SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission File Number: 0-11282
UNITED COUNTIES BANCORPORATION
(exact name of Registrant as specified in its Charter)
New Jersey 22-2453041
(State of Incorporation) (I.R.S. Employer
Identification Number)
Four Commerce Drive
Cranford, New Jersey 07016 908-931-6600
(Address of principal executive office (Telephone Number)
and zip code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes _____X_____ No _______
The number of shares of Registrant's Common Stock, no par value, $1
stated value, outstanding as of July 31, 1995 was 2,145,524.
<PAGE>
UNITED COUNTIES BANCORPORATION
------------------------------
FORM 10-Q
INDEX
PART I
------
ITEM 1 FINANCIAL STATEMENTS AND NOTES TO FINANCIAL
STATEMENTS
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
-------
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 CHANGES IN THE RIGHTS OF THE CORPORATION'S
SECURITY HOLDERS
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS
SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I
Item 1. Financial Statements
--------------------
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1995 1994
---- ----
Assets
------
Cash and due from banks $ 72,118 $ 93,221
Money market investments 1,546 2,555
Securities available-for-sale 105,048 100,070
Investment securities (market value:
1995 - $958,943; 1994 - $931,639) 953,832 965,239
Federal funds sold 67,000 115,000
Loans, net of unearned discounts of $422
in 1995 and $255 in 1994 378,369 374,375
Less: Allowance for loan losses 10,790 11,091
---------- ----------
Net loans 367,579 363,284
Premises and equipment, net 11,408 11,754
Accrued interest receivable 20,389 21,289
Other assets 17,597 8,528
---------- ----------
Total assets $1,616,517 $1,680,940
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits
Demand $ 250,528 264,781
Savings 724,039 770,977
Time 336,734 318,980
---------- ----------
Total deposits 1,311,301 1,354,738
Securities sold under repurchase agreements 79,389 110,141
Other borrowed 11,176 12,341
Other liabilities 21,181 22,137
---------- ----------
Total liabilities 1,423,047 1,499,357
Stockholders' equity:
Preferred stock: no par value, no stated
value; authorized 3,000,000 shares; zero
shares issued and outstanding - -
Common stock: no par value, $1 stated value;
authorized 6,000,000 shares; issued 2,524,674
shares in 1995 and 2,523,976 shares in 1994 2,525 2,524
Additional paid-in capital 23,984 23,947
Retained earnings 185,885 169,967
Net unrealized gain on securities
available-for-sale, net of income taxes 3,308 6,747
---------- ----------
215,702 203,185
Less: treasury stock, at cost, 381,438 shares
at June 30, 1995, and 376,270 shares at
December 31, 1994 22,232 21,602
---------- ----------
Total stockholders' equity 193,470 181,583
---------- ----------
Total liabilities and stockholders'
equity $1,616,517 $1,680,940
========== ==========
<PAGE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
1995 1994
---- ----
Interest income
Interest and fees on loans
Taxable income $ 8,206 $ 7,569
Tax-exempt income 122 154
Interest and dividends on securities
available-for-sale 1,611 1,552
Interest on investment securities
Taxable income 15,029 14,863
Tax-exempt income 124 119
Interest on money market investments 68 37
Interest on federal funds sold 672 764
------- -------
Total interest income 25,832 25,058
====== ======
Interest expense
Savings and time deposits 9,333 7,985
Securities sold under repurchase agreements 703 369
Other borrowed funds 108 80
------- -------
Total interest expense 10,144 8,434
------- -------
Net interest income 15,688 16,624
Provision for loan losses (500) (325)
------- -------
Net interest income after provision
for loan losses 16,188 16,949
------- -------
Other operating income
Service charges on deposit accounts 760 776
Trust fees 254 321
Other income 382 950
------- -------
Total other operating income 1,396 2,047
------- -------
Net interest and other operating income 17,584 18,996
------- -------
Other operating expenses
Salaries and employee benefits 5,038 5,156
Net occupancy expense 869 790
Equipment expense 413 457
FDIC insurance premium 755 759
Other expense 1,759 2,805
------- -------
Total other operating expenses 8,834 9,967
------- -------
Income before income taxes 8,750 9,029
Income taxes 2,733 3,029
------- -------
Net income $ 6,017 $ 6,000
======= =======
Income per share of common stock:
Average outstanding shares 2,143 2,136
======= =======
Net income $2.81 $2.81
======= =======
Dividend paid per share of common stock $.80 $.70
======= =======
<PAGE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Interest Income
Interest and fees on loans
Taxable income $16,318 $15,004
Tax-exempt income 248 309
Interest and dividends on securities 3,358 3,078
available-for-sale
Interest on investment securities
Taxable income 30,115 29,570
Tax-exempt income 264 214
Interest on money market investments 98 67
Interest on federal funds sold 1,471 1,334
-------- --------
Total interest income 51,872 49,576
-------- --------
Interest expense
Savings and time deposits 18,548 15,330
Securities sold under repurchase agreements 1,408 825
Other borrowed funds 243 172
-------- --------
Total interest expense 20,199 16,327
-------- --------
Net interest income 31,673 33,249
Provision for loan losses (500) (625)
-------- --------
Net interest income after provision
for loan losses 32,173 33,874
-------- --------
Other operating income
Gain on exchange of securities
available-for-sale 12,008 -
Service charges on deposit accounts 1,525 1,520
Trust fees 493 554
Other income 734 1,587
-------- --------
Total other operating income 14,760 3,661
-------- --------
Net interest and other operating income 46,933 37,535
-------- --------
Other operating expenses
Salaries and employee benefits 9,994 10,224
Net occupancy expense 1,782 1,826
Equipment expense 884 905
FDIC insurance premium 1,511 1,518
Other expense 3,880 5,376
-------- --------
Total other operating expenses 18,051 19,849
-------- --------
Income before income taxes 28,882 17,686
Income taxes 9,532 5,948
-------- --------
Net income $19,350 $11,738
======= =======
Income per share of common stock:
Average outstanding shares 2,145 2,135
======= =======
Net income $9.02 $5.50
======= =======
Dividends paid per share of common stock $1.60 $1.40
======= =======
<PAGE>
<TABLE>
<CAPTION>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
(Unaudited)
Net
Unrealized Gain
on Securities
Additional Available-for-
Six Months Ended Preferred Common Paid-in Retained Sale, Net of Treasury
June 30, 1995 Stock Stock Capital Earnings Income Taxes Stock Total
------------- ----- ----- ------- -------- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1995 - $2,524 $23,947 $169,967 $6,747 $(21,602) $181,583
Shares issued under
Incentive Stock
Option Plan 1 37 38
Net income 19,350 19,350
Dividends paid (3,432) (3,432)
Treasury stock acquired -
5,168 shares (630) (630)
Net change in net
unrealized gain on
securities available-
for-sale, net of income
taxes (3,439) (3,439)
----- ------- ------- -------- ------- -------- --------
Balances at
June 30, 1995 - $2,525 $23,984 $185,885 $3,308 $(22,232) $193,470
===== ======= ======= ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized Gain
on Securities
Additional Available-for-
Six Months Ended Preferred Common Paid-in Retained Sale, Net of Treasury
June 30, 1994 Stock Stock Capital Earnings Income Taxes Stock Total
------------- ----- ----- ------- -------- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1994 - $2,501 $22,970 $153,218 - $(20,721) $157,968
Shares issued under
Incentive Stock
Option Plans 10 370 380
Net income 11,738 11,738
Dividend paid (1,497) (1,497)
Treasury stock acquired -
6,204 shares (599) (599)
Net unrealized gain
on securities
available-for-sale,
net of income taxes $6,867 6,867
----- ------- ------- -------- ------- -------- --------
Balances at
June 30, 1994 - $2,511 $23,340 $163,459 $6,867 $(21,320) $174,857
===== ======= ======= ======== ======= ======== ========
</TABLE>
<PAGE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Operating Activities:
Net income $ 19,350 $ 11,738
Adjustments to reconcile net income to net cash from
operating activities:
Gain on exchange of securities available-for-sale (12,008) -
Amortization of premiums and discounts, net 2,526 4,524
Depreciation 629 712
Provision for loan losses (500) (625)
Deferred income tax expense (benefit) 4,498 (244)
Amortization of deferred loan fees (119) 29
Decrease in interest receivable 900 906
Increase (decrease) in interest payable 1,144 (258)
Increase in other assets (12,099) (808)
Increase (decrease) in other liabilities (1,888) 4,325
Increase (decrease) in current income tax payable (93) 438
--------- ---------
Total adjustments (17,010) 8,999
--------- ---------
Net cash from operating activities 2,340 20,737
--------- ---------
Investing Activities:
Proceeds from maturities of securities
available-for-sale 5,126 0
Purchases of securities available-for-sale (3,684) 0
Proceeds from maturities/calls of investment securities 77,173 171,832
Purchases of investment securities (67,622) (163,750)
Net decrease in short-term investments 1,009 232
Net decrease in federal funds sold 48,000 20,000
Net decrease in credit card receivables
and other short-term loans 1,697 11,011
Principal collected on longer term loans 45,836 64,653
Longer term loans originated or acquired (51,317) (68,280)
Purchases of premises and equipment, net (283) (224)
--------- ---------
Net cash from investing activities 55,935 35,474
--------- ---------
Financing Activities:
Net decrease in demand deposits, NOW
accounts, and savings accounts (61,191) (7,142)
Net increase in open time accounts 3,837 1,726
Proceeds from sales of certificates of deposit 70,920 50,234
Payments for maturing certificates of deposit (57,003) (46,381)
Net decrease in short-term borrowings (31,917) (43,532)
Payments to acquire treasury stock (630) (599)
Dividends paid (3,432) (2,990)
Proceeds from exercise of stock options 38 380
--------- ---------
Net cash applied to financing activities (79,378) (48,304)
--------- ---------
Net increase (decrease) in cash and cash equivalents (21,103) 7,907
--------- ---------
Cash and cash equivalents at beginning of period 93,221 85,388
--------- ---------
Cash and cash equivalents at end of period $ 72,118 $ 93,295
========= =========
Cash paid during the period for:
Interest $ 19,054 $ 16,585
========= =========
Income taxes $ 5,715 $ 7,391
========= =========
Transfer from investment securities to
securities available-for-sale - $100,054
========= =========
<PAGE>
UNITED COUNTIES BANCORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
1. Principles of Consolidation
---------------------------
The consolidated financial statements of United Counties
Bancorporation include the accounts of the parent company and
subsidiaries, United Capital Corporation and United Counties Trust
Company (Bank), and its subsidiaries. All material intercompany
transactions have been eliminated. In the opinion of management, all
adjustments made to the unaudited interim financial statements necessary
for a fair statement of the results for the period have been included
and were of a normal recurring nature.
2. Adoption of Recent Accounting Pronouncements
--------------------------------------------
Effective January 1, 1995, the Bancorporation adopted FASB
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
This Standard applies to contractual rights to receive money on demand
or on fixed or determinable dates that are recognized as assets on
creditors' balance sheets, including accounts receivable due in more
than one year. A loan is considered impaired if, based upon current
information and events, it is probable that the creditor will not be
able to collect all principal and interest due in accordance with the
terms of the agreement. Once a loan is considered impaired, the
Standard requires calculation of the present value of expected future
cash flows using the effective rate of the loan. If the calculated
present value is less than the recorded investment in the loan, the
difference is to be charged to bad debt expense with a corresponding
credit to a valuation allowance account. Loans for which repayment is
expected to be provided by the underlying collateral, the fair value of
the collateral of the loan may be used.
Also effective January 1, 1995, the Bancorporation adopted FASB
Statement No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures." This Standard amends the income
recognition and disclosure requirements of FASB No. 114.
The adoption of these Standards did not have a material effect on
the financial position of the Bancorporation.
FASB No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," was adopted on January 1, 1994. This Standard
applies to equity securities having readily determinable fair values and
to all debt securities.
For accounting and financial reporting purposes, securities are to
be classified into one of the following three categories: 1) held-to-
maturity; 2) trading securities; or 3) available-for-sale. Only debt
securities may be classified as held-to-maturity. Those securities that
are classified as held-to-maturity are to be carried at amortized cost
while unrealized gains/losses from the changes in market value for
investments categorized as available-for-sale are to be reported as a
separate component of stockholders' equity net of related tax effects.
See Note 4.
3. Pending Acquisition
-------------------
On May 24, 1995 United Counties Bancorporation ("UCB") announced
that it signed a definitive merger agreement with Meridian Bancorp,
Inc., Reading, Pennsylvania ("Meridian"), pursuant to which UCB will be
acquired in a tax-free, stock-for-stock merger. Pursuant to the merger,
each of the outstanding shares of UCB common stock will be exchanged for
five (5) shares of Meridian common stock. UCB will be merged into
Meridian and UCB's wholly-owned subsidiary, United Counties Trust
Company ("UCTC"), will be merged into Meridian's wholly-owned
subsidiary, Meridian Bank, New Jersey ("MBNJ").
The acquisition is conditioned upon necessary bank regulatory
approvals, shareholder approval, an updated fairness opinion from UCB's
financial advisor, Goldman Sachs & Co. when the proxy is mailed, and
other customary terms and conditions.
In connection with the merger agreement UCB also granted Meridian
an option to acquire 375,000 shares of UCB stock at $125 per share under
certain circumstances.
4. Investment Securities and Securities Available-for-Sale
-------------------------------------------------------
On January 1, 1994, FASB No. 115 was adopted. The following tables
present information related to the portfolio of investment securities
held-to-maturity and available-for-sale of the Bancorporation as of June
30, 1995 and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
June 30, 1995
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
<S> <C> <C> <C> <C>
Investment Securities Held-to-Maturity:
--------------------------------------
United States Treasury securities
and obligations of United States
government corporations and
agencies $804,342 $ 9,485 $3,858 $809,969
Obligations of states and
political subdivisions 8,673 0 2 8,671
Corporate obligations 140,817 1,047 1,561 140,303
-------- -------- ------- ---------
Total $953,832 $10,532 $5,421 $958,943
======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
Amortized Gross Unrealized Book/Market
Cost Gains Losses Value
---- ----- ------ ------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale:
-----------------------------
United States Treasury securities
and obligations of United States
government corporations and
agencies $ 71,229 $ 364 $ 371 $ 71,222
Marketable equity securities 28,613 5,213 0 33,826
-------- -------- ------- ---------
Total $ 99,842 $ 5,577 $ 371 $105,048
======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
<S> <C> <C> <C> <C>
Investment Securities Held-to-Maturity:
--------------------------------------
United States Treasury securities
and obligations of United States
government corporations and
agencies $810,182 $ 525 $27,433 $783,274
Obligations of states and political
subdivisions 14,778 4 4 14,778
Corporate obligations 140,279 162 6,854 133,587
-------- -------- ------- ---------
Total $965,239 $ 691 $34,291 $931,639
======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Amortized Gross Unrealized Book Market
Cost Gains Losses Value
---- ----- ------ ------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale:
-----------------------------
United States Treasury securities
and obligations of United States
government corporations and
agencies $ 76,574 $ 77 $ 2,518 $ 74,133
Marketable equity securities 13,046 12,891 -0- 25,937
-------- -------- ------- ---------
Total $ 89,620 $12,968 $ 2,518 $100,070
======== ======== ======= =========
</TABLE>
The carrying value of securities pledged to secure public funds and
for other purposes as required by law was $172,925,000 at June 30, 1995,
and $209,635,000 at December 31, 1994.
The amortized cost and estimated market value of investment
securities held-to-maturity and available-for-sale at June 30, 1995 and
December 31, 1994, by contractual maturity, are shown in the table on
the next page. Expected maturities may differ from contractual
maturities since certain borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Investment Securities Held-to-Maturity:
--------------------------------------
Due in one year or less $211,090 $212,170 $144,914 $144,896
Due after one year through
five years 704,607 707,765 757,617 728,328
Due after five years through
ten years 37,699 38,574 62,193 57,904
Due after ten years 436 434 515
-------- -------- -------- --------
$953,832 $958,943 $965,239 $931,639
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
Amortized Book/Market Amortized Book/Market
Cost Value Cost Vale
---- ----- ---- ----
<S> <C> <C> <C> <C>
Securities Available-for-Sale:
-----------------------------
Due in one year or less $ 20,134 $ 20,212 $ 15,062 $ 15,117
Due after one year through
five years 51,095 51,010 61,512 59,016
-------- -------- -------- --------
Total $ 71,229 $ 71,222 76,574 $ 74,133
======== ======== ======== ========
</TABLE>
Proceeds from sales of securities during the six months ended June
30, 1995, were zero. Proceeds from sales of securities during 1994 were
zero.
Fixed income investment securities are traded in liquid markets and
are of investment quality as rated by nationally recognized rating
services.
5. Loans
-----
The following summarizes the loan categories, net of unearned
discounts, at June 30, 1995, and December 31, 1994 (in thousands):
June 30, December 31,
1995 1994
---- ----
Real estate loans:
Construction $ 15,580 $ 15,214
Commercial 117,772 115,829
Residential:
Conventional 100,087 99,028
Insured or guaranteed 965 1,067
Home equity & secondary mortgage 88,047 87,568
Economic Development Authority 6,710 7,013
Term 2,590 2,555
------- -------
Total real estate loans 331,751 328,274
Consumer loans 18,041 16,905
Credit card 1,832 3,075
Commercial and industrial 26,484 26,005
Lease financing receivables 261 116
------- -------
Total loans, net of unearned discounts $378,369 $374,375
======== ========
The primary lending marketplace of the Bancorporation includes the
New Jersey Counties of Middlesex, Monmouth, Morris, Somerset, and Union.
A significant portion of the loan portfolio of the Bank is secured
by real estate. At June 30, 1995, and December 31, 1994, real estate
loans amounted to 87.7% of the total loan portfolio.
6. Allowance for Loan Losses
-------------------------
The following is an analysis of changes in the Allowance for Loan
Losses Account (in thousands):
Six months For the year Six months
ended ended ended
June 30, 1995 Dec. 31, 1994 June 30, 1994
------------- ------------- -------------
Balance at beginning of year $ 11,091 $ 11,014 $ 11,014
Provision for loan losses (500) (825) (625)
Recoveries of loans previously
charged-off 617 1,175 771
Loans charged-off (418) (273) (144)
-------- -------- --------
Balance at period end $ 10,790 $ 11,091 $ 11,016
======== ======== ========
7. Risk Elements
-------------
Risk elements, which include nonaccrual loans, restructured
loans, and loans past due 90 days or more at June 30, 1995, December 31,
1994, and June 30, 1994, were as follows (in thousands):
June 30, 1995 Dec. 31, 1994 June 30, 1994
------------- ------------- -------------
Nonaccrual loans $ 2,820 $ 2,769 $ 227
Restructured loans 4,819 5,265 5,533
Loans past due 90 days or more 1,656 2,401 4,582
-------- -------- --------
Total $ 9,295 $ 10,435 $ 10,342
======== ======== ========
The impact of risk elements on interest income is not material.
8. Dividend Restrictions
---------------------
Certain limitations are imposed by New Jersey statutes on the
availability of a subsidiary bank's undistributed net assets for the
payment of dividends to the parent company without prior approval of the
regulatory authorities. The Bank may pay dividends only if, following
the payment of each such dividend, the capital stock of the subsidiary
bank will not be impaired and (1) the Bank will have additional paid-in
capital of not less than 50% of its capital stock, or, if not, (2) the
payment of such dividends will not reduce the additional paid-in capital
of the Bank. The Bank is also subject to the Federal Deposit Insurance
Corporation regulations that require the Bank to maintain minimum
capital ratios. Under current law, a minimum leverage ratio (Tier 1
capital to quarterly average assets, less intangibles) of 4%, Tier 1
risk-based capital ratio of 4% and total risk-based capital ratio, Tier
2, of 8% must be maintained.
At June 30, 1995, the capital accounts of the Bank totalled
$149,360,000 of which $87,092,000 was available for the payment of
dividends to the parent company.
9. Commitments and Contingent Liabilities
--------------------------------------
The Bancorporation may, from time to time, be a defendant in legal
proceedings relating to the conduct of its business. In the normal
course of business there also are outstanding various contingent
liabilities, such as commitments to extend credit (including standby
letters of credit in the amount of $6,869,000 at June 30, 1995, and
$7,327,000 at December 31, 1994) which are not reflected in the
accompanying consolidated financial statements. In the judgement of
management, the consolidated financial position of the Bancorporation
and its subsidiaries will not be affected materially by the final
outcome of any present legal proceeding or other contingent liability.
The Bancorporation is party to financial obligations with off-
balance sheet risk incurred in the normal course of business. These
instruments include commitments to extend credit in the form of loans
totalling $168,932,000 at June 30, 1995, and $185,847,000 at December
31, 1994. The exposure of the Bancorporation to credit loss in the
event of non-performance by the other party to these financial
instruments is equal to the contractual amount. The Bancorporation uses
the same credit policies in granting these commitments as it does for
loans presently outstanding. Collateral is obtained when deemed
appropriate. These commitments do not necessarily represent future
obligations. A substantial portion of these commitments historically
have remained unused, or if used, would be secured by mortgages on real
estate.
10. Income Taxes
------------
The current and deferred amounts of federal income tax expense
(benefit) as of June 30, 1995 and 1994 were as follows (in thousands):
June 30, June 30,
1995 1994
------ ------
Current expense $5,034 $6,192
Deferred expense (benefit) 4,498 (244)
Total income tax expense $9,532 $5,948
====== ======
The Bancorporation has established a deferred tax liability of
$1,898,000 as a result of the net unrealized gains on securities
designated as available-for-sale under the provisions of FASB No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The significant components of the Corporation's deferred tax
liabilities and assets are as follows (in thousands):
June 30, December 31, June 30,
1995 1994 1994
---- ---- ----
Deferred tax liabilities:
Accretion on bond discounts, net $ 698 $ 401 $ 197
Unrealized gain on securities
available-for-sale 1,898 3,703 3,896
Gain on exchange of securities
available-for-sale 4,378 - -
Other -0- -0- 27
------ ------ ------
Total deferred tax liabilities 6,974 4,104 4,120
====== ====== ======
Deferred tax assets:
New Jersey Corporation business tax 1,148 1,281 1,586
Excess book over tax depreciation 554 496 427
Excess book bad debt 3,259 3,382 3,453
Postretirement benefits 3,263 3,108 2,984
Book over tax core deposit premium
amortization 533 525 414
Other, net 134 207 190
------ ------ ------
Total deferred tax assets 8,891 8,999 9,054
====== ====== ======
Net deferred tax asset $1,917 $4,895 $4,934
====== ====== ======
The significant components of the 1995 and 1994 deferred expense
(benefit) were:
Deferred income tax expense (benefit) $4,498 $ (244)
====== =======
As required by FASB 109, United Counties Bancorporation has
determined that it is not required to establish a valuation reserve for
the deferred tax asset account since it is "more likely than not" that
the deferred tax asset will be realized through carryback to taxable
income in prior years, future reversals of existing taxable temporary
differences, future taxable income and tax planning strategies. The
conclusion that it is "more likely than not" that the deferred tax
asset will be realized is based on the history of earnings and the
prospects for continued growth including an analysis of potential
uncertainties that may affect future operating results. Management
believes that future taxable income will be sufficient to realize the
benefits of temporary deductible differences that cannot be realized
through carryback to prior years or through the reversal of future
temporary taxable differences. Management will continue to review the
tax criteria related to the recognition of deferred tax assets.
The consolidated effective tax rate is reconciled to the statutory
rate for June 30, 1995 and 1994 as follow:
1995 1994
---- ----
Statutory rate 35.0 % 35.0 %
Difference resulting from:
Tax-exempt income (0.6) (1.0)
Other, net (1.4) (0.4)
---- ----
Effective tax rate 33.0 % 33.6 %
==== ====
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
---------------------------------------------------------------
Net Income
----------
Net income for the three month period ended June 30, 1995, was
$6,017,000 compared to $6,000,000 for the comparable 1994 period.
Earnings per share were $2.81 for both periods.
For the six months ended June 30, 1995, net income amounted to
$19,350,000, or $9.02 per share, compared to $11,738,000, or $5.50 per
share, for the same period in 1994. This increase is the result of an
after-tax gain on exchange of securities available-for-sale of
$7,630,000, or $3.56 per share. Net income exclusive of this gain
amounted to $11,720,000, or $5.46 per share.
Net Interest Income
-------------------
Net interest income for the second quarter of 1995 decreased by
$936,000, or 5.6%, when compared to the same period in 1994. Total
interest income rose $774,000, or 3.1%. Contributing to this increase
was a rise in interest and fees on loans of $605,000, or 7.8%, due to
higher volume and rates. Interest and dividend income from investment
securities, including securities available-for-sale rose $230,000, or
1.4% as higher rates offset lower volume. Interest on money market
investments rose $31,000, or 83.8% due to higher volume and rate while
interest on federal funds sold declined $92,000, or 12.0%, the result of
lower volume being partially offset by higher rates being earned. Total
interest expense for the three months ended June 30, 1995, increased
$1,710,000, or 20.3% as higher rates were offset in part by lower
volume. Savings and time deposit interest cost rose $1,348,000, or
16.9% due to higher rates mitigated in part by lower volume. Interest
paid for securities sold under repurchase agreements increased $334,000,
or 90.5%, due to both higher volume and rate. Interest on other
borrowed funds grew $28,000, or 35.0%, as lower volume was more than
offset by higher rates.
For the six months ended June 30, 1995, net interest income was
lower by $1,576,000, of 4.7%, when compared to the same period a year
ago. Total interest income increased $2,296,000, or 4.6%. Contributing
factors include interest and fees on loans rising $1,253,000, or 8.2%,
the result of higher volume and rates; interest and dividends on
investment securities increasing $875,000 or 2.7%, as higher rates
offset lower volume; and interest on money market investments and
federal funds sold were higher by $31,000, or 46.3%, and $137,000, or
10.3%, respectively as increased rates more than offset lower volume.
Offsetting the growth in interest income was a $3,872,000, or 23.7%,
increase in interest expense. Savings and time deposits interest
expense rose $3,218,000, or 21.0%, as higher rates were partially offset
by lower volume. Interest cost for securities sold under repurchase
agreements increased $583,000, or 70.7%, due to higher volume and rates.
Interest on other borrowed funds grew by $71,000, or 41.3%, as higher
rates were partially offset by lower volume.
Provision for Loan Losses
-------------------------
For the quarter ended June 30, 1995, the provision for loan losses
was a credit of $500,000 compared to a credit of $325,000 recorded for
the comparable period a year ago.
For the six months ended June 30, 1995, the provision for loan
losses was a credit of $500,000 versus a credit of $625,000 for the same
period in 1994.
The credit provision in 1995 is primarily the result of net
recoveries coupled with a lower level of risk elements while the 1994
credit provision was primarily the result of net recoveries.
The Allowance for Loan Losses Account is an estimate and may be
subject to variance based upon economic conditions throughout our trade
area as well as periodic fluctuations in the financial condition of
individual loans. At June 30, 1995, the Allowance for Loan Losses as a
percentage of period end loans was 2.9% compared to 3.0% at December 31,
1994.
Other Operating Income
----------------------
Total other operating income declined $651,000, or 31.8%, when
comparing the quarter ended June 30, 1995 with the same period in 1994.
This decline is primarily the result of a reduction in credit card fees
due to the exit from that business during the fourth quarter of 1994.
Service charges on deposit accounts declined $16,000, or 2.1%, while
trust fees decreased $67,000, or 20.9%. Other income fell $568,000, or
59.8%, largely attributable to lower credit card fees.
For the six months ended June 30, 1995, total other operating
income rose $11,099,000, the result of a $12,008,000 gain on exchange of
securities available-for-sale. Exclusive of the gain, this category
decreased $909,000, or 24.8%, due to lower credit card fees. Service
charges on deposit accounts remained virtually unchanged while trust
fees declined $61,000, or 11.0%. The decline in other income of
$853,000, or 53.7%, is primarily the result of reduced credit card fees.
Other Operating Expenses
------------------------
Total other operating expenses decreased $1,133,000, or 11.4%,
during the second quarter of 1995 when compared to the same period a
year ago. Salaries and employee benefits declined $118,000, or 2.3%,
largely attributable to lower employee benefit costs. Net occupancy
expense rose $79,000, or 10.0%, while equipment expense declined
$44,000, or 9.6%. FDIC insurance premiums remained essentially the
same. Other expense fell $1,046,000, or 37.3%, primarily the result of
lower credit card expenses due to the exit from the credit card business
during the fourth quarter of 1994, lower New Jersey Corporate taxes and
other expenses incurred in the normal course of business, offset partly
by merger-related costs.
For the six months ended June 30, 1995, total other operating
expense declined $1,798,000, or 9.1%, from a year ago. Salaries and
employee benefits declined $230,000, or 2.2%, primarily the result of
lower employee benefit costs. Net occupancy and equipment expenses
decreased $44,000, or 2.4%, and $21,000, or 2.3%, respectively. FDIC
insurance premiums remained essentially the same while other expense
declined $1,496,000, or 27.8%. This decrease is largely attributable to
lower credit card expenses, New Jersey Corporate taxes and other
expenses incurred in the normal course of business, offset in part by
merger-related costs.
Income Taxes
------------
For the quarter ended June 30, 1995, income tax declined $296,000,
or 9.8%. For the six months ended June 30, 1995, income tax expense
rose $3,584,000, or 60.3%, the result of the gain on exchange of
securities available-for-sale.
Analysis of Net Financial Margin
--------------------------------
The net financial margin decreased to 4.31% for the six month
period ended June 30, 1995, from 4.40% reported at year end 1994. The
yield on interest earning assets increased 36 basis points, while the
cost of all funding sources was higher by 45 basis points.
Total earning assets declined $51,444,000, or 3.3%, from year end
1994. Federal funds sold decreased by $48,000,000 or 41.7%, while
investment securities, including securities available-for-sale,
decreased $6,429,000, or 0.6%, and money market investments declined
$1,009,000, or 39.5%. Loans outstanding rose $3,994,000, or 1.1%.
Interest-bearing liabilities decreased $61,101,000, or 5.0%, from
the December 31, 1994, level. Savings deposits decreased $46,938,000,
or 6.1%, while time deposits rose $17,754,000, or 5.6%, due to the
prevailing interest rate environment. Short term borrowings, which
consists of securities sold under repurchase agreements and treasury tax
and loan (other borrowed funds) declined $31,917,000, or 26.1%. These
decreases, in part, are the result of seasonal fluctuations.
Capital Resources
-----------------
Stockholders' equity at June 30, 1995, totalled $193,470,000, an
increase of $11,887,000, or 6.5%, from the December 31, 1994, level.
This increase is attributable to earnings retention, net of dividends
declared, less a net decrease in the net unrealized gain on securities
available-for-sale, and purchases of treasury stock.
The final standard for the risk-based capital measures as dictated
by the Board of Governors of the Federal Reserve System became effective
on December 31, 1992. As a result, bankholding companies are required
to have a minimum total risk-based capital ratio (Tier 1 and Tier 2) of
8.0% of which one half must be Tier 1 capital which for the
Bancorporation consists of common stockholders' equity, whereas Tier 2
capital is comprised of Tier 1 capital plus the allowable portion of the
Allowance for Loan Loss Account. Tier 1 and Tier 2 ratios of the
Bancorporation at June 30, 1995, were 37.5% and 38.8%, respectively. At
December 31, 1994, the ratios were 35.8% and 37.0%, respectively.
In addition to the risk-based capital measures, minimum leverage
ratio requirements exist. The current requirement is 3.0% for those
bankholding companies that meet certain criteria including the
maintenance of the highest regulatory rating. All other bankholding
companies are required to maintain a spread of between 100 to 200 basis
points above the minimum. At June 30, 1995, the Bancorporation's ratio
was 12.0%, compared to 10.8% at year-end 1994.
Liquidity
---------
Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals, and
maturing obligations. Principal sources of liquidity include cash,
temporary investments, securities available-for-sale, and maturing
investment securities. Liquidity also may be enhanced by growth in
funding sources, primarily retail deposits.
The liquidity of the Bancorporation remains strong. Maturities of
assets are managed to ensure the timely funding of existing and future
commitments. Temporary investments, comprised of federal funds sold and
money market instruments, are discretionary assets having maturities of
one day to one year. Of the Bancorporation's temporary investments,
100% mature within 30 days. Within the fixed income investment
portfolio of the Bank, including securities available-for-sale, 96.3% of
the total carrying value of the securities mature in less than five
years with the weighted average maturity of the entire portfolio being
approximately two and one half years.
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
In the normal course of business, various legal actions and claims
arise against the Corporation and its subsidiaries. None of such legal
proceedings currently pending or threatened, when resolved, will in the
opinion of management have a material adverse affect on the consolidated
financial position of the Corporation.
Item 2. Changes in the Rights of the Corporation's Security Holders
-----------------------------------------------------------
This information was previously reported on Form 10-Q for the
period ended March 31, 1995. No changes occurred during the quarter
ended June 30, 1995.
Item 3. Defaults by the Corporation on its Senior Securities
----------------------------------------------------
The Corporation had no defaults on its Senior Securities for
the three months ended June 30, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
This information was previously reported on Form 10-Q for the
period ended March 31, 1995. No matters were submitted to a vote of
security holders during the quarter ended June 30, 1995.
Item 5. Other Information
-----------------
Corporation has no information to report as of this date.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 - Financial Data Schedule
(b) Exhibit 99.1 - Employment Agreement dated as of April 13, 1995
between United Counties Bancorporation and Nicholas A. Frungillo, Jr.
(c) Exhibit 99.2 - Agreement dated May 23, 1995 between Eugene H.
Bauer and United Counties Bancorporation.
(d) Reports on Form 8-K
Form 8-K dated May 23, 1995, was filed announcing United Counties
Bancorporation's entering into a definitive merger agreement to be
acquired by Meridian Bancorp, Inc. of Reading, Pennsylvania. Form 8-K
dated August 8, 1995, was filed announcing financial results of United
Counties Bancorporation for the second quarter of 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED COUNTIES BANCORPORATION
------------------------------
(Registrant)
Date: August 9, 1995 By: NICHOLAS A. FRUNGILLO, JR.
-----------------------------
Nicholas A. Frungillo, Jr.
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
UNITED COUNTIES BANCORPORATION
EXHIBIT 27
Registrant's Interim Report to Shareholders
For the Three Months ended March 31, 1995
<LEGEND> This schedule contains summary financial information extracted
from Form 10-Q for the period ended June 30, 1995, and is qualified in its
entirety by reference to such filing.
</LEGEND>
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUN-30-1995
<CASH> 72,118
<INT-BEARING-DEPOSITS> 1,546
<FED-FUNDS-SOLD> 67,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,048
<INVESTMENTS-CARRYING> 953,832
<INVESTMENTS-MARKET> 958,943
<LOANS> 378,369
<ALLOWANCE> 10,790
<TOTAL-ASSETS> 1,616,517
<DEPOSITS> 1,311,301
<SHORT-TERM> 90,565
<LIABILITIES-OTHER> 21,181
<LONG-TERM> 0
<COMMON> 2,525
0
0
<OTHER-SE> 190,945
<TOTAL-LIABILITIES-AND-EQUITY> 1,616,517
<INTEREST-LOAN> 16,566
<INTEREST-INVEST> 33,737
<INTEREST-OTHER> 1,569
<INTEREST-TOTAL> 51,872
<INTEREST-DEPOSIT> 18,548
<INTEREST-EXPENSE> 20,199
<INTEREST-INCOME-NET> 31,673
<LOAN-LOSSES>
(500)
<SECURITIES-GAINS> 12,008
<EXPENSE-OTHER> 18,051
<INCOME-PRETAX> 28,882
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,350
<EPS-PRIMARY> 9.02
<EPS-DILUTED> 9.02
<YIELD-ACTUAL> 4.31
<LOANS-NON> 2,820
<LOANS-PAST> 1,656
<LOANS-TROUBLED> 4,819
<LOANS-PROBLEM> 9,295
<ALLOWANCE-OPEN> 11,091
<CHARGE-OFFS> 418
<RECOVERIES> 617
<ALLOWANCE-CLOSE> 10,790
<ALLOWANCE-DOMESTIC> 10,790
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 13th day of April, 1995 by
and between United Counties Bancorporation, a New Jersey corporation
("UCB"), United Counties Trust Company (the "Bank") (jointly hereinafter
referred to as the "Company") and Nicholas A. Frungillo, Jr. (hereinafter
referred to as the "Executive").
BACKGROUND
WHEREAS, the Executive has been employed by the Bank for many
years and has attained the salary and position grade 09 or above; and
WHEREAS, the Executive, throughout his tenure, has worked
diligently in his position for the business of the Bank and UCB; and
WHEREAS, the Boards of Directors of the Bank and UCB each are of
the opinion that the future services of the Executive are of substantial
value to the Bank and UCB and that it is important for the growth and
development of the Bank and UCB that the Executive continue in his
position; and
WHEREAS, if the Company should receive any proposal from a third
party concerning a possible business combination with, or acquisition of
the equity securities of, the Company, the Boards of Directors of the
Company (the "Board") believe it is imperative that the Company and the
Boards be able to rely upon the Executive to continue in his position, and
that the Boards be able to receive and rely upon the advice of the
Executive, if requested, as to the best interests of the Company and its
shareholders, without concern that the Executive may be distracted by
personal uncertainties or risks created by such a proposal; and
WHEREAS, to achieve such a goal, and to retain the services of
the Executive prior to any such activity, the Boards of Directors and the
Executive have agreed to enter into this Employment Agreement, NOW,
THEREFORE BE IT,
RESOLVED THAT, to assure the Company that it will retain the
continued dedication of the Executive as well as the availability of the
advice and counsel of the Executive notwithstanding the possibility or
occurrence of a Change in Control of the Company, and to induce the
Executive to remain in the employ of the Company, and for other good and
valuable consideration, the Company and the Executive, each intending to be
legally bound hereby, agree as follows:
ARTICLE I.
TERM OF EMPLOYMENT AND DUTIES
-----------------------------
1.1 Agreement. The Company hereby employs the Executive and the
Executive hereby accepts said employment and agrees to render such services
to the Company on the terms and conditions set forth in this Agreement.
1.2. Term. The term of employment under this Agreement
(hereinafter the "term") shall commence on April 13, 1995, and shall
terminate on the date specified on Schedule 1, annexed hereto and
incorporated herein by reference, unless the term is curtailed as hereafter
provided or this Agreement is sooner terminated in accordance with the
terms and conditions hereinafter set forth. Prior to a Change in Control
of the Company (as hereafter defined) but not thereafter, the Company may
curtail the term of employment of the Executive under this Agreement to a
date one year from the date of such notice by written notice to the
Executive as authorized by the Board of Directors of UCB. If such notice
is given to the Executive, the employment of the Executive and the term of
this Agreement shall continue for a one year period, but then shall cease
unless the notice shall specify expressly that the employment of the
Executive may continue thereafter without a contract, subject to the
approval of both the Company and the Executive. If a notice is given to
curtail the term of this Agreement before the time of a Change in Control
as defined in section 4.5(b) hereof, it shall continue to be valid even if
a Change in Control occurs thereafter.
1.3 Position. During the term of this Agreement, the Executive
shall be employed in a salary and position grade 09 or above with UCB and
the Bank as specified on Schedule 1, attached hereto and incorporated
herein by reference, or comparable positions, or the same positions with
such other corporate or divisional centers as shall succeed to the
business, assets and. properties of the Company. The Executive shall
devote his full time and attention to the business of the Company, and
shall not during the term be engaged in any other business activity. This
paragraph shall not be construed as preventing the Executive from managing
any investments of his or his family's which do not require significant
service in the operation of such investments, nor as preventing his service
on any other Board of Directors for which he served as of the date hereof
or thereafter with the consent of one of the following: the Board of
Directors of the Bank or UCB, or the Executive Committee of the Bank, or
the Chief Executive Officer of UCB; provided, however, that the Chief
Executive Officer of UCB may not provide a consent for himself to serve on
another Board of Directors.
ARTICLE II.
COMBINATION AND BENEFITS
------------------------
2.1 Base Compensation. During the term of this Agreement, the
Company will compensate and pay the Executive for the services of the
Executive during the term of the Agreement at a minimum base salary per
year as set forth on Schedule 1, annexed hereto and incorporated herein by
reference, with annual increases in amounts to be determined by the
Management Review Committee of the Board of Directors of the Bank each year
("Base Salary"). In no event shall the Base Salary of the Executive under
this Agreement in effect at any particular time be reduced without the
prior written consent of Executive, except that prior to a Change in
Control of the Company (but not thereafter), the Base Salary may be reduced
in any single year by up to ten percent (10%) of the prior year's Base
Salary without the Executive's consent.
2.2 Additional Incentive Compensation. During the term of this
Agreement, the Executive shall also be entitled to participate in other
executive incentive compensation arrangements, similar to the incentive
compensation arrangements now in effect for executives in Grade 09 and
higher of the Company pursuant to which executives are paid an annual
bonus; provided, however, that prior to a Change in Control of the Company
the participation of the Executive in such arrangements shall mean that the
Executive is eligible for an incentive award but shall not obligate the
Company to make any incentive award or pay any incentive compensation to
Executive; provided further, however, that after a Change in Control of the
Company, the Executive must be paid an annual bonus that is at least as
large as the highest bonus paid to the Executive in the three (3) years
prior to a Change in Control.
2.3 Retirement Plans. During the term of this Agreement, the
Executive shall be entitled to participate in any plans of the Company
relating to pension, profit sharing, benefit equalization, or other
programs now in effect or that the Company may hereafter adopt for the
benefit of its employees or executives.
2.4 Medical, Disability and Life Insurance Plans. During the
term of this Agreement, the Executive shall be entitled to participate in
any medical coverage, hospitalization, medical reimbursement, disability,
and life insurance plans now in effect or that the Company may hereafter
adopt.
2.5 Stock Award Plans. During the term of this Agreement, the
Executive shall be entitled to participate in and receive the benefits of
any stock option, restricted stock or similar stock based compensation
plans covering executives of the Company which presently exist or may come
into existence hereafter; provided, however, that the participation of the
Executive in such plans shall mean that the Executive is eligible to
receive benefits and awards but shall not obligate the Company to grant the
Executive any benefits or awards.
2.6 No Adverse Change. During the term of this Agreement, the
Company may not change or terminate any plans set forth above under
sections 2.2, 2.3, 2.4 and 2.5 which would adversely affect the rights or
benefits of the Executive thereunder, unless such change occurs as a
consequence of a change in law or regulation or, before the date of a
Change in Control (as set forth herein) of the Company, such change or
termination occurs pursuant to a termination or plan change applicable to
all eligible executive officers of the Company. Following the date of a
Change in Control of the Company, the Company My not change or terminate
any plans set forth above under sections 2.2, 2.3, 2.4 and 2.5, which would
adversely affect the Executive's rights or benefits thereunder unless such
change is consented to by the Executive or occurs as a consequence of a
change in law or regulation.
2.7 Expense Reimbursement. During the term of this Agreement,
the Company shall reimburse the Executive or otherwise provide for or pay
for all reasonable expenses incurred by the Executive in furtherance or in
connection with the business of the Company including but not limited to
automobile and travel expenses, and all reasonable entertainment expenses
(whether at the residence of the Executive or otherwise), subject to such
reasonable limitations as may be established by the Board of Directors of
the Company from time to time. If such expenses are paid by the Executive,
the Company will reimburse the Executive therefor.
2.8 Specific Fringe Benefits. The Executive presently has and
during the term of this Agreement the Company shall continue to provide the
Executive with the specific fringe benefits set forth on Schedule 1
attached hereto and incorporated herein by reference.
ARTICLE III.
DISABILITY OR DEATH
-------------------
3.1 Termination for Disability. If the Executive shall become
disabled or incapacitated to the extent that he is unable to perform his
duties for a period of four (4) consecutive months in any twelve (12) month
period, the Company may terminate the Executive by written notice of
termination provided to the Executive; provided that, if the Executive
shall not agree with such determination to terminate him because of
disability or incapacity, the question of the ability of the Executive
shall be submitted to an impartial, reputable physician qualified in the
field of the disability or incapacity, to be mutually selected by the
parties hereto, and such determination by such physician on the question of
disability or incapacity shall be final and binding. In the event of a
valid termination for disability or incapacity other benefits for any
period after the date of termination, except as follows: the Company will
cause to be continued for the Executive, for the spouse of the Executive
(to whom the Executive is married at the time of the disability or
incapacity) and the qualifying dependents of the Executive (as defined in
the health coverage program of the Company), the life insurance, disability
coverage and health coverage substantially identical to the coverage
maintained by the Company for the Executive, for the spouse of the
Executive and such qualifying dependents prior to the date of termination.
Such coverage shall continue for twenty-four (24) months after the date of
the termination for disability, except that in the case of health coverage,
such coverage shall continue for the Executive until such time as the
Executive shall have attained age sixty-five (65); provided, however, that
the health coverage shall be discontinued for the Executive, the spouse and
any qualifying dependents if the Executive obtains other employment, which
employment provides health coverage for such persons and shall be
discontinued for the spouse if she remarries.
3.2 Termination Due to Death. Employment of the Executive shall
automatically terminate by reason of the death of the Executive and no
notice of termination shall be required. In the event of a termination due
to the death of the Executive, either before or after a Change in Control
of the Company, the estate of the Executive and his heirs and beneficiaries
shall have no right to compensation or other benefits under Article II
hereof for any period after the date of death, except as follows:
(a) The Company will cause to be continued health coverage,
substantially identical to the coverage maintained by the Executive through
the Company for the spouse and qualifying dependents (as defined in the
health coverage program of the Company) of the Executive immediately prior
to his death. This coverage will continue for a period of twenty-four (24)
months after the date of death of the Executive, and
(b) Before a Change in Control of the Company, the Company
shall continue the Base Salary of the Executive for a period of six months
following the death of the Executive. After a Change in Control of the
Company, the Company shall continue the Base Salary of the Executive as in
effect on the date of death for a period of one year and within four months
after the date of death shall pay to the estate of the Executive a lump sum
equal to the highest combination of base salary plus incentive compensation
paid in any calendar year to the Executive by the Company pursuant to
Section 2.2 hereof after the date of this Agreement.
ARTICLE IV.
TERMINATION
-----------
4.1 Termination For Cause.
(a) The Company shall have the right, at any time upon
prior written Notice of Termination (as herein defined), to terminate the
employment of the Executive for Cause. For the purpose of this Agreement,
"Cause" shall Mean termination for willful misconduct, breach of fiduciary
duty involving personal benefit for the Executive, conviction of a felony,
willful breach or willful neglect by the Executive of his duties as an
Executive of the Company, or persistent negligence or misconduct in the
performance of such duties. For purposes of this paragraph, no act or
failure to act on the part of the Executive shall be considered "willful"
unless done or omitted not in good faith and without reasonable belief that
the action or omission was in the best interest of the Company. If the
termination for Cause occurs after a Change in Control, Executive shall not
be deemed to have been terminated for Cause hereunder unless and until
there shall have been delivered to the Executive a copy of a certification
by a majority of the non-officer members of the Board of Directors of the
Bank finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which was deemed to be Cause for
termination and specifying the particulars thereof in detail, after
reasonable notice to the Executive and an opportunity for the Executive,
together with counsel to the Executive, to be heard before such majority.
(b) In the event employment is validly terminated for Cause
pursuant to section 4.1(a) hereof, the Executive shall have no right to
further compensation or benefits hereunder for any period after the date of
such termination.
4.2 Termination Without Cause.
(a) Right to Terminate. The Company shall have the right
to terminate the employment of the Executive without Cause if the Company
does so by prior written Notice of Termination which specifies that the
Company agrees to pay the severance compensation and benefits herein set
forth.
(b) Severance Compensation and Benefits Prior to Change in
Control. If prior to a Change in Control of the Company, the Company
terminates the employment of the Executive other than for Cause (or due to
the disability or death of the Executive), the Company shall pay to the
Executive as severance pay within ten (10) business days following the date
of termination a lump sum equal to one year of Base Salary as provided
under Section 2.1 hereof, discounted to present value using a discount rate
equal to the lesser of five percent (5%) or the rate of interest for the
one year Treasury Bill (constant maturity) published in the week prior to
the date of the Notice of Termination (the "Discount Rate"). The Executive
shall be henceforth entitled to no further compensation or benefits
hereunder after the effective date of such termination.
(c) Severance Compensation and Benefits After Change in Control.
If after a Change in Control of the Company, the Company terminates the
employment of the Executive other than for Cause (or due to the Executive's
disability or death), the Company shall pay to the Executive as severance
pay within ten (10) business days following the date of termination a lump
sum equal to the Base Salary the Executive would have received under
Section 2.1 and incentive compensation under Section 2.2 for the remainder
of the term of this Agreement discounted to present value in accordance
with Section 4.2(b) and Executive shall be entitled to no other
compensation or benefits hereunder after the effective date of such
termination (except as provided by Section 4.8, 4.9 or 5.2).
For the purposes of computing severance compensation under this
Section 4.2(c) and Sections 4.3(c) and 4.4(c), the Executive shall be
deemed to have received a Base Salary and incentive compensation for the
remainder of the term equal to the highest Base Salary and incentive
compensation which was paid during the term of this Agreement.
4.3 Resignation for Good Reason.
(a) Right to Resign for Good Reason. The Executive may
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean (A) a failure by the Company to comply
with any material provision of this Agreement, which failure has not been
cured within ten (10) business days after a notice of such noncompliance
has been given by the Executive to the Company or, without the express
written consent of the Executive, the assignment to the Executive of any
material duties or responsibilities different from the duties or responsi-
bilities of the Executive as of the date hereof; (B) following a Change in
Control of the Company, the assignment to the Executive without the prior
written consent of the Executive of any duties inconsistent with the
position, duties, responsibilities and status of the Executive with the
Company immediately prior to the Change in Control of the Company, or a
change in the reporting responsibilities, title or office of the Executive
as in effect immediately prior to a Change in Control of the Company, any
removal of the Executive from, or any failure to re-elect the Executive to,
any of the positions held by the Executive, a reduction by the Company in
the Base Salary of the Executive as in effect immediately prior to a Change
in Control or as the same may be increased from time to time, or any
failure to pay the Executive the annual bonus as provided in Section 2.2,
or the requirement that the Executive be relocated to an office which is
more than the distance set forth on Schedule 1 from the facility to which
the Executive was assigned immediately prior to the date of the Change in
Control, or any change in or the failure of the Company to continue in
effect any of the plans set forth herein and subject to modification as
permitted herein, unless in any case expressly agreed to by the Executive
in writing; or (C) any purported termination of the employment of the
Executive which is not effected pursuant to the terms of this Agreement
(and for purposes of this Agreement, no such purported termination shall be
effective).
(b) Severance Compensation and Benefits Prior to Change in
Control. If prior to a Change in Control of the Company the Executive
resigns for Good Reason, the Company shall pay to the Executive within ten
(10) business days of the effective date of the resignation of the
Executive a lump sum amount equal to one week of Base Salary for every full
year of employment of the Executive with the Company, and the Executive
shall be henceforth entitled to no further compensation or benefits
hereunder after the effective date of the resignation.
(c) Severance Compensation and Benefits After a Change in
Control. If the Executive resigns for Good Reason after a Change in
Control of the Company, the Company shall pay to the Executive as severance
pay within ten (10) business days of the effective day of the resignation
of the Executive a lump sum equal to the Base Salary and incentive
compensation the Executive would have received under Sections 2.1 and 2.2
for the remainder of the term of this Agreement discounted to present value
in accordance with Section 4.2(b) and 4.2(c) and the Executive shall be
entitled to no further compensation or benefits hereunder after the effec-
tive date of such resignation (except as provided by Section 4.8, 4.9 or
5.2).
4.4 Resignation Without Good Reason.
(a) Right to Resign. The Executive may resign without Good
Reason at any time upon four weeks prior notice.
(b) No Compensation or Benefits Prior to a Change in
Control. If the Executive resigns without Good Reason prior to a Change in
Control of the Company the Executive shall be entitled to no further
compensation or benefits hereunder after the effective date of such
resignation.
(c) Severance Compensation and Benefits After a Change in
Control. If the Executive resigns without Good Reason after a Change in
Control of the Company, the Company shall pay to the Executive as severance
pay within ten (10) business days of the effective date of the resignation
of the Executive a lump sum equal to seventy-five percent (75%) of the Base
Salary and incentive compensation the Executive would have received under
Sections 2.1 and 2.2 for the remainder of the term of this Agreement
discounted to present value in accordance with Sections 4.2(b) and 4.2(c),
and the Executive shall be entitled to no further compensation or benefits
hereunder after the effective date of the resignation (except as provided
by Sections 4.8, 4.9 or 5.2).
4.5 Definition of Change in Control.
(a) Definition. For purposes of this Agreement, a "Change
in Control" of the Company shall mean the occurrence of any of the
following events:
(i) The acquisition of the beneficial ownership of at
least 25% of UCB's and/or the Bank's voting securities or all or
substantially all of the assets of UCB and/or the Bank by a single person
or entity or group of affiliated persons or entities.
(ii) The merger, consolidation or combination of either
UCB or the Bank with an unaffiliated corporation in which the directors of
UCB and/or Bank as applicable immediately prior to such merger,
consolidation or combination constitute less than a majority of the board
of directors of the surviving, new or combined entity.
(iii) The transfer of all or substantially all of UCB's
and/or Bank's assets.
(iv) The election to the board of directors of UCB
and/or Bank during any consecutive three year period of a group of
individuals constituting a majority of the board who were not serving as
directors of UCB and/or the Bank immediately prior to the consecutive three
year period.
(b) Time of Change in Control. For purposes of this
Agreement, a Change in Control of the Company shall be deemed to occur on
the earlier of:
(i) The first date on which a single person or entity
or group of affiliated persons or entities acquire the beneficial ownership
of 25% or more of UCB and/or the Bank's voting securities;
(ii) The date of election of such board members as to
constitute a change in the majority of board members during any consecutive
three year period; or
(iii) Ninety (90) days prior to the date UCB and/or the
Bank enter into a definitive agreement to merge, consolidate, combine or
sell the assets of UCB and/or the Bank; provided however, that for purposes
of any resignation by the Executive under Sections 4.3 or 4.4, this clause
4.5(b)(iii) shall not be applicable and, further provided that if any
definitive agreement to merge, consolidate, combine or sell assets is
terminated without consummation of the acquisition, then no Change in
Control shall have been deemed to have occurred.
4.6 Notice. Any notice of termination of the employment of the
Executive by the Company or by the Executive to the Company shall be
communicated by written Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
dated notice which shall (i) indicate the specific termination provision in
this Agreement relied upon; (ii) set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
employment of the Executive or from the Company under the provision so
indicated; (iii) specify a date of termination, which shall be not less
than thirty (30) nor more than ninety (90) days after such Notice of
Termination is given, except in the case of termination of employment by
the Company of the Executive for Cause pursuant to Section 4.1 hereof, in
which case the Notice of Termination may specify a date of termination as
of the date such Notice of Termination is given; and (iv) be given in the
manner specified in Section 5.6 hereof.
4.7 Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in Article IV by seeking other
employment or otherwise, nor shall the amount of any payment provided for
in this Article IV be reduced by any compensation or other amounts paid to
or earned by Executive as the result of employment by another employer
after the termination of employment or otherwise.
4.8 Gross Up for Taxes.
(a) Additional Payments. If, for any taxable year,
Executive shall be liable for the payment of an excise tax wider Section
4999 or other substitute or similar or tax assessment (the "Excise Tax") of
the Internal Revenue Code of 1986, as amended (the "Code"), including the
corresponding provisions of any succeeding law, with respect to any
payments under this Article IV or any payments and/or benefits under this
Agreement or under any benefit plan of the Company applicable to Executive
individually or generally to executives or employees of the Company, then,
notwithstanding any other provisions of this Agreement, the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any
Excise Tax on such payments and benefits and any federal, state and local
income tax and Excise Tax upon payments provided for in this Section 4.8,
shall be equal to the payments due to the Executive hereunder and the
payments and/or benefits due to the Executive under any benefit plan of the
Company. Each Gross-Up Payment shall be made by domestic cashier's or
treasurer's check, certified check or wire transfer, upon the later of (i)
five (5) days after the date the Executive notifies the Company of its need
to make such Gross-Up Payment, or (ii) not later than thirty (30) days
prior to the date on which the tax return reflecting a liability for such
Excise Tax is required to be filed with the Internal Revenue Service. The
amount of any Gross-Up Payment under this section shall be computed by a
nationally recognized certified public accounting firm designated jointly
by the Company and the Executive. The cost of such services by the
accounting firm shall be paid by the Company.
(b) IRS Disputed Claims. The Executive shall notify the Company
in writing of any claim by the Internal Revenue Service ("IRS") that, if
successful, would require the payment by the Company of a Gross-Up Payment
in addition to that payment previously paid by the Company pursuant to this
section. Such notification shall be given as soon as practicable but no
later than fifteen (15) business days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature of such
claim, the date on which such claim is requested to be paid, and attach a
copy of the IRS notice. The Executive shall not pay such claim prior to
the expiration of the thirty (30) day period following the date on which
the Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(i) Give the Company any information reasonably requested
by the Company relating to such claim;
(ii) Take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation. with respect
to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) Permit the Company to participate in any proceedings
relating to such claim;
provided, however that the Company shall pay directly all costs and
expenses (including legal and accounting fees, as well as other expenses
and any additional interest and penalties) incurred in connection with an
IRS levy or contest.
4.9 Special Benefits Under Benefit Equalization Plan After a
Change in Control. If after a Change in Control of the Company the
Executive is terminated without Cause or resigns with or without Good
Reason, and the Executive was covered by the Company's benefit equalization
plan at the time of the Change in Control, then the Executive's benefits
under such plan shall be calculated as if the Executive had continued his
employment with the Company to the end of the term of this Agreement and
had received after termination or resignation annual compensation equal to
the highest compensation received while employed under this Agreement.
ARTICLE V.
MISCELLANEOUS
-------------
5.1 Severance Compensation and Benefits Not in Derogation of
Other Benefits. Anything to the contrary herein contained notwithstanding,
the payment or obligation to pay any monies, or granting of any benefits,
rights or privileges to Executive as provided in this Agreement shall not
be in lieu or derogation of the rights and privileges that Executive now
has or will have under any plans or programs of the Company specified in
Sections 2.3 through 2.5 inclusive, except that the Executive shall not be
entitled to the benefits of any other plan or program of the Company
expressly providing for severance or termination pay. This Agreement shall
supersede the Executive Employment Agreement Upon Change of Control,
between the Company and the Executive, dated on or about September 10,
1986, except that if that agreement contains a benefit supplemental to the
benefits contained herein, such supplemental benefit shall continue.
5.2 Indemnification By Company For Executive's Expenses. The
Company shall pay all expenses incurred by the Executive in connection with
any claim by the Executive against the Company hereunder, including but not
limited to attorneys' and accountants' fees in addition to other expenses
incurred by the Executive. Such expenses shall be payable monthly upon
demand by the Executive. A court of competent jurisdiction shall be
empowered to deny payment to the Executive of such expenses, including
attorneys' and accountants' fees, only if it determines that the Executive
instituted a lawsuit or proceeding hereunder in bad faith or without
reasonable cause.
5.3 Non-Disclosure of Confidential Information and Non-Compete.
(a) Non-Disclosure of Confidential Information. Except in
the course of the employment of the Executive by the Company, and in the
pursuit of the business of the Company or any of its subsidiaries or
affiliates, the Executive shall not, at any time during or following the
term of this Agreement, disclose or use, any confidential information or
proprietary data of the Company or any of its subsidiaries or affiliates.
The Executive agrees that all information concerning the identity of the
customers of the and the relations of the Company to its customers is
confidential information, unless such information is otherwise publicly
known.
(b) Non-Competition. The Executive agrees that during the
shorter of (i) the term of this Agreement or (ii) a period of two (2) years
after the termination of the Executive's employment with the Company, the
Executive will not, directly or indirectly, as shareholder, employee,
director, officer, principal or agent, or in any other capacity, own,
manage, operate, consult with or be employed by any insured depository
institution which transacts business in the State of New Jersey if the
Executive maintains an office from which the Executive acts on behalf of
such institution within 50 miles of the principal office of the Executive
during the term of this Agreement; provided, however, that this provision
shall not prohibit the Executive from owning bonds, preferred stock or up
to five percent (5%) of the outstanding common shares of any insured
depository institution or its parent holding company if the shares of the
parent holding company or of the institution are publicly traded.
(c) Specific Performance. Executive agrees that the
Company does not have an adequate remedy at law for the breach of this
Section 5.3 and agrees that the Executive shall be subject to injunctive
relief and equitable remedies as a result of a breach of any provision of
this Section 5.3. The invalidity or unenforceability of any provision of
this Section 5.3 (or this Agreement) shall not affect the force and effect
of the remaining valid portions. Except as expressly provided in this
Agreement, no breach by the Executive of the provisions of this Section 5.3
shall entitle the Company to withhold any benefits payable to the Executive
hereunder.
5.4 Payroll and Withholding Taxes. All payments to be made or
benefits to be provided hereunder by the Company shall be subject to
reduction by the applicable federal payroll or withholding taxes.
5.5 Changes. This Agreement may not be modified, changed,
amended, or altered except in a writing signed by the Executive and by an
officer of the Company duly authorized by the Board of Directors of the
Bank or the executive committee of the Bank.
5.6 Notices. All notices given or required to be given herein
shall be in writing or sent by United States first-class certified or
registered mail, postage prepaid, to the Executive at the last-known
address for the Executive (or to the personal representative of the
Executive upon his death), and to the Company at the principal executive
office for UCB (or any successor thereto), to the attention of the Chairman
of the Board. All such notices shall be effective when deposited in the
mail in the manner specified in this Section 5.6. Either party by a notice
in writing to the other party may change or designate the place for receipt
of such notices.
5.7 Rights Absolute. No course of conduct between the Company
and the Executive and no delay or omission by the Company or the Executive
to exercise any right or power given under this Agreement shall: (i)
impair the subsequent exercise of any right or power or (ii) be construed
to be a waiver of any default or to be an acquiescence in or consent to the
curing of any default while any other default shall continue to exist, or
be construed to be a waiver of such continuing default or of any other
right or power that shall theretofore have arisen; and every power and
remedy granted by law and by this Agreement to any party hereto may be
exercised from time to time and as often as may be deemed expedient. All
such rights and powers shall be cumulative to the fullest extent permitted
by law.
5.8 Successors. This Agreement shall inure to the benefit of
and be binding upon (i) the Executive and, to the extent applicable, his
heirs, assigns, executors, and personal representatives and (ii) the
Company, its successors and assigns, including, without limitation, any
person, partnership, or corporation which may acquire all or substantially
all of the assets and business of the Company, or with or into which the
Company may be consolidated or merged, and this provision shall apply in
the event of any subsequent merger, consolidation, or transfer.
5.9 Non-Assignability. This Agreement is personal to each of
the parties and none of the parties may assign or delegate any of its
rights or obligations under this Agreement without the prior written
consent of the other party.
5.10 Method of Payments to Executive. Unless specified to the
contrary, all payments shall be made by domestic cashier's or treasurer's
check, certified check or wire transfer.
5.11 Governing Law. This Agreement shall be governed in all
respects and be interpreted by and under the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the 13th day of April, 1995.
ATTEST: UNITED COUNTIES BANCORPORATION
/s/ ALICE R. CADBY /s/ EUGENE H. BAUER
By:----------------------- By:-----------------------------
Secretary Chairman of the Board
ATTEST: UNITED COUNTIES TRUST COMPANY
/s/ ALICE R. CADBY /s/ EUGENE H. BAUER
By:----------------------- By:-----------------------------
Secretary Chairman of the Board
WITNESS:
/s/ MARGARET POLICASTRO /s/ NICHOLAS A. FRUNGILLO, JR.
-------------------------- --------------------------------
[Executive]
<PAGE>
SCHEDULE 1
To Employment Agreement
dated as of September 9, 1993
Between the Company and
the Executive (the "Agreement")
Capitalized terms not defined herein shall have the meaning
ascribed to them in the Agreement. This Schedule 1 is incorporated by
reference to the Agreement and made a part of the Agreement.
1. Name of Executive: Nicholas A. Frungillo, Jr.
----------------------------------
Address of Record: 1571 Rising Way
----------------------------------
Mountainside, New Jersey 07092
----------------------------------
2. Termination Date of Agreement (Section 1.2):
December 31, 2001.
3. Position (Section 1.3)
Position with UCB: Treasurer and Assistant Secretary
-----------------------------
(Chief Financial Officer or, in the
alternate, Senior Financial Officer)
-----------------------------
Position with Bank: Senior Vice President, Treasurer, and
-----------------------------
Chief Financial Officer (or, in the
alternate, Senior Financial Officer)
----------------------------
4. Base Salary (Section 2.1): $ 82,925.00
------------------------
per year
5. Specific Fringe Benefits (Section 2.8):
a. Automobile per policy
--------------------------------------------------
b. Private office
--------------------------------------------------
c. 4 Weeks Vacation
--------------------------------------------------
d.
--------------------------------------------------
e.
--------------------------------------------------
6. Distance (measured by a straight line between the two
points) which Executive can be moved from the facility to which he was
assigned prior to a Change in Control of the Company [Section 4.3(a)(B)]:
twenty (20) miles.
-----------------
Agreed to as part of the Agreement on the 13th day of
April, 1995.
ATTEST: UNITED COUNTIES BANCORPORATION
/s/ ALICE R. CADBY /s/ EUGENE H. BAUER
By:----------------------- By:-----------------------------
Secretary Chairman of the Board
ATTEST: UNITED COUNTIES TRUST COMPANY
/s/ ALICE R. CADBY /s/ EUGENE H. BAUER
By:----------------------- By:-----------------------------
Secretary Chairman of the Board
WITNESS:
/s/ MARGARET POLICASTRO /s/ NICHOLAS A. FRUNGILLO, JR.
-------------------------- --------------------------------
Executive
AGREEMENT
AGREEMENT, dated May 23, 1995, by and between Eugene H. Bauer (the
"Executive") and United Counties Bancorporation, a New Jersey corporation
(the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated September 9, 1993 (the "Employment Agreement"), pursuant to
which, among other things, the Company has agreed to employ the Executive as
the Chairman of the Board and Chief Executive Officer of the Company; and
WHEREAS, the Company has entered into an Agreement and Plan of Merger
dated as of May 23, 1995 (the "Merger Agreement"), with Meridian Bancorp,
Inc. ("Meridian"), which provides, among other things, for the merger of the
Company with and into Meridian (the "Merger"); and
WHEREAS, under the terms of the Employment Agreement, the Merger will
constitute a "Change in Control" as defined in the Employment Agreement; and
WHEREAS, the parties hereto wish to set forth the consequences of the
Merger under the terms of the Employment Agreement and, in certain respects,
to modify and/or supplement the rights of the Executive as provided therein;
and
WHEREAS, the Company wishes to retain the Executive as a consultant
following the Closing Date on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound, the parties hereto agree as
follows:
Section 1. Resignation. Effective as of the Closing Date, the
Executive hereby resigns all positions with the Company and any of its
subsidiaries or affiliates he now holds or may hereafter be elected or
appointed to, whether as an officer, director, trustee or otherwise. For all
purposes specified in the Employment Agreement, such resignation shall
constitute a resignation for "Good Reason".
Section 2. Change in Control Payment. Upon the Closing Date, the
Company shall pay to the Executive the amounts specified in Section 4.3(c) of
the Employment Agreement. For purposes of calculating the amount of such
payment, the Executive's annual "Base Salary" shall be deemed to be $382,000
and the Executive's annual incentive compensation shall be deemed to be
$130,000.
Section 3. Profit Sharing Settlement. The Executive shall be
considered a "Participant" in the Company's Profit Sharing Plan (the "Profit
Plan") for purposes of having credited to his Profit Plan Account his
proportionate share of any Company contribution to the Profit Plan for the
year in which the Profit Plan is terminated and shall be treated consistently
with other participants in the Profit Plan as set forth in the Merger
Agreement. Following the crediting of such share, the Company shall pay the
entire amount of the Executive's Accounts under the Profit Plan in a direct
rollover to such eligible retirement plan as the Executive may specify.
Section 4. Settlement of Stock Options. The Company acknowledges that
the Merger constitutes a "Change of Control" for purposes of the options
previously granted to the Executive (the "Options") pursuant to the Company's
incentive stock option plans (the "Option Plans"). Notwithstanding the
provisions of Section 1.02(e)(ii)(E) of the Merger Agreement, the Company
shall treat the Options as stock appreciation rights ("SARs") to the maximum
extent permitted by the Option Plans and, upon the Closing Date, shall pay to
the Executive the cash value of such SARs calculated in accordance with the
terms of such Option Plans, provided, however, that such payment, in the
written opinion of KPMG Peat Marwick & Co., does not jeopardize the
utilization of the pooling method of accounting for the Merger.
Section 5. Profit Sharing Benefits. As provided by Section 4.9 of the
Employment Agreement, the Company shall pay to the Executive upon the Closing
Date a lump sum amount (representing the "profit sharing equalization amount"
under Section 2 of the Company's Benefit Equalization Plan) equal to $5,207
multiplied by the number of months (or part thereof) in the period that
commences on the Closing Date and ends on December 31, 2001.
Section 6. Pension Benefits. As provided in Section 4.9 of the
Employment Agreement, the Executive shall be entitled to a combined pension
benefit under all of the qualified and non-qualified defined benefit pension
plans now maintained by the Company (calculated in accordance with the
formula specified in the Revised United Counties Trust Company Retirement
Plan (the "Retirement Plan") without regard to the limitations under Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended)
commencing on the Closing Date assuming (i) the Executive had 29 years and 9
months of credited "Continuous Service," (ii) his "Average Final
Compensation" equaled $382,000 and (iii) for purposes of determining his
Accrued Benefit only, he had attained age 60 years and 2 months as of the
effective date of the termination of his employment. For purposes of
calculating the present value of such pension benefit, an interest rate
assumption of 6 1/2 % and the UP-1984 Mortality Table shall be used. The
Company shall pay to the Executive the present value of the pension benefit
calculated as provided in the previous sentence in a lump sum on the Closing
Date; provided, however, that the lump sum shall in no event exceed $900,000
and the portion of the combined pension benefit payable under the Retirement
Plan shall be paid in accordance with the terms of the Retirement Plan.
Section 7. Consulting Arrangements. Commencing on the Closing Date and
continuing until the earlier of (i) December 31, 2000 and (ii) the death of
the Executive (the "Period"), the Executive shall be retained by the Company
as a consultant to advise the Company regarding the operations of the
Company, subject to the following terms and conditions (the "Consulting
Services"):
(a) In no event shall the Executive be required to provide more
than 50 hours of Consulting Services in any calendar month during the Period
or to provide more than 250 hours of Consulting Services during any period of
12 consecutive calendar months during the Period.
(b) In no event shall the Executive be required to provide
Consulting Services during the month of February in each year during the
Period.
(c) The Executive shall provide such Consulting Services
commensurate with the Executive's prior experience as may be reasonably
requested by the Chief Executive Officer of the Company from time to time and
at mutually agreeable times. Such Consulting Services may be provided in
person (subject to the limitations of clause (d) below), telephonically or by
correspondence.
(d) The Executive shall not be required to provide Consulting
Services outside a 50 mile radius of Cranford, New Jersey.
(e) In consideration of the Executive's agreement to provide
Consulting Services hereunder, the Company shall (i) pay the Executive a
monthly consultant fee of $12,500 in advance on or about the first day of
each and every month during the Period, (ii) reimburse the Executive for any
reasonable out-of-pocket expenses he may incur with the Company's prior
approval in providing Consulting Services hereunder, and (iii) provide the
Executive during the Period with such employee welfare benefits (including
but not limited to hospitalization, medical, dental, disability insurance
coverage) as the Company provides to its senior employees during the Period.
The fee payable pursuant to clause (i) above shall be appropriately increased
effective January 1 of each calendar year during the Period to reflect
increases in the Federal Consumer Price Index applicable to the New York
Metropolitan Area.
(f) Upon the conclusion of the Period, the Executive shall be
eligible to participate in such welfare benefit provisions as the Company
provides to its retired executive employees. Such benefits shall be
determined based on the Executive's date of hire by the Company (April 1,
1972), and the Executive shall receive service credit for the Period as if he
had been a full-time employee during the Period.
(g) Notwithstanding anything in this Section to the contrary,
the Company's obligation to make payments in Section 7(e) shall terminate
immediately in the event of the Executive's death during the Period.
Section 8. Non-Disparagement. Neither the Company nor the Executive
shall make any public statement (whether written or oral) which libels,
defames, slanders or otherwise disparages the other.
Section 9. Payment of Benefits to Survivor. In the event of the death
of the Executive prior to the Closing Date, the amounts otherwise payable to
the Executive under the Employment Agreement shall be paid to the person
designated by the Executive as his beneficiary under the respective plan
under which such benefit is payable or, if no beneficiary has been
effectively specified, to the Executive's spouse.
Section 10. Perquisites. On the Closing Date, the Company shall
transfer to the Executive title to the automobile currently provided to the
Executive by the Company, and shall "gross-up" his imputed income with
respect to such transfer in such amount as may be necessary to satisfy any
tax payable by the Executive in connection with such transfer and such
"gross-up." In addition, for a period of five years after the Closing Date,
the Company shall provide the Executive with a suitable private office (with
private telephone) and secretarial assistance at an appropriate location in a
first class building in Springfield, Summit, Kenilworth or Cranford, New
Jersey, without cost to the Executive.
Section 11. Maintenance of Certain Insurance. For the period specified
in the Merger Agreement, the Company shall obtain and maintain in full force
and effect a directors and officers liability policy satisfying the
provisions of the Merger Agreement.
Section 12. Withholdings; Payments. The Company may directly or
indirectly withhold from any payments made under this Agreement all Federal,
state, city or other taxes and all other deductions as shall be required
pursuant to any law or governmental regulation or ruling or pursuant to any
contributory benefit plan maintained by or on behalf of the Company. Except
as expressly provided in this Section 12, all amounts payable by the Company
hereunder shall be paid without offset or deduction of any kind whatsoever.
All payments required to be made hereunder shall be made by one or more
checks payable to the order of the payee specified herein or, if requested by
such payee not less than two business days prior to the date specified for
payment, by wire transfer to an account specified by the payee.
Section 13. Consolidation, Merger, or Sale of Assets. Nothing in this
Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, or engaging
in any other business combination with, any other person or entity which
assumes this Agreement and all obligations and undertakings of the Company
hereunder. This Agreement shall be assumed by Meridian upon the consummation
of the Merger.
Section 14. No Attachment. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect; PROVIDED,
HOWEVER, that nothing in this Section 14 shall preclude the assumption of
such rights by executors, administrators or other legal representatives of
the Executive or his estate and their assigning any rights hereunder to the
person or persons entitled thereto.
Section 15. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered or express air mail, postage
prepaid, and shall be deemed given when so delivered personally, or by
facsimile, or if mailed, five days after the date of mailing, as follows:
If to the Company: Four Commerce Drive
Cranford, New Jersey 07016
Telephone: (908) 931-6715
Facsimile: (908) 709-1583
Attention: President
With a copy to: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Telephone: (201) 966-6300
Facsimile: (201) 966-1550
Attention: Ronald Janis, Esq.
If to the Executive: 5 Carteret Court
Madison, NJ 07940
Telephone: (201) 822-0306
With a copy to: Lowenstein, Sandler, Kohl,
Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (201) 992-8700
Facsimile: (201) 992-5820
Attention: John D. Schupper, Esq.
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
Section 16. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New Jersey,
without reference to the choice of law principles thereof. Each of the
parties hereto irrevocably submits to the non-exclusive jurisdiction of the
courts of the State of New Jersey and the United States District Court for
the District of New Jersey for the purpose of any suit, action, proceeding or
judgment relating to or arising out of this Agreement and the transactions
contemplated hereby. Service of process in connection with any such suit,
action or proceeding may be served on each party hereto anywhere in the world
by the same methods as are specified for the giving of notices under this
Agreement. Each of the parties hereto irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to
the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding
brought in such courts and irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
Section 17. Entire Agreement. This Agreement shall constitute the
entire agreement among the parties with respect to the matters covered hereby
and shall supersede all previous written, oral or implied understandings
among them with respect to such matters. Except as expressly modified
hereby, the Employment Agreement shall continue in full force and effect.
Section 18. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, assigns and legal representatives. This
Agreement shall be for the sole benefit of the parties to this Agreement and
their respective heirs, successors, assigns and legal representatives and is
not intended, nor shall be construed, to give any person, other than the
parties hereto, and their respective heirs, successors, assigns and legal
representatives, any legal or equitable right, remedy or claim hereunder.
Section 19. Amendments. This Agreement may only be amended or
otherwise modified, and compliance with any provision hereof may only be
waived, by a writing executed by all of the parties hereto. The provisions
of this Section 19 may only be amended or otherwise modified by such a
writing.
Section 20. Defined Terms. Capitalized terms used herein shall have
the respective meanings ascribed thereto in the Merger Agreement, unless
otherwise defined herein.
Section 21. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which shall together be deemed to constitute one and the same instrument.
Section 22. Reimbursement of Expenses. The Company shall reimburse the
Executive on demand for the reasonable fees and disbursements of counsel to
the Executive incurred in connection with the preparation, negotiation and
implementation of this Agreement and the Merger Agreement. In the event that
the Executive is required to threaten or institute any action, suit or
proceeding to compel the Company's performance of its obligations hereunder,
the Company shall, in addition to the other amounts payable by it hereunder,
reimburse the Executive for the reasonable out-of-pocket expenses (including
the reasonable fees and disbursements of counsel and other experts retained
by the Executive for such purpose) incurred by the Executive in connection
therewith (including, but not limited to, costs incurred in investigating any
such claim or preparing any pleadings or other papers relating thereto).
Section 23. Effect of Termination of the Merger Agreement. In the
event that the Merger Agreement is terminated for any reason (other than as a
result of the consummation of the Merger), this Agreement shall immediately
terminate and be of no further force and effect; provided, however, that the
provisions of Section 22 hereof shall survive any such termination.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by the undersigned, thereunto duly authorized, and the
Executive has signed this Agreement, all as of the date first written above.
UNITED COUNTIES BANCORPORATION
Attest:
/s/ ALICE R. CADBY By: /s/ DONALD S. NOWICKI
------------------ ---------------------------
Alice R. Cadby Authorized Signatory
Secretary Donald S. Nowicki, President
/s/ EUGENE H. BAUER
---------------------------
Eugene H. Bauer
Acknowledged and Agreed to,
this 23rd day of May, 1995.
MERIDIAN BANCORP, INC.
/s/ SAMUEL A. McCULLOUGH
By:-----------------------
Authorized Signatory
Attest:
/s/ WILLIAM GAUNT
--------------------------
