....................... 2,997 3,211
OTHER ASSETS...................................... 1,790 1,784
Total assets................................. $ 426,233 $ 424,092
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand........................................... $ 115,062 $ 111,542
Money Market Accounts............................ 67,046 60,936
Savings.......................................... 82,709 85,472
Certificates of Deposit.......................... 124,134 130,310
---------- ----------
Total deposits................................. 388,951 388,260
NOTE PAYABLE...................................... 413 446
ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES 2,698 3,014
---------- ----------
Total liabilities.............................. 392,062 391,720
---------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value $ 15.00 per share;
authorized 300,000 shares, issued 129,220 shares 1,938 1,938
Surplus.......................................... 565 565
Retained earnings................................ 32,757 30,836
---------- ----------
35,260 33,339
Less-Net unrealized loss on securities available
for sale, net of tax .......................... (156) (178)
Less - Treasury stock at cost, 3,962 shares at
September 30, 1996 and 3,477 shares at
December 31, 1995 (933) (789)
---------- ----------
Total stockholders' equity...................... 34,171 32,372
--------- ----------
Total liabilities and stockholders' equity..... $ 426,233 $ 424,092
========= ==========
See accompanying note to unaudited consolidated financial statements.
FF-1
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
Sept 30, Sept 30,
1996 1995
- -------------------------------------------------------------------------------
(Dollars in thousands except
per share data)
INTEREST INCOME:
Loans...................................................$ 6,190 $ 5,880
Money market investments and cash equivalents........... 76 160
Securities:
Held to maturity...................................... 709 779
Available for sale.................................... 527 547
--------- --------
Total interest income............................... 7,502 7,366
-------- --------
INTEREST EXPENSE:
Deposits................................................ 2,385 2,575
Federal funds purchased................................. 5 2
Other borrowed funds.................................... 8 9
------- --------
Total interest expense................................ 2,398 2,586
------- --------
Net interest income................................... 5,104 4,780
PROVISION FOR LOAN LOSSES:................................ 80 100
------- -------
Net interest income after provision for loan losses... 5,024 4,680
------- -------
OTHER OPERATING INCOME:
Service charges on deposit accounts..................... 548 607
Loan fees............................................... 5 3
Commissions and fees.................................... 61 71
Other income............................................ 38 43
--------- --------
Total other operating income.......................... 652 724
-------- --------
OTHER OPERATING EXPENSES:
Salaries and related expense............................ 2,102 2,070
Occupancy expense....................................... 474 447
Premises and equipment expense.......................... 416 393
Professional services................................... 146 71
Other................................................... 613 589
-------- --------
Total other operating expenses........................ 3,751 3,570
-------- --------
Income before income taxes and cumulative effect of 1,925 1,834
accounting change.....................................
Income taxes............................................ 756 691
-------- --------
NET INCOME................................................ $ 1,169 $ 1,143
======== ========
Income per share.......................................... $ 9.33 $ 9.00
Weighted average shares outstanding....................... 125,270 126,893
See accompanying note to unaudited consolidated financial statements.
FF-2
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Unaudited)
Sept 30, Sept 30,
1996 1995
- -------------------------------------------------------------------------------
(Dollars in thousands except per share data)
INTEREST INCOME:
Loans................................................... $ 17,929 $ 17,252
Money market investments and cash equivalents........... 330 276
Securities:
Held to maturity...................................... 2,270 2,416
Available for sale.................................... 1,453 1,807
--------- --------
Total interest income............................... 21,982 21,751
-------- --------
INTEREST EXPENSE:
Deposits................................................ 6,940 7,465
Federal funds purchased................................. 8 17
Other borrowed funds.................................... 27 28
------- --------
Total interest expense................................ 6,975 7,510
------- --------
Net interest income................................... 15,007 14,241
PROVISION FOR LOAN LOSSES:................................ 190 400
------- -------
Net interest income after provision for loan losses... 14,817 13,841
------- -------
OTHER OPERATING INCOME:
Service charges on deposit accounts..................... 1,634 1,869
Loan fees............................................... 12 12
Commissions and fees.................................... 190 192
Other income............................................ 141 147
Gain (loss) on sale of securities....................... - 2
--------- ------
Total other operating income.......................... 1,977 2,222
------- -------
OTHER OPERATING EXPENSES:
Salaries and related expense............................ 6,400 6,217
Occupancy expense....................................... 1,460 1,327
Premises and equipment expense.......................... 1,244 1,200
Professional services................................... 276 169
Other................................................... 1,938 2,224
-------- --------
Total other operating expenses........................ 11,318 11,137
-------- --------
Income before income taxes and cumulative effect of
accounting change.................................... 5,476 4,926
Income taxes............................................ 2,114 1,847
-------- --------
NET INCOME................................................ $ 3,362 $ 3,079
======== ========
Income per share.......................................... $26.79 $24.26
Weighted average shares outstanding....................... 125,490 126,893
See accompanying note to unaudited consolidated financial statments.
FF-3
<PAGE>
<TABLE>
<CAPTION>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 and 1996
(Unaudited)
Net Unrealized
Loss on
Securities Total
Common Retained Treasury Avalable for Stockholders'
(Dollars in Thousands) Stock Surplus Earnings Stock Net of Tax Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $1,938 $565 $28,041 $(473) $(1,792) $28,279
Net income.................................... -- -- 3,079 -- -- 3,079
Cash dividends ($6.00 per share).............. -- -- (761) -- -- (761)
Net decrease in unrealized loss on securities
available for sale, net of tax............. -- -- -- -- 1,348 1,348
------- ------ --------- -------- ------- -------
Balance, September 30, 1995................... $1,938 $565 $ 30,359 $(473) $(444) $31,945
====== ==== ======== ====== ====== =======
Balance, December 31, 1995 $1,938 $565 $30,836 $(789) $(178) $32,372
Net income.................................... -- -- 3,362 -- -- 3,362
Cash dividends ($11.50 per share)............. -- -- (1,441) -- -- (1,441)
Treasury stock acquired....................... -- -- -- (144) -- (144)
Net decrease in unrealized loss on securities
available for sale, net of tax.............. -- -- -- -- 22 22
------- ----- -------- ------- ------ ---------
Balance, September 30, 1996................... $1,938 $565 $32,757 $(933) $(156) $ 34,171
====== ==== ======= ====== ====== =========
See accompanying note to unaudited consolidated financial statments.
</TABLE>
FF-4
<PAGE>
Midland Bancorporation, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 and 1995
(Unaudited)
1996 1995
- --------------------------------------------------------------------------------
Operating Activities (Dollars in Thousands)
Net Income........................................ $ 3,362 $ 3,079
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 738 810
Net amortization and accretion - securities.... 506 612
Provision for loan losses...................... 190 400
Provision for valuation allowance for other
real estate.................................. 73 30
Loss (gain) on sales and calls of securities -- (2)
Decrease (increase) in accrued interest
receivable................................... 214 (231)
(Increase) decrease in other assets............ (292) (232)
Increase (decrease) in accrued interest payable
and other liabilities........................ (316) (792)
----- -----
Net cash provided by operating activities...... 4,475 3,674
-------- -------
Investing Activities
Proceeds from maturities of securities held to
maturity.......................................... 13,898 12,946
Proceeds from sales of securities - available for
sale.............................................. -- 2,996
Proceeds from maturities of securities - available
for sale.......................................... 12,175 7,450
Purchases of securities held to maturity............ (6,459) (7,932)
Purchases of securities - available for sale........ (12,766) --
Net (increase) decrease in loans.................... (31,117) (16,546)
Purchase of premises and equipment, net............. (637) (796)
------- --------
Net cash (used) provided by investing activities (24,906) (1,882)
------- -------
Financing Activities
Net increase (decrease) in deposits............... 691 4,088
Principal payments on long-term debt.............. (33) (30)
Dividends paid.................................... (1,441) (761)
Treasury stock acquired........................... (144) --
Net cash (used) provided by financing activities (927) 3,297
-------- -----
Increase (decrease) in cash and cash equivalents.. (21,358) 5,089
Cash and cash equivalents at beginning of year.... 59,058 34,744
-------- ------
Cash and cash equivalents at end of period........ $ 37,700 $ 39,833
========= =========
See accompanying note to unaudited consolidated financial statements.
FF-5
<PAGE>
MIDLAND BANCORPORATION, INC.
NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
(Information as of September 30, 1996 and for the nine-month and
three-month periods ended September 30, 1996 and 1995 is unaudited)
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Midland Bancorporation, Inc. and its direct and indirect wholly-owned
subsidiaries (the Corporation), The Midland Bank and Trust Company, Midland
Realty Co., Inc. and Midpar Investment, Inc. (together, the Bank). All
significant intercompany accounts and transactions have been eliminated
from the accompanying unaudited consolidated financial statements.
The consolidated balance sheets at September 30, 1996, the consolidated
statements of income for the nine-month and three-month periods ended
September 30, 1996 and 1995, the consolidated statements of stockholders'
equity for the nine-month periods ended September 30, 1996 and 1995 and the
consolidated statements of cash flows for the nine-month periods ended
September 30, 1996 and 1995 have been prepared by the Corporation on an
accrual basis without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial condition, results of operations, and cash flows at
September 30, 1996 for all periods presented have been made. The results of
operations for the nine-month and three-month periods ended September 30,
1996 are not necessarily indicative of the operating results for the full
year.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements are to be read in
conjunction with the December 31, 1995 audited financial statements and
notes thereto.
