SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to <section>240.14a-11(c) or
<section>240.14a-12
HOMETOWN BANCORPORATION, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
COMMON STOCK OF HOMETOWN BANCORPORATION, PAR VALUE $1.00 ("COMMON
STOCK") AND OPTIONS TO PURCHASE SHARES OF COMMON STOCK
2) Aggregate number of securities to which transaction applies:
1,709,146 SHARES OF COMMON STOCK; OPTIONS TO PURCHASE 129,600
SHARES OF COMMON STOCK
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 {(}Set forth the amount on which
the filing fee is calculated and state how it was determined):
$17.75 PER SHARE OF COMMON STOCK OUTSTANDING (1,709,146 SHARES)
FOR AN AGGREGATE OF $30,337,342 PLUS $17.75 PER SHARE OF COMMON
STOCK SUBJECT TO OPTIONS (129,600) MINUS THE EXERCISE PRICE OF
SUCH OPTIONS FOR AN AGGREGATE OF $1,633,644)
4) Proposed maximum aggregate value of transaction:
$31,970,986
5) Total fee paid:
$6,394.20
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
<PAGE>
1) Amount Previously Paid:
_____________________
2) Form, Schedule or Registration Statement No.:
_____________________
3) Filing Party:
_____________________
4) Date Filed:
_____________________
<PAGE>
HOMETOWN BANCORPORATION, INC.
20 WEST AVENUE
DARIEN, CONNECTICUT 06820-1265
(203) 656-2265
July 23, 1996
Dear Stockholder:
On behalf of the Board of Directors, we want to extend to you a
cordial invitation to attend a Special Meeting of Stockholders of Hometown
Bancorporation, Inc. ("HOMETOWN"). The meeting will be held at 4:00 p.m., on
August 20, 1996 at the main office of The Bank of Darien, 20 West Avenue,
Darien, Connecticut.
The purpose of the meeting is to vote on a proposal to approve the
Amended and Restated Agreement and Plan of Merger, dated as of April 28, 1996
(the "MERGER AGREEMENT"), among Hometown, The Bank of Darien ("THE BANK OF
DARIEN"), HUBCO, Inc. ("HUBCO"), Hudson United Bank and Hometown Acquisition
Corporation ("Hometown Acquisition Corporation"), pursuant to which Hometown
Acquisition Corporation would merge with and into Hometown (the "MERGER"),
and at HUBCO's option, The Bank of Darien would merge with and into a
subsidiary of HUBCO.
Upon consummation of the Merger each outstanding share of Hometown
common stock (other than shares the holders of which have exercised
dissenters' rights under the Delaware General Corporation Law) would be
converted into the right to receive $17.75 in cash.
Consummation of the Merger is subject to certain conditions,
including approval of the Merger Agreement by the Hometown stockholders and
approval of the Merger by various regulatory agencies.
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding common stock of Hometown. Assuming that the
directors and executive officers of Hometown and The Bank of Darien vote their
shares of common stock of Hometown (13.78% of the outstanding Common
Stock) in favor of approval of the Merger Agreement, approval of the Merger
Agreement will require the affirmative vote of the holders of an additional
36.22% of the outstanding shares of Hometown common stock entitled to
be voted at the meeting in order for the Merger Agreement to be approved.
Holders of Hometown common stock should not send their
certificates representing shares of Hometown Common Stock until they receive
instructions from the Exchange Agent.
The accompanying Notice of Special Meeting and Proxy Statement
contain information about the Merger. We urge you to review carefully such
information and the information in Hometown's 1995 Annual Report on Form 10-K
and Hometown's Quarterly Report on Form 10-Q for the period ended March 31,
1996, copies of which are attached to the accompanying Proxy Statement.
THE BOARD OF DIRECTORS OF HOMETOWN HAS UNANIMOUSLY ADOPTED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF HOMETOWN APPROVE THE
MERGER AGREEMENT. A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED
PROXY OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT. EVEN IF YOU PLAN TO ATTEND THE
MEETING IN PERSON, PLEASE COMPLETE THE ENCLOSED PROXY, SIGN AND DATE IT AND
MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID, RETURN ADDRESSED ENVELOPE.
Yours very truly,
DOUGLAS D. MILNE, III KEVIN E. GAGE
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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HOMETOWN BANCORPORATION, INC.
20 WEST AVENUE
DARIEN, CONNECTICUT 06820-1265
(203) 656-2265
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 20, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Hometown Bancorporation, Inc. ("HOMETOWN") will be held at 4:00 p.m. on
August 20, 1996 at the main office of The Bank of Darien, 20 West Avenue,
Darien, Connecticut for the following purposes:
1. To consider and vote upon a proposal to approve the Amended
and Restated Agreement and Plan of Merger, dated as of April 28, 1996
(the "MERGER AGREEMENT"), among Hometown, The Bank of Darien ("THE BANK
OF DARIEN"), HUBCO, Inc. ("HUBCO"), Hudson United Bank and Hometown
Acquisition Corporation ("HOMETOWN ACQUISITION CORPORATION") pursuant
to which (i) Hometown Acquisition Corporation would merge with and into
Hometown (the "MERGER"), and at HUBCO's option, The Bank of Darien would
merge with and into a subsidiary of HUBCO, and (ii) each outstanding
share of Hometown common stock (other than shares the holders of which
have exercised dissenters' rights under the Delaware General Corporation
Law) would be converted into the right to receive $17.75 in cash; and
2. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
A copy of the Merger Agreement is set forth in ANNEX A to the
accompanying Proxy Statement.
The Board of Directors of Hometown has fixed July 3, 1996, as the
record date for the determination of stockholders entitled to notice of and to
vote at the Special Meeting, and accordingly, only holders of record of
Hometown common stock at the close of business on that date will be entitled
to notice of and to vote at the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding common stock of Hometown as of the record date.
THE BOARD OF DIRECTORS OF HOMETOWN UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
By Order of the Board of Directors of
HOMETOWN BANCORPORATION, INC.
KEVIN E. GAGE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
July 23, 1996
STOCKHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY
FOR ANY REASON, EACH PROXY SHOULD BE COMPLETED AND RETURNED. YOUR COOPERATION
WILL BE APPRECIATED. YOUR PROXY WILL BE VOTED WITH RESPECT TO THE MATTERS
IDENTIFIED THEREON IN ACCORDANCE WITH ANY SPECIFICATIONS ON THE PROXY. A
FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY CHECKING THE
"ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF
THE MERGER AGREEMENT.
<PAGE>
PROXY STATEMENT
Hometown Bancorporation, Inc.
20 West Avenue
Darien, Connecticut 06820-1265
(203) 656-2265
______________________
Special Meeting of Stockholders to be Held
on August 20, 1996
This Proxy Statement is being furnished by Hometown Bancorporation,
Inc., a Delaware corporation ("HOMETOWN"), to the holders of Hometown common
stock, par value $1.00 per share (the "HBI COMMON STOCK"), in connection with
the solicitation of proxies by the Hometown Board of Directors for use at a
special meeting of stockholders of Hometown to be held at 4:00 p.m. on August
20, 1996, at the main office of The Bank of Darien, 20 West Avenue, Darien,
Connecticut (the "SPECIAL MEETING"), and at any adjournment or adjournments
thereof. The Board of Directors has fixed July 3, 1996 as the record date
for determining stockholders entitled to notice of, and to vote at, the
Special Meeting.
This Proxy Statement, the accompanying Notice of Special Meeting
and form of proxy are first being mailed to the stockholders of Hometown on or
about July 23, 1996.
The purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Amended and Restated Agreement and Plan of Merger,
dated as of April 28, 1996 (the "MERGER AGREEMENT"), among Hometown, The Bank
of Darien ("THE BANK OF DARIEN"), HUBCO, Inc. ("HUBCO"), Hudson United Bank
and Hometown Acquisition Corporation ("HOMETOWN ACQUISITION CORPORATION")
pursuant to which Hometown Acquisition Corporation would merge with and into
Hometown (the "MERGER") and at HUBCO's option, The Bank of Darien would merge
with and into a subsidiary of HUBCO, all on and subject to the terms and
conditions contained therein. See "SUMMARY," "THE MERGER" and ANNEX A to
this Proxy Statement.
Upon consummation of the Merger each outstanding share of HBI
Common Stock (other than shares the holders of which have exercised
dissenters' rights under the Delaware General Corporation Law (the "DGCL"))
would be converted into the right to receive $17.75 in cash. See "THE MERGER
- Dissenting Stockholders' Rights."
The Board of Directors recommends that the stockholders of Hometown
approve the Merger Agreement.
HBI Common Stock is listed and traded on The Nasdaq Stock Market,
Inc. On April 24, 1996, the last business day prior to public announcement of
the execution of the Merger Agreement on which trading in HBI Common Stock
occurred, the high and low sale prices per share of HBI Common Stock on The
Nasdaq Stock Market, Inc. were both $13.75.
THE DATE OF THIS PROXY STATEMENT IS JULY 23, 1996.
<PAGE>
AVAILABLE INFORMATION
Hometown is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(the "EXCHANGE ACT"), and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "COMMISSION"). Reports, proxy statements and other information filed by
Hometown can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's Regional Offices in New York (7 World Trade
Center, 13th Floor, New York, New York 10048) and Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661)
and copies of such materials can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a Web site that
contains reports, proxy and other information regarding registrants that
file electronically with the Commission at the following address:
http://www.sec.gov. Since the HBI Common Stock is listed on The Nasdaq
Stock Market, Inc., reports, proxy statements and other information
relating to Hometown can also be inspected at the offices of The Nasdaq
Stock Market, Inc., 1735 K Street, N.W., Washington, DC 20006-1506,
Attn: Regulatory Filings.
This Proxy Statement incorporates documents by reference, which are not
presented herein or delivered herewith. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." A copy of such documents (other than certain
exhibits thereto) is available without charge to each person, including any
beneficial owner, to whom a Proxy Statement is delivered, upon written or
oral request to: Hometown Bancorporation, Inc., 20 West Avenue, Darien,
Connecticut 06820-1265, Attn: Kevin E. Gage, President and Chief Executive
Officer (telephone number (203) 656-2265). Documents requested will be sent
by first class mail or other equally prompt means within one business day of
receipt of the request. In order to ensure timely delivery of such documents,
any such request should be made by August 13, 1996.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement and, if
given or made, such information or representations must not be relied upon as
having been authorized by Hometown. The delivery of this Proxy Statement
shall not under any circumstances create any implication that there has been
no change in the affairs of Hometown since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Hometown with the Commission (File
No. 0-16272) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Proxy Statement:
(i) Hometown's Annual Report on Form 10-K for the year ended December
31, 1995;
(ii) Hometown's Quarterly Report on Form 10-Q for the period ended
March 31, 1996; and
(iii) Hometown's Current Reports on Form 8-K, dated March 5, 1996 (as
amended) and April 28, 1996.
INCLUSION OF ANNUAL AND QUARTERLY REPORTS
Hometown's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 and Hometown's Quarterly Report on Form 10-Q for the period ended
March 31, 1996 are attached to this Proxy Statement as Annexes B and C,
respectively.
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TABLE OF CONTENTS
PAGE
PROXY STATEMENT 1
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2
INCLUSION OF ANNUAL AND QUARTERLY REPORTS 2
SUMMARY 4
Parties to Merger 4
Special Meeting; Record Date 4
The Merger; Exchange Price 4
Votes Required 5
Effective Time 5
Recommendations of Hometown's Board of Directors 5
Opinion of Financial Advisor 5
Dissenting Stockholders' Rights 6
Business Pending Consummation 6
Regulatory Approvals 6
Conditions to Consummation; Termination 6
Stock Option Agreement 6
Interests of Certain Persons in the Merger 7
Selected Consolidated Financial Data 7
GENERAL INFORMATION 9
General 9
Record Date; Votes Required 9
VOTING SECURITIES AND PRINCIPAL HOLDERS 9
Security Ownership of Certain Beneficial Owners 9
Security Ownership of Management 10
THE MERGER 11
Background of and Reasons for Merger 11
Opinion of Financial Advisor 13
The Merger Agreement 14
General Description 14
Consideration 15
Conversion of Hometown Stock Options 15
Conditions to the Merger 15
Conduct of Business Pending the Merger 15
Representations and Warranties 16
Conversion of Certificates and Options 16
Effective Time; Amendments; Termination 17
Stock Option for Shares of HBI Common Stock 17
Regulatory Approvals 19
Dissenting Stockholders' Rights 19
Interests of Certain Persons in the Merger 19
Certain Federal Income Consequences 20
MARKET PRICES 21
INDEPENDENT ACCOUNTANTS 21
EXPERTS 22
PROPOSALS OF STOCKHOLDERS 22
OTHER MATTERS 23
ANNEX A: AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
ANNEX B: HOMETOWN BANCORPORATION, INC. ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1995
ANNEX C: HOMETOWN BANCORPORATION, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1996
ANNEX D: OPINION OF BROWN BROTHERS HARRIMAN & CO.
ANNEX E: STOCK OPTION AGREEMENT; BACKGROUND; AGREEMENT
ANNEX F: APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION RELATING TO THE
MERGER CONTAINED ELSEWHERE IN THIS PROXY STATEMENT. THIS SUMMARY IS NOT
INTENDED TO BE A SUMMARY OF ALL MATERIAL INFORMATION RELATING TO THE MERGER
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE ANNEXES HERETO AND
IN THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. A COPY OF
THE MERGER AGREEMENT IS SET FORTH IN ANNEX A TO THIS PROXY STATEMENT AND
REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE
MERGER. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE PROXY STATEMENT,
INCLUDING THE ANNEXES. AS USED IN THIS PROXY STATEMENT, THE TERMS "HOMETOWN"
AND "HUBCO" REFER TO SUCH ORGANIZATIONS, RESPECTIVELY, AND, UNLESS THE CONTEXT
OTHERWISE REQUIRES, SUCH ORGANIZATIONS AND THEIR RESPECTIVE SUBSIDIARIES.
PARTIES TO THE MERGER
HUBCO and Hometown Acquisition Corporation
HUBCO is a bank holding company organized under the laws of New Jersey
in 1982. Hometown Acquisition Corporation is a subsidiary of HUBCO formed
specifically for the purpose of the acquisition of Hometown by HUBCO. HUBCO
owns and operates Hudson United Bank, which is a wholly owned subsidiary of
HUBCO, chartered under New Jersey law in 1890. Hudson United Bank operates
over 50 branches in northern New Jersey. The principal executive offices of
HUBCO and Hometown Acquisition Corporation are located at 1000 MacArthur
Boulevard, Mahwah, New Jersey 07430, and their telephone number is
(201) 236-2600. On July 1, 1996, HUBCO acquired Lafayette American Bank
and Trust Company, a commercial bank headquartered in Connecticut
("LAFAYETTE"). It is anticipated that The Bank of Darien will be merged
into Lafayette following the Merger.
Hometown and The Bank of Darien
Hometown was incorporated under Delaware law on April 14, 1987 to operate
principally as a bank holding company for The Bank of Darien. The Bank of
Darien is the sole subsidiary of Hometown. The business of Hometown consists
of ownership of the capital stock of The Bank of Darien. The Bank of Darien
has an office in Darien and one branch in Westport, Connecticut. As of
December 31, 1995, and for the year then ended, Hometown reported assets of
$229.2 million, net loans of $103.4 million, deposits of $178.0 million,
stockholders' equity of $16.8 million and net income of $1.3 million. The
principal executive offices of Hometown and The Bank of Darien are located at
20 West Avenue, Darien, Connecticut 06820-1265, and their telephone number is
(203) 656-2265.
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held on August 20, 1996 at 4:00 p.m., at the
main office of The Bank of Darien, 20 West Avenue, Darien, Connecticut, for
the purpose of considering and voting upon a proposal to approve the Merger
Agreement.
The Board of Directors of Hometown has fixed July 3, 1996 as the record
date for determining stockholders entitled to notice of and to vote at the
Special Meeting (the "RECORD DATE"). As of the Record Date, there were
1,709,146 shares of HBI Common Stock outstanding and entitled to be
voted at the Special Meeting.
See "GENERAL INFORMATION."
THE MERGER; EXCHANGE PRICE
Under the terms of the Merger Agreement, Hometown Acquisition Corporation
would merge with and into Hometown and at HUBCO's option, The Bank of Darien
would merge with and into a subsidiary of HUBCO, which is
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anticipated to be Lafayette. Upon consummation of the Merger, each
outstanding share of HBI Common Stock (other than shares the holders of
which have exercised dissenters' rights under the DGCL) would be converted
into the right to receive $17.75 in cash. Stockholders of Hometown prior
to the Merger will retain no continuing interest in Hometown or The Bank
of Darien after completion of the Merger. See "THE MERGER - Dissenting
Stockholders' Rights."
VOTES REQUIRED
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of HBI Common Stock as of the Record Date.
The directors and executive officers of Hometown and The Bank of Darien
(including certain of their related interests) beneficially owned, as of the
Record Date, and are entitled to vote at the Special Meeting, 235,558 shares
of HBI Common Stock, which represents 13.78% of the outstanding HBI
Common Stock. Accordingly, assuming that the directors and executive officers
of Hometown and The Bank of Darien vote their shares of HBI Common Stock in
favor of approval of the Merger Agreement, approval of the Merger Agreement
will require the affirmative vote of the holders of an additional 36.22%
of the outstanding shares of HBI Common Stock in order for the Merger
Agreement to be approved.
See "GENERAL INFORMATION - Record Date; Vote Required."
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT.
EFFECTIVE TIME
Subject to the terms of the Merger Agreement regarding termination
thereof, the effective time (the "Effective Time") will be the close of
business on the first day when a Certificate of Merger relating to the
Merger is filed with the Secretary of State of Delaware. The Effective
Time shall occur following the closing of the Merger (the "Closing") which
shall take place as soon as practicable following the satisfaction or waiver
of all conditions precedent to consummation of the Merger, some of which are
not under the control of HUBCO and/or Hometown. See "THE MERGER - The Merger
Agreement; Effective Time; Amendments; Termination."
RECOMMENDATION OF HOMETOWN'S BOARD OF DIRECTORS
The Board of Directors of Hometown has adopted the Merger Agreement by
unanimous vote, believes it is in the best interests of Hometown and its
stockholders and recommends its approval by Hometown's stockholders. See
"THE MERGER - Background of and Reasons for Merger."
OPINION OF FINANCIAL ADVISOR
Brown Brothers Harriman & Co. ("BROWN BROTHERS") has advised Hometown's
Board of Directors that, in its opinion, the consideration to be paid to
stockholders of Hometown set forth in the Merger Agreement is fair to such
stockholders from a financial point of view. The full text of Brown Brothers'
opinion, dated April 26, 1996, which describes the procedures followed,
assumptions made, limitations on the review undertaken and other matters in
connection with rendering such opinion, is set forth in ANNEX D to this Proxy
Statement and should be read in its
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entirety by Hometown's stockholders. For further information regarding the
opinion of Brown Brothers, see "THE MERGER - Opinion of Financial Advisor."
DISSENTING STOCKHOLDERS' RIGHTS
Under the DGCL, a stockholder owning shares of HBI Common Stock is
entitled to dissent from the Merger and to receive cash from Hometown, as the
surviving corporation of the Merger, equal to the fair value of such
stockholder's shares of HBI Common Stock.
See, "THE MERGER -- Dissenting Stockholders' Rights" and ANNEX F, which
set forth the procedures to be followed by a holder of HBI Common Stock who
wishes to exercise the right to dissent.
BUSINESS PENDING CONSUMMATION
In general, Hometown has agreed in the Merger Agreement that it will, and
will cause The Bank of Darien to, conduct their respective businesses prior to
the Effective Time only in the ordinary course and consistent with prudent
banking practices. During such period, Hometown has agreed not to take
certain actions, nor permit The Bank of Darien to take certain actions, except
as otherwise provided in the Merger Agreement, including, among other things,
changing the number of shares of its authorized or issued capital stock,
issuing or granting any right or option to purchase shares of its capital
stock, paying any dividends in respect of its capital stock, granting any
severance or other termination pay to or entering into or amending any
employment or severance agreement with any directors, officers or employees,
adopting any new employee benefit plan or increasing compensation to
directors, officers or employees except under the circumstances specified in
the Merger Agreement, selling or disposing of a substantial amount of assets
or incurring any significant liabilities, amending the charter or by-laws of
Hometown or The Bank of Darien or making or committing to make certain new
loans or other extensions of credit or renewals of certain existing loans or
other extensions of credit as described in the Merger Agreement. See "THE
MERGER - The Merger Agreement; Conduct of Business Pending the Merger."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "FEDERAL RESERVE BOARD"), the Federal Deposit
Insurance Corporation ("FDIC") and the Commissioner of Banking of the State of
Connecticut (the "CONNECTICUT COMMISSIONER"). Applications were filed
with each of such regulatory authorities for such approvals and approval from
FDIC was granted on July 10, 1996. There can be no assurance that the other
necessary regulatory approvals will be obtained or as to the timing or
conditions of such approvals. See "THE MERGER - Regulatory Approvals."
CONDITIONS TO CONSUMMATION; TERMINATION
The obligation of each party to consummate the Merger is subject to the
satisfaction or waiver of certain conditions, including, among other things:
(i) approval of the Merger by the requisite vote of the stockholders of
Hometown; (ii) the receipt of all consents, approvals and authorizations of
all necessary federal and state government authorities and expiration of all
required waiting periods, necessary for the consummation of the Merger; and
(iii) the absence of any litigation that would restrain or prohibit the
consummation of the Merger. See "THE MERGER - The Merger Agreement;
Conditions to the Merger."
STOCK OPTION AGREEMENT
As a condition to HUBCO's entering into the Merger Agreement, Hometown
entered into a Stock Option Agreement with HUBCO dated April 28, 1996 (the
"STOCK OPTION AGREEMENT"). Pursuant to the Stock Option Agreement, Hometown
granted to HUBCO an option (the "OPTION"), exercisable only under certain
limited and
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specifically defined circumstances, none of which, to the best of Hometown's
knowledge, has occurred as of the date hereof, to purchase up to 435,000
shares of HBI Common Stock, which would constitute upon issuance approximately
20% of the total number of shares outstanding, at a purchase price of $13.75
per share. HUBCO does not have any voting or other rights with respect to
shares of HBI Common Stock subject to the Option prior to the exercise of the
Option.
The Stock Option Agreement and the Option may be considered a deterrent to
other potential acquisitions or attempted acquisitions of control of Hometown
because, among other things, they are likely to increase the cost of an
acquisition of all shares of HBI Common Stock that would then be outstanding.
See "THE MERGER - The Merger Agreement; Stock Option for Shares of HBI
Common Stock."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to the Merger Agreement, HUBCO has agreed to continue to provide
indemnification to directors, officers and employees of Hometown and The Bank
of Darien for a period of six years following consummation of the Merger.
Kevin E. Gage, President and Chief Executive Officer of Hometown and The
Bank of Darien, Christine J. Scholtz, Senior Vice President of The Bank of
Darien, and Albert T. Jaronczyk, Senior Vice President and Chief Financial
Officer of Hometown and The Bank of Darien, have entered into agreements with
Hometown and The Bank of Darien pursuant to which they would be entitled to
receive payments in the amount of approximately $450,000, $195,000 and
$26,000, respectively, if their employment is terminated under certain
conditions following consummation of the Merger. Douglas D. Milne, III,
Chairman of the Board of Hometown and The Bank of Darien, Mr. Gage and Ms.
Scholtz will also be entitled to receive payment in respect of outstanding
options to purchase HBI Common Stock upon consummation of the Merger in the
amount of $450,000, $775,250 and $89,825, respectively.
See "THE MERGER - Interests of Certain Persons in the Merger."
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information for Hometown for the years ended December 31, 1995, 1994, 1993,
1992 and 1991. This information should be read in conjunction with the
consolidated financial statements of Hometown, including the respective notes
thereto, and the other documents incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
7
<PAGE>
HOMETOWN BANCORPORATION, INC.
SELECTED CONSOLIDATED FINANCIAL DATA<F1>
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C>
Interest and dividend revenue $15,080 $12,702 $11,304 $11,097 $9,445
Interest expense 7,668 5,813 4,995 5,236 5,281
Net interest income 7,412 6,889 6,309 5,861 4,164
Provision for loan losses 75 75 360 1,258 800
Net investment securities gains 26 46 27 367 375
Before cumulative effect:
Net income (loss) 1,309 1,049 1,239 605 (173)
Net income (loss) per share .75 .60 .72 .37 (.11)
After cumulative effect:
Net income (loss) 1,309 1,049 2,364 861 (173)
Net income (loss) per share .75 .60 1.38 .53 (.11)
- -------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
Assets $229,220 $213,991 $201,352 $187,235 $118,902
Loans, net 103,407 74,940 85,461 85,322 60,786
Allowance for loan losses 2,883 3,004 3,640 3,111 1,825
Deposits 178,000 182,731 159,641 154,721 107,617
Average shares outstanding 1,752,523 1,750,988 1,708,207 1,629,710 1,597,194
- -------------------------------------------------------------------------------------------------------------
<F1> On April 24, 1992, as a result of an action istituted by the Connecticut
Commissioner, The Norwalk Bank, Norwalk, Connecticut was declared
insolvent and the FDIC was appointed the receiver of The Norwalk Bank.
As of the close of busienss on April 24, 1992, The Bank of Darien assumed
all of the deposits and purchased certain assets of The Norwalk Bank.
The Bank of Darien assumed deposits and other liabilities in the amount
of $73.9 million and purchased assets in the amount of $34.5 million at
a net discount of $353,000. The assets acquired consisted primarily of
single family residential mortgage loans, home equity loans, other
consumer loans and U.S. teasury and U.S. government agency securities.
</TABLE>
The fully diluted book value per share of HBI Common Stock was $9.60 and
$9.65 on December 31, 1995 and March 31, 1996, respectively.
Hometown declared no dividends during the five-year period ended December
31, 1995.
8
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GENERAL INFORMATION
GENERAL
This Proxy Statement is being furnished by Hometown to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of Hometown for use at the Special Meeting to be held on August 20,
1996, and any adjournment or adjournments thereof, to consider and vote upon:
(i) a proposal to approve the Merger Agreement and (ii) such other business as
may properly come before the Special Meeting or any adjournment or
adjournments thereof.
Any proxy given by a stockholder may be revoked at any time before
its exercise, and any stockholder who executes and returns a proxy and who
attends the Special Meeting may withdraw the proxy at any time before it is
voted and vote his shares in person. A proxy may be revoked by giving notice
to the President of Hometown in writing (at Hometown's address indicated
above) or in open meeting prior to the taking of a vote. Unless so revoked,
all shares represented by valid proxies will be exercised in the manner
specified thereon. If no specification is made, such shares will be voted in
favor of approval of the Merger Agreement.
In addition to solicitation by mail, directors, officers and
certain management employees of Hometown or The Bank of Darien may solicit
proxies from Hometown stockholders, either personally or by telephone,
telegraph or other form of communication. Such persons will receive no
additional compensation for such services. Hometown may retain Chemical
Mellon Shareholder Services to assist in soliciting proxies and to send proxy
materials to brokerage houses and other custodians, nominees and fiduciaries
for transmittal to their principals, at an estimated cost of $6,000, plus out-
of-pocket expenses. All expenses associated with the solicitation of proxies
in the form enclosed will be borne by Hometown.
THE BOARD OF DIRECTORS OF HOMETOWN HAS UNANIMOUSLY ADOPTED THE
MERGER AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF HOMETOWN AND ITS
STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY HOMETOWN STOCKHOLDERS. SEE "THE
MERGER - BACKGROUND OF AND REASONS FOR MERGER."
RECORD DATE; VOTE REQUIRED
The Board of Directors of Hometown has fixed July 3, 1996, as the
Record Date for determining stockholders entitled to notice of and to vote at
the Special Meeting, and accordingly, only holders of HBI Common Stock of
record at the close of business on that day will be entitled to notice of and
to vote at the Special Meeting. The number of shares of HBI Common Stock
outstanding on the Record Date was 1,709,146, and each of such shares is
entitled to one vote on all matters to be considered at the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of a
majority of the outstanding HBI Common Stock as of the Record Date.
The directors and executive officers of Hometown and The Bank of
Darien (including certain of their related interests) beneficially owned, as
of the Record Date, and are entitled to vote at the Special Meeting 235,558
shares of HBI Common Stock, which represent 13.78% of the outstanding
HBI Common Stock. Accordingly, assuming that the directors and executive
officers of Hometown and The Bank of Darien vote their shares of HBI Common
Stock in favor of approval of the Merger Agreement, approval of the Merger
Agreement will require the affirmative vote of the holders of an additional
36.22% of the outstanding shares of HBI Common Stock entitled to be
voted at the Special Meeting in order for the Merger Agreement to be approved
at the Special Meeting.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, OR A BROKER NON-VOTE WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
VOTING SECURITIES AND PRINCIPAL HOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is the name and address of, amount and nature of
beneficial ownership and percent of HBI Common Stock owned as of the date
hereof by each person who is known by the Board of Directors of Hometown to
be the beneficial owner of more than 5% of the outstanding HBI Common Stock.
9
<PAGE>
AMOUNT AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENT OF CLASS
OWNERSHIP*
Charles E. Waggner 137,398 8.04%
P.O. Box 4028 direct
1063 Boston Post Road
Darien, CT 06820-1428
* Amounts presented are based on information provided to Hometown by Mr.
Waggner.
SECURITY OWNERSHIP OF MANAGEMENT
As of July 3, 1996, all directors and executive officers of
Hometown held, directly or indirectly, as beneficial owners 312,548 shares of
HBI Common Stock (including 90,940 shares which could be acquired on exercise
of options within 60 days thereof), such number representing 17.36% of the
outstanding HBI Common Stock. In addition, directors and executive officers
of The Bank of Darien who are not also directors or executive officers of
Hometown held, directly or indirectly, as beneficial owners 13,950 shares of
HBI Common Stock as of July 3, 1996, such number representing .82% of the
outstanding HBI Common Stock.
Set forth below are the amount and percent of HBI Common Stock
owned by each director of Hometown. Each of the persons named serves as a
director of Hometown and The Bank of Darien and has a business address c/o
Hometown. In addition, Mr. Gage serves as President and Chief Executive
Officer of Hometown and The Bank of Darien, and Mr. Milne serves as the
Chairman of the Board of Hometown and The Bank of Darien. Except as
otherwise indicated, all such shares are owned directly by the person named.
NAME NUMBER OF SHARES PERCENT OF CLASS
Richard A. Allen 1,700 .10%
Kevin E. Gage 57,090<F1> 3.24%
Louis T. Hagopian 10,000 .59%
Arnold H. Libner 30,900 1.81%
Joseph G. McIntyre 2,000 .12%
Douglas D. Milne, III 48,320<F2> 2.78%
Charles E. Waggner 137,398 8.04%
Robert O. White 19,000<F3> 1.11%
Directors and Executive
Officers as a Group (12 312,548<F4> 17.36%
persons)
<F1> Includes 54,800 shares of HBI Common Stock which could be acquired
by Mr. Gage within 60 days from July 3, 1996 upon exercise of
options outstanding under Hometown's 1987 Stock Option Plan.
<F2> Includes 30,000 shares of HBI Common Stock which could be acquired
by Mr. Milne within 60 days from July 3, 1996 upon exercise of
options outstanding under Hometown's 1987 Stock Option Plan. Also
includes 4,160 shares as to which Mr. Milne shares voting and
investment power with his wife.
<F3> Includes 1,000 shares owned by Mr. White's wife.
<F4> Includes 90,940 shares of HBI Common Stock which could be acquired
within 60 days from July 3, 1996 upon exercise of options outstanding
under Hometown's 1987 Stock Option Plan.
10
<PAGE>
THE MERGER
THE FOLLOWING INFORMATION RELATING TO THE MERGER IS NOT INTENDED TO BE A
COMPLETE DESCRIPTION OF ALL MATERIAL INFORMATION RELATING TO THE MERGER AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE ANNEXES HERETO
AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER
AGREEMENT IS SET FORTH IN ANNEX A TO THIS PROXY STATEMENT AND REFERENCE IS
MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER.
STOCKHOLDERS OF HOMETOWN ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY.
BACKGROUND OF AND REASONS FOR MERGER
The past several years have been a period of substantial and rapid
change in the banking industry in general and in the principal markets served
by Hometown. During this period, several acquisitions have been made in
Hometown's markets by larger regional and national bank holding companies
with access to capital and resources substantially greater than Hometown's.
The increasing disparity in resources between such larger bank holding
companies and Hometown may impede Hometown's future ability to continue
to provide its customers with competitive and cost-effective services and
products, consider strategic and non-strategic acquisitions, and attract and
retain talented officers and employees.
In early Fall 1995, Hometown began an internal review of its strategic
alternatives as a result of, among other things, the heightened attention
Hometown was receiving from various institutional shareholders, and moreover,
the increased consolidation activity occurring in the New England banking
market, specifically in Fairfield County, Connecticut. On September 11,
1995, Hometown's Chairman and President met with various Brown Brothers'
representatives to discuss, among other things, the changing nature of the
Connecticut marketplace, given Brown Brothers' extensive experience as
advisors in that market.
A follow-up meeting was held between Hometown's President and
representatives of Brown Brothers to continue the discussion of the
challenges and alternatives facing Hometown in the short and long terms.
At this meeting, Brown Brothers was asked to consider becoming financial
advisors to Hometown and to prepare a presentation that would serve as a
complete review of all of Hometown's strategic alternatives for the Board of
Directors of Hometown. On November 21, 1995, Brown Brothers presented to the
Board of Directors of Hometown a detailed review of Hometown's strategic
alternatives which included, among other things, a review of Hometown's
historical financial performance, discussion and analysis of remaining an
independent institution, pursuing a merger of equals, and the possible sale
of the institution. In particular, Hometown's Board of Directors was
provided substantial information regarding the range of likely future values
of its stock were it to remain independent, the financial condition and
operation of larger banks and bank holding companies that might have
interest in making an acquisition in Hometown's market, and the terms of
comparable transactions. As a result, the Board of Directors authorized
Hometown's senior management to initiate discussions with a selected group
of possible interested parties, but refrained from making a decision
whether to remain independent or seek an acquisition. The Board also
authorized retaining Brown Brothers as Hometown's financial advisor.
In the following months, Brown Brothers contacted representatives from
several larger national and super-regional banks in order to determine the
respective parties' level of interest in Hometown. After scheduling
preliminary meetings with the representatives of the various institutions,
Hometown executed confidentiality agreements with four institutions, one
major national bank, two super-regional banks, and one large regional bank.
Over the next few weeks, Brown Brothers assisted Hometown in responding to
the interested parties' preliminary requests for additional information
concerning Hometown. After the parties completed their respective initial
evaluations, one of the super-regional banks and the regional bank
determined that they were not significantly interested in pursuing a
possible transaction with Hometown at that time.
On February 6, 1996, HUBCO of Mahwah, NJ, parent company of Hudson
United Bank, announced its proposed acquisition of Fairfield County-based
Lafayette. At a scheduled meeting of Hometown's Board of Directors on March
12, 1996, Brown Brothers presented a comprehensive summary of the initial
contacts, and the subsequent indications of interest from the interested
parties. Brown Brothers then provided the Board of Directors an analysis
of the possible implications of the HUBCO acquisition of Lafayette on
Hometown's alternatives. The Board determined that, as a result of HUBCO's
recent announcement of a Fairfield County acquisition, a preliminary meeting
should be scheduled between Brown Brothers, Hometown, and representatives of
both HUBCO and Lafayette.
A meeting was held at HUBCO's offices on March 20, 1996, between the
CEO's of HUBCO, Lafayette and Hometown and representatives of Brown Brothers.
At this initial meeting, HUBCO outlined its operating plan for the newly
11
<PAGE>
acquired Connecticut operations, and suggested that Hometown's operations
might be an attractive addition in the development of this plan. That
evening, a confidentiality agreement was executed between the parties, and
a meeting was scheduled to further explore the level of HUBCO's interest.
On April 4, 1995, representatives of Hometown, HUBCO and Brown Brothers met
again to answer specific due diligence questions raised by HUBCO. The
meeting concluded with a discussion of transaction alternatives, including
the type of consideration which might be considered by the respective
parties. It was agreed that an indicative proposal would be communicated
by HUBCO prior to the regularly scheduled Hometown board meeting on April
18, 1996.
In preparation for the April 18 meeting, Brown Brothers obtained
indicative proposals from HUBCO and amajor national bank. On April 18, 1996,
Brown Brothers presented both indicative proposals to the Hometown Board of
Directors and also reviewed updated analyses of Hometown's financial
performance and prospects. The HUBCO proposal was determined by the Board
of Directors to be superior on the basis of a higher price with a high
likelihood of an expeditious signing and subsequent completion of the
transaction. Therefore, the Board selected HUBCO for continued negotiations
and authorized more detailed due diligence. HUBCO was informed of the
Board's decision, and subsequently pursued due diligence through April 20,
1996. During the following week, negotiations toward the definitive Merger
Agreement and related agreements progressed.
On April 26, 1996, a special meeting of the Hometown Board of Directors
was convened to vote on the definitive Merger Agreement between Hometown and
HUBCO. Brown Brothers made a detailed presentation regarding the proposal
and alternatives available to Hometown and, among other things, compared the
terms of the HUBCO proposal to the terms of other comparable transactions.
After extensive discussion and consideration, the Board of Directors
unanimously voted to accept the HUBCO proposal and approve the Merger
Agreement. On April 28, 1996 the Merger Agreement was executed and delivered
on behalf of HUBCO and Hometown.
In reaching its determination to approve the Merger Agreement, the
Hometown Board considered, in addition to the factors noted above; (i) the
long-term as well as the short-term interests of Hometown, (ii) the interests
of the stockholders of Hometown, long-term as well as short-term, including
the possibility that those interests may be best served by the continued
independence of Hometown, (iii) the interests of Hometown's employees,
customers, creditors and suppliers, and (iv) community and societal
considerations including those of each community in which an office or
facility of Hometown is located. Among the specific factors considered
by the Hometown Board were the following:
(i) The consideration offered by HUBCO in the Merger Agreement in relation
to the market value (1.46x the Hometown market price one month prior
to the announcement), book value (1.86x March 31, 1996 book value of
Hometown) and earnings per share (19.3x estimated earning for the
twelve-month period ending December 31, 1996) of Hometown;
(ii) Hometown 's business, results of operations, financial position and
prospects were it to remain independent;
(iii) The economic conditions and prospects for the markets in which
Hometown operates in light of, among other things, intensifying
competitive pressures in the financial services industry in general
and, in particular, in these markets;
(iv) The management, business, results of operations and financial
condition of Hometown;
(v) The price attainable for HBI Common Stock at this time compared with
the risks involved and possible range of prices available at a later
time;
(vi) The future prospects of HUBCO and the anticipated strengths and
synergies (including cost savings and efficiencies) anticipated from
the combination of HUBCO and Hometown;
(vii) The financial terms of other recent business combinations in the
banking industry;
(viii) The intentions of HUBCO relating to various benefit plans provided
or to be provided to Hometown employees including healthcare,
pension, disability, and severance;
(ix) The intentions of HUBCO relating to HUBCO's giving priority
consideration to displaced Hometown employees, if qualified, for
job openings in HUBCO operations; and
12
<PAGE>
(x) The financial advice rendered by Brown Brothers, including its
opinion to the effect that the consideration contemplated by the
Merger Agreement is fair from a financial point of view to Hometown
stockholders.
The Board of Directors of Hometown did not assign any specific or
relative weight to the factors it considered.
OPINION OF FINANCIAL ADVISOR
In November 1995, Hometown retained Brown Brothers to act as Hometown's
financial advisor in connection with a review of strategic alternatives,
including the possible sale of Hometown to a third party. Brown Brothers
is regularly engaged in the valuation of bank and bank holding company
securities in connection with mergers, acquisitions, and other securities
transactions. Brown Brothers has knowledge of, and experience with,
Connecticut banking markets and banking organizations operating in those
markets. Brown Brothers was selected by Hometown based upon its
qualifications, expertise, and reputation in the financial institutions
industry.
In such capacity, Brown Brothers participated in the negotiations with
respect to the pricing and other terms of the Merger, but the decision to
accept the HUBCO offer was made by the Board of Directors of Hometown. On
April 26, 1996, the day of the Board of Directors meeting prior to the
signing of the Merger Agreement, Brown Brothers delivered to the Hometown
Board of Directors its opinion that, as of such date, the consideration to
be paid by HUBCO pursuant to the Merger was fair to Hometown and its
shareholders from a financial point of view. No limitations were imposed
upon Brown Brothers with respect to the investigations made or procedures
followed by Brown Brothers in rendering its opinion.
THE FULL TEXT OF THE OPINION OF BROWN BROTHERS DATED AS OF APRIL 26,
1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITS
ON THE REVIEW UNDERTAKEN BY BROWN BROTHERS, IS ATTACHED HERETO AS ANNEX D.
STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. BROWN BROTHERS'
OPINION IS DIRECTED ONLY TO THE MERGER CONSIDERATION AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF BROWN BROTHERS SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
For purposes of its opinion and in connection with the review of the
proposed transaction, Brown Brothers: (i) reviewed a draft of the Merger
Agreement, (ii) analyzed certain publicly available financial statements,
both audited and unaudited, for Hometown and HUBCO, (iii) analyzed certain
financial statements and other financial and operating data concerning
Hometown and HUBCO prepared by their respective managements, (iv) analyzed
certain financial projections of Hometown, prepared by the management of
Hometown, (v) discussed the past and current operations and financial
position and the prospects of Hometown and HUBCO with the managements of
Hometown and HUBCO, (vi) reviewed and evaluated reported market prices and
historical trading activity of HBI Common Stock and HUBCO common stock,
(vii) reviewed the financial performance of Hometown and HUBCO together with
the stock market data relating to Hometown and HUBCO and similar data
available for certain companies deemed comparable by Brown Brothers and
their publicly-traded securities, (viii) reviewed the financial terms, to
the extent publicly available, of certain recent business combinations
involving financial institutions deemed comparable by Brown Brothers, (ix)
considered the views of management of HUBCO respecting the strategic
importance of the Merger, (x) analyzed the pro forma financial impact of
the Merger on HUBCO, and (xi) conducted such other studies, analyses, and
examinations as it deemed appropriate.
In connection with its review, Brown Brothers relied upon and assumed,
without independent verification, the accuracy and completeness of the
financial and other information regarding Hometown and HUBCO provided to
Brown Brothers by both companies and their representatives. Brown Brothers
also did not independently verify and relied on and assumed that the
allowances for loan and lease losses set forth in the balance sheets of
Hometown and HUBCO at December 31, 1995 were adequate and complied fully
with applicable law, regulatory policy, and sound banking practice as of
the date of such financial statements. With respect to the financial
projections, Brown Brothers assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of
Hometown's management as to the future financial performance of Hometown.
Brown Brothers was not retained to conduct a physical inspection of any of
the properties or facilities of Hometown or HUBCO, nor did Brown Brothers
make any independent evaluation or appraisal of Hometown's or HUBCO's assets
(including loans) or liabilities. Brown Brothers also assumed that the
Merger in all respects is and will be in compliance with all laws and
regulations that are applicable to Hometown and HUBCO.
Brown Brothers' opinion was based solely upon the information available
to it and the economic, market, and other circumstances as they existed as
of April 26, 1996, including the market price of HUBCO common stock. Events
occurring
13
<PAGE>
after that date could materially affect the assumptions and conclusions
contained in the opinion. Brown Brothers has not undertaken to reaffirm
or revise its opinion or otherwise comment upon any events occurring
after April 26, 1996.
In connection with rendering its opinion, Brown Brothers performed a
variety of financial analyses, which are summarized below. Although the
evaluation of the fairness, from a financial point of view, of the
consideration to be paid in the Merger was to some extent a subjective
one based on the experience and judgment of Brown Brothers and not merely
the result of mathematical analyses of financial data, Brown Brothers relied
on several basic financial valuation methodologies in its determinations.
Brown Brothers believes its analyses must be considered as a whole and that
selecting portions of such analyses and factors considered by Brown Brothers
without considering all such analyses and factors could create an incomplete
view of the process underlying Brown Brothers' opinion. In its analyses,
Brown Brothers made numerous assumptions with respect to business, market,
monetary, and economic conditions, industry performance and other matters,
many of which are beyond Hometown's and HUBCO's control. Any estimates
contained in Brown Brothers' analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable
than such estimates. None of the analyses performed by Brown Brothers was
assigned a greater significance by Brown Brothers than any other.
VALUATION SUMMARY. Brown Brothers analyzed the Merger consideration of
$17.75 in cash per share of HBI Common Stock and the total transaction value
of $31.9 million. Brown Brothers noted that the Merger consideration
represented a multiple of 22.7x Hometown's reported earnings per share for
the fiscal year 1995, 23.6x Hometown's reported earnings per share for the
twelve month period ending March 31, 1996, and 19.3x estimated earnings per
share of HBI Common Stock for the twelve month period ending December 31,
1996 and a multiple of 1.90x December 31, 1995, and 1.86x March 31, 1996
book value of Hometown. Brown Brothers also noted that the Merger
consideration represented a multiple of 1.46x the Hometown market price one
month prior to the announcement of the Merger.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis,
Brown Brothers estimated the present value of the future dividend stream
that Hometown could produce over a five- year period under two different
operating scenarios if Hometown performed in accordance with management's
forecasts. Brown Brothers also estimated the terminal value of Hometown's
common equity after a four and five year period by assuming a range of
valuation multiples of 10.0x to 15.0x last twelve months earnings. The
dividend streams and terminal values were then discounted to present values
using discount rates from 10% to 12%, which reflect different assumptions
regarding the required rates of return of holders and prospective purchasers
of HBI Common Stock. The range of present values per fully diluted share of
HBI Common Stock resulting from these assumptions was $9.97 to $19.05,
depending upon the operating scenario and the multiple selected for the
terminal value.
COMPARABLE ACQUISITION TRANSACTIONS. Brown Brothers compared the Merger
on the basis of multiples of stated book value and earnings of Hometown
implied by the value of the consideration to be paid to the holders of HBI
Common Stock as of the date of the determination with the same ratios in
acquisitions of banks and bank holding companies which Brown Brothers deemed
comparable. Such comparable acquisitions included banks and bank holding
companies within the New England and New Jersey region with total assets
between $120 million and $800 million. The range of multiples paid in these
transactions was 1.12 to 2.36 times the stated book value of the acquired
companies' common stock and 13.09 to 26.70 times the acquired companies'
last twelve months earnings.
Pursuant to the terms of an engagement letter dated November 22, 1995,
Hometown has agreed to pay Brown Brothers a financial advisory fee of $25,000
per year, commencing October 1, 1995. In addition, Brown Brothers will, in
the event a Transaction (as defined in the engagement letter) is consummated
(including the Merger), be entitled to a cash fee (the "CLOSING FEE") equal
to 1.5% of Transaction consideration for its financial advisory services,
including the rendering of the fairness opinion, less any financial advisory
fees paid previously pursuant to the November 22, 1995 letter agreement. Such
fee will be payable at the closing of the Transaction. Hometown estimates
that the Closing Fee payable to Brown Brothers upon consummation of the
Merger will be $478,837. Whether or not the the Merger or any other
Transaction is consummated, Hometown has agreed to reimburse Brown Brothers
for out-of -pocket expenses and has agreed to indemnify Brown Brothers, its
affiliates and their respective partners, directors, officers, agents,
consultants, employees, and controlling persons against certain expenses
and liabilities, including liabilities under certain federal securities
laws.
THE MERGER AGREEMENT
GENERAL DESCRIPTION
The Merger Agreement provides that, at the Effective Time, Hometown
Acquisition Corporation will be merged into Hometown, with Hometown as the
surviving corporation (the "SURVIVING CORPORATION"). The separate identity
and existence of
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<PAGE>
Hometown Acquisition Corporation will cease upon consummation of the Merger
and all property, rights, powers and franchises of each of Hometown
Acquisition Corporation and Hometown will vest in the Surviving Corporation.
Stockholders of Hometown prior to the Merger will retain no continuing
interest in Hometown or The Bank of Darien after completion of the Merger.
The Merger Agreement also contemplates that at the Effective Time, at HUBCO's
option, The Bank of Darien may be merged into HUBCO's subsidiary Hudson
United Bank or into Lafayette; in either case, the surviving bank in that
merger would succeed to the property, rights, powers and franchises of The
Bank of Darien and the other party to that merger, and thereafter operate
as a wholly-owned subsidiary of HUBCO.
CONSIDERATION
At the Effective Time, each share of HBI Common Stock outstanding
immediately prior to the Effective Time, except for (i) treasury shares,
(ii) shares, if any, as to which statutory dissenters' rights are perfected
and preserved, and (iii) shares held by The Bank of Darien or any other
Hometown subsidiary (other than shares held as trustee or in a fiduciary
capacity, or as nominee), will be converted into the right to receive $17.75
in cash.
CONVERSION OF HOMETOWN STOCK OPTIONS
At the Effective Time, each outstanding option to purchase shares of
HBI Common Stock (a "HOMETOWN OPTION"), whether or not then exercisable,
shall, by virtue of the Merger, automatically and without any action on the
part of the holder thereof be converted into the right to receive cash in an
amount equal to (i) the excess of $17.75, without interest, over the exercise
price per share provided in such Hometown Option, multiplied by (ii) the
number of shares of HBI Common Stock subject to such Hometown Option.
CONDITIONS TO THE MERGER
The obligation of each party to consummate the Merger is subject to
satisfaction or waiver of certain conditions, including (i) approval of the
Merger by the requisite vote of the stockholders of Hometown and, if
necessary in the opinion of HUBCO's counsel, the stockholders of HUBCO;
(ii) the receipt of all consents, approvals and authorizations of all
necessary federal and state government authorities and expiration of all
required waiting periods, necessary for the consummation of the Merger (See
"Regulatory Approvals"); and (iii) the absence of any litigation that would
restrain or prohibit the consummation of the Merger.
The obligation of HUBCO to consummate the Merger is also conditioned on,
among other things, (i) the continued accuracy in all material respects of
the representations and warranties of Hometown contained in the Merger
Agreement; and (ii) the performance by Hometown, in all material respects,
of all its obligations under the Merger Agreement.
The obligation of Hometown to consummate the Merger is also conditioned
on, among other things, (i) the continued accuracy in all material respects
of the representations and warranties of HUBCO contained in the Merger
Agreement; and (ii) the performance by HUBCO, in all material respects,
of all its obligations under the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement requires Hometown to, and to cause The Bank of
Darien to, conduct their respective businesses prior to the Effective Time
only in the ordinary course and consistent with prudent banking practices,
except as permitted under the Merger Agreement or with the written consent
of HUBCO. Under the Merger Agreement, Hometown has agreed not to take
certain actions, nor permit The Bank of Darien to take certain actions,
without the prior written consent of HUBCO or unless permitted by the Merger
Agreement, including, among other things, the following: (a) change the
number of shares of its authorized or issued capital stock or issue or grant
any option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to the authorized or issued capital
stock of Hometown, or any securities convertible into shares of such stock,
or split, combine or reclassify any shares of its capital stock, or declare,
set aside or pay any dividend or other distribution (whether in cash, stock
or property or any combination thereof) in respect of its capital stock; (b)
grant any severance or termination pay (other than pursuant to policies or
contracts of Hometown in effect on the date of the Merger Agreement and
disclosed to HUBCO) to, or enter into or amend any employment or severance
agreement with, any of its directors, officers or employees; (c) adopt any
new employee benefit plan or arrangement of any type, or award any increase
in compensation or benefits to its directors, officers or employees, except
with respect to officer or employee increases in the ordinary course of
business and consistent with past practices and policies and in any event
not in excess of 6% per year and as otherwise disclosed to HUBCO; (d) sell
or dispose of any substantial amount of assets or voluntarily incur any
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significant liabilities other than in the ordinary course of business
consistent with past practices and policies or in response to substantial
financial demands upon the business of Hometown or The Bank of Darien; (e)
make any capital expenditures other than pursuant to binding commitments
existing on the date of the Merger Agreement, expenditures necessary to
maintain existing assets in good repair, and expenditures described in
business plans or budgets previously furnished to HUBCO; (f) file any
applications or make any contracts with respect to branching or site
location or relocation; (g) agree to acquire in any manner whatsoever
(other than to realize upon collateral for a defaulted loan) any business
or entity; (h) make any material change in its accounting methods or
practices, other than changes required in accordance with generally
accepted accounting principles or regulatory authorities; (i) take any action
that would result in any of Hometown's representations or warranties being
untrue at the Effective Time in any material respect; (j) change any provision
of the Certificate of Incorporation or By- laws of Hometown or The Bank of
Darien; (k) without HUBCO's prior consent, make or commit to make any new
loan or other extension of credit in an amount of $500,000 or more, renew
for a period in excess of one year any existing loan or other extension of
credit in an amount of $500,000 or more, or increase by $500,000 or more the
aggregate credit outstanding to any borrower or group of borrowers, except
such loan initiations, renewals or increases that are committed as of the
date of the Merger Agreement and disclosed to HUBCO and residential mortgage
loans made in the ordinary course of business in accordance with past
practice; or (l) agree to do any of the foregoing.
Under the Merger Agreement, Hometown cannot, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide
any information to, any person, entity or group (other than HUBCO) concerning
any merger or sale of shares of capital stock or sale of substantial assets
or liabilities not in the ordinary course of business or similar transactions
involves Hometown or The Bank of Darien (an "ACQUISITION TRANSACTION");
provided, however, that notwithstanding the foregoing, Hometown may enter
into discussions or negotiations or provide any information in connection
with an unsolicited possible Acquisition Transaction if the Board of
Directors of Hometown, after consulting with counsel, determines in the
exercise of its fiduciary responsibilities that such discussions or
negotiations should be commenced or such information should be furnished.
Hometown has agreed to promptly communicate to HUBCO the terms of any
proposal, whether written or oral, which it may receive in respect of any
such Acquisition Transaction, and the fact that it is having discussions or
negotiations with a third party about an Acquisition Transaction.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary mutual representations and
warranties, relating to, among other things, (a) corporate organization and
similar corporate matters; (b) the capital structures of each of HUBCO and
Hometown; (c) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (d) the accuracy
of information supplied by each of HUBCO and Hometown in connection with
this Proxy Statement; (e) certain financial statements of the parties; and
(f) brokers' and finders' fees. In addition, the Merger Agreement contains
additional customary representations and warranties of Hometown relating to,
among other things, (a) compliance with applicable laws; (b) the absence of
material litigation; (c) filing of tax returns and payment of taxes; (d)
matters relating to certain material contracts; (e) director and officer
contracts and retirement and other employee plans and matters relating to
the Employee Retirement Income Security Act of 1974, as amended; (f)
insurance matters; (g) certain bank regulatory matters; (h) absence of
certain material changes or events from December 31, 1995; (i) documents
filed by Hometown with the Commission and Hometown and The Bank of Darien
with regulatory agencies, and the accuracy of information contained therein;
(j) title to properties; (k) the adequacy of loan loss reserves; and (l)
environmental compliance.
CONVERSION OF CERTIFICATES AND OPTIONS
At the Effective Time, holders of certificates formerly representing
shares of HBI Common Stock (other than certificates held by Hometown
stockholders who have exercised dissenters' rights under the DGCL) will
cease to have any rights as Hometown shareholders and their certificates
automatically will represent the right to receive the $17.75 into which
their shares of HBI Common Stock will have been converted by the Merger.
Promptly after the Effective Time, HUBCO will instruct the exchange agent
to send written instructions and a letter of transmittal to each holder of
record of HBI Common Stock (other than holders who have exercised dissenters'
rights under the DGCL), indicating the method for exchanging such holder's
stock certificates for cash in respect thereof. HOLDERS OF HBI COMMON STOCK
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE INSTRUCTIONS FROM
THE EXCHANGE AGENT.
Holders of outstanding certificates for HBI Common Stock, upon proper
surrender of such certificates to the exchange agent, will be entitled to
receive cash in an amount equal to the $17.75 per share multiplied by the
number of shares of HBI Common Stock previously represented by the
surrendered certificates without interest.
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Holders of Hometown Options, shall, by virtue of the Merger, be entitled
to receive cash in an amount determined as described under "Conversion of
Hometown Stock Options" above. HUBCO has indicated that, promptly following
the Closing, it will communicate with holders of Hometown Options concerning
the mechanism for such payment.
EFFECTIVE TIME; AMENDMENTS; TERMINATION
The Closing will occur as soon as practicable after receipt of all
necessary approvals and consents and the satisfaction or waiver of the other
conditions to consummation of the Merger, or on another day mutually agreed
to by HUBCO and Hometown. At the Closing, documents required to satisfy the
conditions to the Merger of the respective parties will be exchanged.
Immediately following the Closing, a Certificate of Merger will be executed
by Hometown Acquisition Corporation and Hometown and filed with the Secretary
of State of Delaware. The Effective Time will be the close of business on
the day when such certificate has been so filed. The Effective Time is
dependent upon satisfaction of all conditions precedent, some of which are
not under the control of HUBCO and/or Hometown. See "Conditions to the
Merger" and "Regulatory Approvals."
The Merger Agreement may be amended by the mutual consent of HUBCO and
Hometown at any time prior to the Effective Time. However, after approval
of the Merger Agreement by the stockholders of Hometown, no amendment can
be made which reduces or changes the amount or form of consideration to be
delivered to the stockholders of Hometown without the approval of such
stockholders.
The Merger Agreement may be terminated by the mutual consent of
Hometown and HUBCO. The Merger Agreement may also be terminated by
Hometown or HUBCO (i) if the Effective Time has not occurred on or before
February 28, 1997 unless the failure to close is due to the failure of the
party seeking to terminate to perform or observe its agreements in the Merger
Agreement; (ii) if a vote of the stockholders of Hometown to approve the
Merger Agreement, or of the stockholders of HUBCO if required, is taken and
the stockholders of either Hometown or HUBCO fail to approve the Merger
Agreement at their respective stockholder meetings; or (iii) if any
application for regulatory approvals necessary to consummate the transaction
have been denied or withdrawn at the request of the applicable agency or
governmental entity or if an approval is given with conditions which
materially impair the value of Hometown and The Bank of Darien to HUBCO
(but then only by HUBCO).
HUBCO may terminate the Merger Agreement if there has been a material
adverse change in the business, operations, assets or financial condition of
Hometown and The Bank of Darien from that disclosed by Hometown in its Annual
Report on Form 10-K for the year ended December 31, 1995, or Hometown
materially breaches any representation, warranty or covenant under the
Merger Agreement and does not cure such breach within 30 days after receipt
by Hometown of a notice of breach. Hometown may terminate the Merger
Agreement if HUBCO materially breaches any representation, warranty or
covenant under the Merger Agreement and does not cure such breach within
30 days after receipt by HUBCO of a notice of breach. HUBCO may also
terminate the Merger Agreement if the conditions to HUBCO's obligations to
close are not satisfied and Hometown may terminate the Merger Agreement if
the conditions for Hometown to close are not satisfied, and, in either case,
are not capable of being satisfied by February 28, 1997.
Hometown may terminate the Merger Agreement unilaterally if it shall
have approved an Acquisition Transaction after determining, upon advice of
counsel, that such approval was necessary in the exercise of its fiduciary
obligations under applicable laws. See "Stock Option for Shares of HBI
Common Stock."
In the event of a termination pursuant to the terms of the Merger
Agreement, the Merger Agreement (other than as to certain confidentiality
obligations, certain regulatory matters, and the parties' payment of their
respective expenses) will become void without liability on the part of any
party, except any liability for any breach of the Merger Agreement.
The foregoing discussion is qualified in its entirety by reference to
the applicable provisions in the Merger Agreement (a copy of which is set
forth as Annex A to this Proxy Statement).
STOCK OPTION FOR SHARES OF HBI COMMON STOCK
In connection with the execution of the Merger Agreement, and as a
required inducement to HUBCO, HUBCO and Hometown also entered into the Stock
Option Agreement. Pursuant to the Stock Option Agreement, Hometown has
granted to HUBCO an option (the "OPTION") to purchase up to 435,000 shares
of HBI Common Stock, which would constitute upon issuance approximately 20%
of the total number of shares outstanding, at a price of $13.75 per share
(the closing price of HBI
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Common Stock on the last trading day prior to announcement of the Merger
Agreement). HUBCO does not have any voting or other rights with respect to
shares of HBI Common Stock subject to the Option prior to exercise of the
Option. The Stock Option Agreement is set forth in Annex E hereto.
In the event that certain specifically enumerated events ("TRIGGERING
EVENTS") occur, including but not limited to the acquisition of beneficial
ownership of at least 20% of the outstanding HBI Common Stock by a person or
group other than HUBCO or an affiliate of HUBCO, HUBCO may exercise the
Option in whole or in part. The ability of HUBCO to exercise the Option
and to cause up to an additional 435,000 shares of HBI Common Stock to be
issued may be considered a deterrent to other potential acquisitions or
attempted acquisitions of control of Hometown because, among other things,
it is likely to increase the cost of an acquisition of all of the shares of
HBI Common Stock that would then be outstanding. Moreover, the exercise of
the Option by HUBCO may make "pooling of interests" accounting treatment
unavailable to a subsequent acquiror of Hometown.
The term "Triggering Event" is defined to mean the occurrence of any of
the following events: a person or group, as such terms are defined in the
Exchange Act and the rules and regulations thereunder, other than HUBCO or
an affiliate of HUBCO: (a) acquires beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of at least 20% of
the then outstanding shares of HBI Common Stock; (b) enters into a letter of
intent or an agreement with Hometown pursuant to which such person would (i)
merge or consolidate, or enter into any similar transaction, with Hometown,
(ii) acquire all or a significant portion of the assets or liabilities of
Hometown, or (iii) acquire beneficial ownership of securities representing,
or the right to acquire the beneficial ownership or to vote securities
representing, 20% or more of the then outstanding shares of HBI Common
Stock; (c) makes a filing with any bank regulatory authorities or publicly
announces a bona fide proposal (a "PROPOSAL") for (i) any merger,
consolidation or acquisition of all or a significant portion of the assets
or liabilities of Hometown or any other business combination involving
Hometown, or (ii) a transaction involving the transfer of beneficial
ownership of securities representing, or the right to acquire beneficial
ownership or to vote securities representing, 20% or more of the outstanding
shares of HBI Common Stock, and thereafter, if such Proposal has not been
publicly withdrawn (within the meaning of the Stock Option Agreement) at
least 15 days prior to the meeting of stockholders of Hometown called to
vote on the Merger and Hometown's stockholders fail to approve the Merger
by the vote required by applicable law at the meeting of stockholders called
for such purpose; (d) makes a bona fide Proposal and thereafter, but before
such Proposal has been publicly withdrawn, Hometown willfully takes any
action in a manner that would materially interfere with its desire or
ability to consummate the Merger or materially reduce the value of the
Merger transaction to HUBCO; or (e) which is the holder of more than 5% of
the HBI Common Stock solicits proxies in opposition to approval of the
Merger. The definition of "Triggering Event" also means the taking of any
direct or indirect action by Hometown or any of its directors, officers or
agents to invite or solicit any proposal which has as its purpose a tender
offer for the shares of HBI Common Stock, a merger, consolidation, plan of
exchange, plan of acquisition or reorganization of Hometown, or a sale of
shares of HBI Common Stock or 25% or more of the assets or liabilities of
Hometown. "Publicly withdrawn" for purposes of the Stock Option Agreement
means an unconditional bona fide withdrawal of the Proposal coupled with a
public announcement of no further interest in pursuing such Proposal or in
acquiring any controlling influence over Hometown or in soliciting or
inducing any other person (other than HUBCO or any affiliate) to do so.
HUBCO may not sell, assign or otherwise transfer its rights and
obligations under the Stock Option Agreement, in whole or in part, to any
person or group of persons other than to an affiliate of HUBCO. Hometown
is not obligated to issue shares of HBI Common Stock upon exercise of the
Option (i) in the absence of any required governmental or regulatory approval
or consent necessary for Hometown to issue the HBI Common Stock subject to
the Option or HUBCO to exercise the Option or prior to the expiration or
termination of any waiting period required by law, or (ii) so long as any
injunction or other order, decree or ruling issued by any federal or state
court of competent jurisdiction is in effect which prohibits the sale or
delivery of the HBI Common Stock subject to the Option.
The Stock Option Agreement also provides, among other things, for
certain rights on the part of HUBCO to require Hometown to register the
Option, and shares of HBI Common Stock issuable pursuant to the Option,
under the Securities Act of 1933, for certain anti-dilution adjustments
in the number of shares subject to the Option under specified circumstances,
and for various other matters.
Solely for the purposes of the Connecticut Banking Laws, Section
36a-184, the Option is not considered effective unless and until it is
approved by the Connecticut Commissioner. Under certain circumstances,
if the Connecticut Commissioner fails to approve the exercise of the
Option, a Triggering Event has occurred and Hometown is merged or acquired
by a third party, Hometown must pay HUBCO a termination fee of $3,000,000
in lieu of the Option.
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REGULATORY APPROVALS
The Merger is subject to the prior approval of the Federal Reserve
Board, the FDIC, and the Connecticut Commissioner. Applications were filed
with each of such regulatory authorities for such approvals and approval from
the FDIC was granted on July 10, 1996. There can be no assurance that the
other necessary regulatory approvals will be obtained or as to the timing or
conditions of such approvals.
DISSENTING STOCKHOLDERS' RIGHTS
Under the DGCL, stockholders owning shares of the HBI Common Stock are
entitled to dissent from the Merger and to receive cash from the Surviving
Corporation equal to the fair value of such stockholder's shares of HBI
Common Stock.
Pursuant to Section 262 of the DGCL (a copy of which is attached hereto
as Annex F), a holder of HBI Common Stock who complies with the statutory
provisions thereof shall be entitled to an appraisal by the Delaware Court
of Chancery of the fair value of his or her HBI Common Stock and to receive
payment of such amount in lieu of the $17.75 per share in cash provided for
in the Merger Agreement. Such amount may be more or less than $17.75 per
share. Any holder of HBI Common Stock desiring to exercise dissenters'
rights of appraisal should refer to the statute in its entirety and should
consult with legal counsel prior to taking any action, to insure that such
holder complies strictly with the applicable statutory provisions.
To exercise dissenter's rights, a holder of HBI Common Stock must:
(i) hold shares of HBI Common Stock on the date of the making of a
demand for appraisal of such shares and continuously hold such
shares through the Effective Time;
(ii) before the taking of the vote on the Merger, deliver to Hometown
written demand for appraisal of his or her shares; and
(iii) not have voted in favor of the Merger nor consented thereto in
writing pursuant to Section 228 of the DGCL.
Thereafter, within 120 days after the Effective Time, any stockholder
who has met such requirements, or Hometown, may file a petition with the
Delaware Court of Chancery seeking a determination of the value of the stock
of all dissenting stockholders. The Court of Chancery must hold a hearing
and determine the fair value (exclusive of any element of value arising from
the Merger), together with a fair rate of interest to be paid on the fair
value. The Surviving Corporation will pay the fair value of the stock held
by dissenting stockholders and the interest determined by the Court.
Notwithstanding the foregoing, at any time within 60 days after the Effective
Time, any stockholder shall have the right to withdraw his demand for
appraisal rights and accept the terms offered in the Merger.
The failure of a holder of HBI Common Stock to vote on the proposal to
approve the Merger Agreement will not constitute a waiver of such holder's
appraisal rights under the DGCL. A vote against approval of the Merger
Agreement will not satisfy the obligation of a dissenting stockholder to
give notice pursuant to Section 262 of the DGCL.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement provides that for the six-year period following the
Effective Date, HUBCO will indemnify the directors, officers, employees or
agents of Hometown or The Bank of Darien holding such positions on or prior
to the date of the Effective Time, and each person who serves or has served
at the request of Hometown or The Bank of Darien in any capacity with any
other person against certain liabilities to the extent such persons were
indemnified under the DGCL and applicable Connecticut law and Hometown's or
The Bank of Darien's Certificates of Incorporation and Bylaws as in effect
on the date of the Merger Agreement.
In addition, HUBCO agreed in the Merger Agreement to cause Hometown's
and The Bank of Darien's officers and directors to be covered under HUBCO's
then current officers' and directors' liability insurance policy for a period
of six years after the Effective Time, or in the alternative to be covered
under an extension of Hometown's or The Bank of Darien's existing officers'
and directors' liability insurance policy; provided that HUBCO is only
required to provide insurance to such persons upon terms substantially
similar to Hometown's and The Bank of Darien's existing officers' and
directors' liability insurance.
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Hometown and The Bank of Darien have entered into an employment
agreement, as amended, with Kevin E. Gage, President and Chief Executive
Officer of Hometown and The Bank of Darien. The terms of the agreement
provide that, following a change in control (as defined) of The Bank of
Darien or Hometown, if Mr. Gage's employment is terminated by The Bank of
Darien other than for death, special cause or special disability (as defined)
or if Mr. Gage's employment is terminated by Mr. Gage, The Bank of Darien
will be obligated to pay Mr. Gage a lump sum severance payment equal to 2.99
times his then applicable annual salary. Hometown has guaranteed performance
by The Bank of Darien of its obligations under this agreement. If, following
the Effective Time, Mr. Gage's employment is terminated (other than by The
Bank of Darien for death, special cause or special disability), Mr. Gage
would be entitled to receive a payment of approximately $450,000, subject
to reduction if such amount, together with certain other amounts received
by him, would exceed certain limits imposed under the Internal Revenue Code
of 1986, as amended (the "Code").
Hometown and The Bank of Darien have also entered into an employment
agreement, as amended, with Christine J. Scholtz, Senior Vice President of
The Bank of Darien. The terms of the agreement with Ms. Scholtz provide,
that following a change in control (as defined) of The Bank of Darien or
Hometown, if Ms. Scholtz's employment is terminated by The Bank of Darien
other than for death, special cause or special disability (as defined) or is
Ms. Scholtz's employment is terminated by Ms. Scholtz, The Bank of Darien
will be obligated to pay Ms. Scholtz a lump sum severance payment equal to
2 times the sum of her then applicable annual salary and the average bonus
paid in respect of the two preceding years. In addition, Ms. Scholtz would
be entitled to receive an amount sufficient to pay for continued medial
benefits for a period of eighteen months from termination of employment.
If, following the Effective Time, Ms. Scholtz's employment is terminated
(other than by The Bank of Darien for death, special cause or special
disability) Ms. Scholtz would be entitled to receive a payment of
approximately $195,000, subject to reduction if such amount, together
with certain other amounts received by her, would exceed certain limits
imposed under the Internal Revenue Code.
The Bank of Darien has also entered into a severance agreement with
Albert T. Jaronczyk, Senior Vice President and Chief Financial Officer of
Hometown and The Bank of Darien, which provides that Mr. Jaronczyk will be
entitled to receive a severance payment equal to three months' salary
(approximately $26,000) if his employment is terminated by Hometown or The
Bank of Darien without cause at any time prior to the earlier to occur of
the first anniversary of the consummation of the Merger or the termination
of the Merger Agreement or by Mr. Jaronczyk for any reason after the date on
which the conversion of Hometown's and The Bank of Darien's computer systems
to the computer systems of HUBCO is completed.
Based on a Severance Policy adopted by Hometown and The Bank of Darien
in 1996, Peter T. Hovey, Senior Vice President and Senior Loan Officer of The
Bank of Darien, would be entitled to receive a severance payment equal to
three times his weekly base pay multiplied by his number of years of
employment by The Bank of Darien, including for such purposes a period in
excess of 180 days as a full year.
Pursuant to the Merger Agreement, at the Effective Time each Hometown
Option, whether or not then exercisable, shall be automatically converted
into the right to receive cash in an amount equal to (i) the excess of
$17.75 over the exercise price per share provided in such Hometown Option
multiplied by (ii) the number of shares of HBI Common Stock subject to such
Hometown Option. Based on the number of unexercised Hometown Options
currently outstanding, Mr. Milne, Mr. Gage, Ms. Scholtz and all current
executive officers of Hometown and The Bank of Darien as a group would be
entitled to receive $450,000, $775,250, $89,825 and $1,598,731, respectively,
in respect of their Hometown Options upon consummation of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal federal income
tax consequences of the Merger to holders whose shares of HBI Common Stock
are converted to cash in the Merger (including pursuant to the exercise of
appraisal rights). The discussion applies only to holders of shares of HBI
Common Stock in whose hands shares of HBI Common Stock are capital assets,
and may not apply to shares of HBI Common Stock received pursuant to the
exercise of employee stock options or otherwise as compensation, or to
holders of shares of HBI Common Stock who are in special tax situations
(such as insurance companies, tax- exempt organizations or non-U.S. persons).
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE BASED UPON
CURRENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF
SHARES OF HBI COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH STOCKHOLDER
AND THE PARTICULAR TAX EFFECTS OF THE MERGER, INCLUDING THE APPLICATION AND
EFFECT OF FOREIGN, STATE, LOCAL AND OTHER INCOME AND OTHER TAX LAWS.
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The receipt of cash for shares of HBI Common Stock pursuant to the
Merger (including pursuant to the exercise of appraisal rights) will be a
taxable transaction for federal income tax purposes (and also may be a
taxable transaction under applicable foreign, state, local and other income
and other tax laws). In general, for federal income tax purposes, a holder
of shares of HBI Common Stock will recognize gain or loss equal to the
difference between his adjusted tax basis in the shares of HBI Common Stock
converted to cash in the Merger and the amount of cash received therefor.
Gain or loss must be determined separately for each block of shares of HBI
Common Stock (I.E., shares of HBI Common Stock acquired at the same cost in
a single transaction) converted to cash in the Merger. Such gain or loss
will be capital gain or loss and will be long-term gain or loss if, on the
date of sale (or, if applicable, the date of the Merger), the shares of HBI
Common Stock were held for more than one year. With respect to dissenters
exercising appraisal rights, amounts, if any, which are or are deemed to be
interest for federal income tax purposes will be taxed as ordinary income.
Payments in connection with the Merger may be subject to "backup
withholding" at a rate of 31%. Backup withholding generally applies if a
stockholder (a) fails to furnish to the exchange agent his social security
number or taxpayer identification number ("TIN"), (b) furnishes an incorrect
TIN, (c) fails properly to include a reportable interest or dividend payment
on such stockholder's federal income tax return, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties
of perjury, that the TIN provided is such stockholder's correct number and
that such stockholder is not subject to backup withholding. Backup
withholding is not an additional tax but merely an advance payment, which
may be refunded to the extent it results in an overpayment of tax. Certain
persons generally are entitled to exemption from backup withholding,
including corporations and financial institutions. Certain penalties apply
for failure to furnish correct information and for failure to include
reportable payments in income. Each stockholder should consult with such
stockholder's own tax advisor as to qualification for exemption from backup
withholding and the procedure for obtaining such exemption.
MARKET PRICES
The following table sets forth the range of high and low sales prices
per share of HBI Common Stock on The Nasdaq Stock Market, Inc. by quarter
as reported by Nasdaq. Hometown has approximately 485 stockholders of record.
HBI COMMON STOCK
HIGH LOW
---- ---
1994
First Quarter $ 14.50 $ 10.00
Second Quarter 14.50 12.00
Third Quarter 13.875 12.00
Fourth Quarter 14.00 9.25
1995
First Quarter $ 11.75 $ 9.50
Second Quarter 12.625 9.50
Third Quarter 13.00 10.00
Fourth Quarter 14.25 12.25
1996
First Quarter $ 14.00 $ 12.00
Second Quarter 17.50 12.50
Third Quarter (through July 3, 1996) 17.50 17.25
INDEPENDENT ACCOUNTANTS
The Board of Directors approved KPMG Peat Marwick LLP, independent
accountants, to audit the books, records and accounts of Hometown and The
Bank of Darien for the year ending December 31, 1996.
KPMG Peat Marwick LLP will audit the consolidated balance sheet as of the
end of the fiscal year and related consolidated statements of income, changes
in stockholders' equity and cash flows for the year in accordance with
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generally accepted auditing standards. The accounting firm also is
responsible for the preparation of Hometown's consolidated state and federal
income tax returns. Hometown has been advised by KPMG Peat Marwick LLP that
it has no material direct financial interest or any material indirect
financial interest in Hometown other than that arising from the firm's
employment as independent accountants. It is expected that a representative
of Price Waterhouse LLP will attend the Special Meeting and will have the
opportunity to make a statement and be available to respond to appropriate
questions. It is not expected that a repreentative of KPMG Peat Marwick
will attend the Special Meeting.
On March 5, 1996, Hometown notified Price Waterhouse LLP that Price
Waterhouse LLP was dismissed as Hometown's independent accountants for the
fiscal year ending December 31, 1996. Since that date, Price Waterhouse LLP
has completed its audit of Hometown's financial statements as of December 31,
1995, and for the year then ended. Price Waterhouse LLP has assisted
Hometown in meeting its 1995 income tax reporting obligations. The decision
to dismiss Price Waterhouse LLP as Hometown's independent accountants for
the year ending December 31, 1996 was approved by the Board of Directors of
Hometown upon the recommendation of the Audit Committee of the Board of
Directors.
The reports of Price Waterhouse LLP on the financial statements of
Hometown for the fiscal years ended December 31, 1995 and 1994 did not
contain an adverse opinion or a disclaimer of opinion, and such reports
were not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the fiscal years ended December 31, 1995 and 1994 and the period
from January 1, 1996 through March 5, 1996, there were no disagreements with
Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreement, if not resolved to the satisfaction of Price Waterhouse LLP,
would have caused Price Waterhouse LLP to make a reference to the subject
matter of the disagreement in its report on the financial statements for
such years.
During the fiscal years ended December 31, 1995 and 1994 and the period
from January 1, 1996 through March 5, 1996, there were no "reportable events"
as defined in Item 304(a)(1)(v) of Regulation S-K except as set forth below.
On August 25, 1995 the Audit Committee of Hometown concluded its
investigation of accounting errors and irregularities which were initially
discovered in July 1995. Based upon the findings of the investigation, the
Board of Directors of Hometown has concluded that the errors and
irregularities resulted from the activities of a former employee who
manipulated records and circumvented controls. The results of such actions
required the restatement of financial statements for the years ended December
31, 1992 through 1994. In connection with such restatements, Price
Waterhouse LLP identified certain material weaknesses in Hometown's internal
controls. The material weaknesses noted related to the lack of segregation
of duties by a former officer of Hometown and lack of control over the input
of entries into the general ledger. Such matters were summarized and
reported to Hometown's Audit Committee by Price Waterhouse LLP. Hometown
has authorized Price Waterhouse LLP to respond to any and all inquiries by
its successor accountants concerning the subject matter of such reportable
event.
EXPERTS
The consolidated balance sheets of Hometown as of December 31, 1995
and 1994 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, included in Hometown's 1995 Annual Report
on Form 10-K, have been incorporated herein in reliance on the report of
Price Waterhouse LLP, independent public accountants, and upon the authority
of said firm as experts in accounting and auditing.
PROPOSALS OF STOCKHOLDERS
Hometown will hold an Annual Meeting in 1996 only if the Merger is not
consummated before the time of such meeting. Any stockholder of Hometown
desiring to present a proposal for action at the 1996 Annual Meeting of
Hometown, in the event that such a meeting is held would have to have
delivered such proposal to the main office of Hometown a reasonable time
before the distribution of proxy material for it to be included in
Hometown's proxy statement and form of proxy relating to that meeting.
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OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of
Hometown knows of no matters which will be presented for consideration at
the Special Meeting other than as set forth in the Notice of Special Meeting
accompanying this Proxy Statement. However, if any other matters shall come
before the meeting or any adjournment or adjournments thereof and be voted
upon, the enclosed proxy shall be deemed to confer discretionary authority
to the individuals named as proxies therein to vote the shares represented
by such proxy as to any such matters.
23
<PAGE>
ANNEX A
CONFORMED COPY
AMENDED AND RESTATED
AGREEMENT AND
PLAN OF MERGER
by
and
among
HUBCO, INC.
and
HUDSON UNITED BANK
and
HOMETOWN ACQUISITION CORPORATION
and
HOMETOWN BANCORPORATION, INC.
and
THE BANK OF DARIEN
Dated as of April 28, 1996
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[THIS PAGE INTENTIONALLY BLANK]
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER.....................................................A-5
1.1 The Merger...............................................A-5
1.2 Effect of the Merger.....................................A-5
1.3 Certificate of Incorporation.............................A-5
1.4 By-laws..................................................A-5
1.5 Directors and Officers...................................A-5
1.6 Newco Stock..............................................A-5
1.7 Effective Time and Closing...............................A-5
1.8 The Bank Merger..........................................A-6
ARTICLE II - CONVERSION OF HBI SHARES......................................A-6
2.1 Conversion of HBI Common Stock...........................A-6
2.2 Conversion Procedures....................................A-6
2.3 Stock Transfer Books.....................................A-7
2.4 HBI Stock Options........................................A-7
2.5 Dissenting Shares........................................A-7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF HBI........................A-7
3.1 Corporate Organization...................................A-7
3.2 Capitalization...........................................A-8
3.3 Authority; No Violation..................................A-8
3.4 Financial Statements.....................................A-9
3.5 Broker's and Other Fees..................................A-9
3.6 Absence of Certain Changes or Events.....................A-9
3.7 Legal Proceedings........................................A-9
3.8 Taxes and Tax Returns...................................A-10
3.9 Employee Benefit Plans..................................A-10
3.10 Reports.................................................A-11
3.11 HBI and Darien Information..............................A-12
3.12 Compliance with Applicable Law..........................A-12
3.13 Certain Contracts.......................................A-12
3.14 Properties and Insurance................................A-12
3.15 Minute Books............................................A-13
3.16 Environmental Matters...................................A-13
3.17 Reserves................................................A-13
3.18 No Parachute Payments...................................A-13
3.19 Agreements with Bank Regulators.........................A-13
3.20 Disclosure..............................................A-14
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF HUBCO......................A-14
4.1 Corporate Organization..................................A-14
4.2 Capitalization..........................................A-14
4.3 Authority; No Violation.................................A-14
4.4 Financial Statements....................................A-15
4.5 Broker's and Other Fees.................................A-15
4.6 HUBCO and Bank Information..............................A-16
4.7 Sufficiency of Funds....................................A-16
4.8 Disclosure..............................................A-16
ARTICLE V - COVENANTS OF THE PARTIES......................................A-16
5.1 Conduct of the Business of HBI..........................A-16
5.2 Negative Covenants......................................A-16
5.3 No Solicitation.........................................A-17
5.4 Current Information.....................................A-17
5.5 Access to Properties and Records; Confidentiality.......A-17
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5.6 Regulatory Matters......................................A-18
5.7 Approval of Stockholders................................A-18
5.8 Further Assurances......................................A-19
5.9 Public Announcements....................................A-19
5.10 Failure to Fulfill Conditions...........................A-19
5.11 Employee Matters........................................A-19
5.12 Disclosure Supplements..................................A-19
5.13 Transaction Expenses of HBI and HUBCO...................A-20
5.14 Indemnification. ......................................A-20
5.15 Bank Merger.............................................A-21
5.16 Rights Plan.............................................A-21
ARTICLE VI - CLOSING CONDITIONS...........................................A-21
6.1 Conditions to Each Party's Obligations Under this
Agreement...............................................A-21
6.2 Conditions to the Obligations of HUBCO Under this
Agreement...............................................A-21
6.3 Conditions to the Obligations of HBI Under this
Agreement...............................................A-22
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER...........................A-22
7.1 Termination.............................................A-22
7.2 Effect of Termination...................................A-23
7.3 Amendment...............................................A-23
7.4 Extension; Waiver.......................................A-23
ARTICLE VIII - MISCELLANEOUS..............................................A-23
8.1 Expenses................................................A-23
8.2 Survival................................................A-24
8.3 Notices.................................................A-24
8.4 Parties in Interest; Assignability......................A-24
8.5 Entire Agreement........................................A-24
8.6 Counterparts............................................A-24
8.7 Governing Law...........................................A-25
8.8 Descriptive Headings....................................A-25
8.9 Knowledge...............................................A-25
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER,
dated as of April 28, 1996 (this "Agreement"), is among HUBCO, Inc. ("HUBCO"),
a New Jersey corporation and registered bank holding company, Hudson United
Bank (the "Bank"), a New Jersey chartered commercial banking corporation,
wholly-owned by HUBCO, Hometown Acquisition Corporation, a Delaware
corporation, wholly-owned by HUBCO ("Newco"), Hometown Bancorporation, Inc.,
a Delaware corporation ("HBI") and registered bank holding company, and The
Bank of Darien, a Connecticut chartered bank, wholly owned by HBI ("Darien").
WHEREAS, the respective Boards of Directors of HUBCO, Newco,
and HBI have each determined that it is in the best interests of HUBCO and HBI
and their respective stockholders for HUBCO to acquire HBI by (i) merging Newco
with and into HBI with HBI surviving as a wholly-owned subsidiary of HUBCO,
and HBI shareholders receiving the consideration hereinafter set forth, and
(ii) in HUBCO's discretion, simultaneously with the merger of HBI into HUBCO,
by merging Darien with and into the Bank with the Bank surviving; and
WHEREAS, the Boards of Directors of HBI, HUBCO, Newco, the
Bank and Darien have duly adopted and approved this Agreement and the Board of
Directors of HBI has directed that it be submitted to HBI's shareholders for
approval; and
WHEREAS, simultaneously with the execution of this Agreement,
HBI is issuing an option to HUBCO to purchase 435,000 shares of the authorized
and unissued HBI Common Stock (as hereinafter defined) at an option price of
$13.75 per share, subject to adjustment and subject to the terms and conditions
set forth in the Option Agreement;
NOW, THEREFORE, intending to be legally bound, the parties
hereto hereby agree as follows:
ARTICLE I - THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereafter defined), Newco shall be merged
with and into HBI (the "Merger") in accordance the Delaware General
Corporation Law (the "DGCL") and HBI shall be the surviving corporation (the
"Surviving Corporation").
1.2 EFFECT OF THE MERGER. At the Effective Time, the
Surviving Corporation shall be considered the same business and corporate
entity as each of Newco and HBI and thereupon and thereafter, all the property,
rights, privileges, powers and franchises of each of Newco and HBI shall vest
in the Surviving Corporation and the Surviving Corporation shall be subject to
and be deemed to have assumed all of the debts, liabilities, obligations and
duties of each of Newco and HBI and shall have succeeded to all of each of
their relationships, as fully and to the same extent as if such property,
rights, privileges, powers, franchises, debts, liabilities, obligations,
duties and relationships had been originally acquired, incurred or entered
into by the Surviving Corporation. In addition, any reference to either of
Newco and HBI in any contract or document, whether executed or taking effect
before or after the Effective Time, shall be considered a reference to the
Surviving Corporation if not inconsistent with the other provisions of the
contract or document; and any pending action or other judicial proceeding to
which either of Newco or HBI is a party shall not be deemed to have abated
or to have discontinued by reason of the Merger, but may be prosecuted to
final judgment, order or decree in the same manner as if the Merger had not
been made; or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for
or against it that might have been rendered for or against either of Newco or
HBI if the Merger had not occurred.
1.3 CERTIFICATE OF INCORPORATION. As of the Effective Time,
the certificate of incorporation of HBI as it exists at the Effective Time
shall be the certificate of incorporation of the Surviving Corporation and
shall not be amended by this Agreement or the Merger.
1.4 BY-LAWS. As of the Effective Time, the By-laws of
Newco shall be the By-laws of the Surviving Corporation until otherwise
amended as provided by law.
1.5 DIRECTORS AND OFFICERS. As of the Effective Time, the
directors and officers of Newco shall become the directors and officers of the
Surviving Corporation.
1.6 NEWCO STOCK. At the Effective Time, each outstanding
share of Newco Common Stock shall remaian outstanding and shall constitute
all the outstanding shares of the Surviving Corporation.
1.7 EFFECTIVE TIME AND CLOSING. The Merger shall become
effective (and be consummated) upon the filing of a Certificate of Merger, in
form and substance satisfactory to HUBCO and HBI, with the Secretary of State
of the State of Delaware (the "Delaware Certificate of Merger"). The term
"Effective Time" shall mean the close of business on the first day when the
Delaware Certificate of Merger has been so filed. A closing (the "Closing")
shall take place prior to the Effective Time at 10:00 a.m., on a date mutually
agreeable and as soon as practicable following the receipt of all necessary
regulatory, governmental and shareholder approvals and consents and the
expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver of all of the conditions to the consummation of the
Merger specified in Article VI hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing)
(the "Closing Date"),
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at the offices of Pitney, Hardin, Kipp & Szuch, 200 Campus Drive, Florham
Park, New Jersey, or at such other place, time or date as HUBCO and HBI may
mutually agree upon. Immediately following the Closing, the Delaware
Certificate of Merger shall be filed with the Delaware Secretary of State.
1.8 THE BANK MERGER. At HUBCO's option, at the Effective
Time, and simultaneously with the Merger, Darien shall be merged with and into
the Bank (the "Bank Merger") in accordance with the provisions of Section
36a-125 of the Banking Law of Connecticut. In the Bank Merger the Bank shall
be the surviving bank (the "Surviving Bank"), except that Darien may be
operated as "Hudson United Bank, Darien Division." Upon the consummation of
the Bank Merger, if any, the separate existence of Darien shall cease and the
Surviving Bank shall be considered the same business and corporate entity as
each of Darien and the Bank, and all of the property, rights, privileges,
powers and franchises of each of Darien and the Bank shall vest in the
Surviving Bank and the Surviving Bank shall be deemed to have assumed all of
the debts, liabilities, obligations and duties of each of Darien and the Bank
and shall have succeeded to all or each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, liabilities, obligations, duties and
relationships had been originally acquired, incurred or entered into by the
Surviving Bank. Upon the consummation of the Bank Merger, if any, the
certificate of incorporation and by-laws of the Bank shall become the
certificate of incorporation and by-laws of the Surviving Bank and the
officers and directors of the Bank shall be the officers and directors of the
Surviving Bank. At HUBCO's option, following the execution of this Agreement,
Darien and the Bank shall execute and deliver a merger agreement, both in
form and substance reasonably satisfactory to the parties hereto, for delivery
to the Commissioner of Banking of the State of New Jersey, the Connecticut
Commissioner of Banking (the "Connecticut Commissioner"), and the Federal
Deposit Insurance Corporation (the "FDIC") for approval of the Bank Merger.
At HUBCO's option, instead of merging Darien into the Bank, HUBCO may merge
Darien into any other banking subsidiary of HUBCO as if such subsidiary was
the Bank.
1.9 HBI MERGER. Immediately after the Effective Time, at
HUBCO's option HBI shall be merged with and into HUBCO with HUBCO as the
surviving corporation.
ARTICLE II - CONVERSION OF HBI SHARES
2.1 CONVERSION OF HBI COMMON STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of the holders
thereof:
(a) Cancelled Shares. Each share of common stock,
par value $1.00 per share, of HBI ("HBI Common Stock"), which is held by HBI as
a treasury share, and any shares of HBI Common Stock owned by Darien or any
other direct or indirect subsidiary of HBI (except as trustee or in a fiduciary
capacity, or as nominee), shall be cancelled and retired, and no payment shall
be made with respect thereto.
(b) Shares to be Exchanged; Exchange Price. Each
remaining issued and outstanding share of HBI Common Stock shall be converted
into the right to receive $17.75 per share in cash (the "Exchange Price").
2.2 CONVERSION PROCEDURES.
(a) Exchange Agent. As of the Effective Time,
HUBCO shall deposit, or shall cause to be deposited, with a bank or trust
company designated by HUBCO, which may be Hudson United Bank, Trust Department
(the "Exchange Agent"), for the benefit of the holders of shares of HBI Common
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, cash sufficient to provide all of the consideration required to be
exchanged by HUBCO pursuant to the provisions of this Article II (the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver
cash out of the Exchange Fund in accordance with Section 2.1. Except as
contemplated by Section 2.2(d) hereof, the Exchange Fund shall not be used for
any other purpose.
(b) Procedures. Promptly after the Closing Date,
HUBCO will instruct the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding shares of HBI Common Stock (other than Dissenting Shares)
(the "Certificates"), (i) a letter of transmittal (which is reasonably agreed
to by HUBCO and HBI and shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as HUBCO may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for cash. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor
cash which such holder has the right to receive in respect of the shares of
HBI Common Stock formerly evidenced by such Certificate in accordance with
Section 2.1 (the "Merger Consideration") and the Certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of
shares of HBI Common Stock which is not registered in the transfer records
of HBI, the Merger Consideration may be paid in accordance with this Article
II to a transferee if the Certificate evidencing such shares of HBI Common
Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer
A-6
<PAGE>
taxes have been paid. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
reasonably required by the Exchange Agent, the posting by such person of
a bond in such amount as the Exchange Agent may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, theExchange Agent will issue in exchange for such lost, stolen,
or destroyed Certificate the Merger Consideration deliverable in respect
thereof pursuant to this Agreement. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to evidence only the right to receive upon such surrender the Merger
Consideration, without interest.
(c) No Further Rights in HBI Common Stock. All
Merger Consideration paid upon conversion of the shares of HBI Common Stock in
accordance with the terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of HBI Common Stock.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of HBI Common Stock
for two years after the Effective Time shall be delivered to HUBCO, upon
demand, and any holders of HBI Common Stock who have not theretofore complied
with this Article II shall thereafter look only to HUBCO for the Merger
Consideration to which they are entitled.
(e) No Liability. Neither HUBCO nor the Bank
shall be liable to any holder of shares of HBI Common Stock for any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) Withholding Rights. HUBCO shall be entitled
to deduct and withhold, or cause the Exchange Agent to deduct and withhold,
from the Merger Consideration otherwise payable to any holder of a Certificate
the minimum amounts (if any) that HUBCO is required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code of
1986 as amended (the "Code"), or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by HUBCO, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the Certificate in respect of which such deduction and
withholding was made by HUBCO.
2.3 STOCK TRANSFER BOOKS. At the Effective Time, the
stock transfer books of HBI shall be closed and there shall be no further
registration of transfers of shares of HBI Common Stock thereafter on the
records of HBI. On or after the Effective Time, any Certificates presented
to the Exchange Agent or HUBCO for any reason shall be converted into the
Merger Consideration.
2.4 HBI STOCK OPTIONS. At the Effective Time, each Stock
Option (as such term is defined in Section 3.2) listed on the HBI Disclosure
Schedule, whether or not then exercisable, shall, by virtue of the Merger,
automatically and without any action on the part of the holder thereof, be
converted into the right to receive cash in an amount equal to (i) the excess
of the Exchange Price, without interest, over the exercise price per share
provided in such Stock Option, multiplied by (ii) the number of shares of HBI
Common Stock subject to such Stock Option.
2.5 DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, any holder of HBI Common Stock shall have the right
to dissent in the manner provided in Section 262 of the DGCL, and if all
necessary requirements of the DGCL are met, such shares shall be entitled to
payment of the fair value of such shares in accordance with the provisions of
the DGCL ("Dissenting Shares"), provided, however, that (i) if any holder
of Dissenting Shares shall subsequently withdraw such holder's demand for
appraisal of such shares within 60 days of the Effective Time, or, with the
written consent of the Surviving Corporation, any time thereafter, or (ii) if
any holder fails to follow the procedures for establishing such holder's
entitlement to appraisal rights as provided in the DGCL, the right to
appraisal of such shares shall be forfeited and such shares shall thereupon
be deemed to have been converted into the right to receive and to have become
exchangeable for, as of the Effective Time, the Merger Consideration.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF HBI
References herein to "HBI Disclosure Schedule" shall mean all
of the disclosure schedules required by this Article III, dated as of the date
hereof and referenced to the specific sections and subsections of Article III of
this Agreement, which have been delivered on the date hereof by HBI to HUBCO.
HBI hereby represents and warrants to HUBCO as follows:
3.1 CORPORATE ORGANIZATION.
(a) HBI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. HBI
has the corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure
to be so licensed, qualified or in good standing would not have a material
adverse effect on the business, operations, assets or financial condition of
HBI and the HBI Subsidiaries (as defined below), taken as a whole. HBI is
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended (the "BHCA").
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(b) Darien is the only current HBI Subsidiary.
For purposes of this Agreement, the term "HBI Subsidiary" means any
corporation, partnership, joint venture or other legal entity in which HBI,
directly or indirectly, owns at least a 50% stock or other equity interest or
for which HBI, directly or indirectly, acts as a general partner, provided
that to the extent that any representation or warranty set forth herein covers
a period of time prior to the date of this Agreement, the term "HBI Subsidiary"
shall include any entity which was an HBI Subsidiary at any time during
such period. Darien is a state-chartered commercial bank duly organized and
validly existing in stock form and in good standing under the laws of the
State of Connecticut. All eligible accounts of depositors issued by Darien are
insured by the Bank Insurance Fund of the FDIC to the fullest extent permitted
by law. Each HBI Subsidiary has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is
now being conducted and is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification necessary, except
where the failure to be so licensed, qualified or in good standing would not
have a material adverse effect on the business, operations, assets or financial
condition of HBI and the HBI Subsidiaries, taken as a whole.
(c) The HBI Disclosure Schedule sets forth true and
complete copies of the Certificate of Incorporation and Bylaws, as in effect
on the date hereof, of HBI and Darien.
3.2 CAPITALIZATION. The authorized capital stock of HBI
consists of ten million shares of HBI Common Stock, par value $1.00 per share,
and two million shares of preferred stock, par value $1.00 per share ("HBI
Preferred Stock"). As of April 8, 1996, there are 1,706,496 shares of HBI
Common Stock issued and outstanding. No shares of HBI Preferred Stock are
issued and outstanding. As of April 8, 1996, there are 129,600 shares of HBI
Common Stock issuable upon exercise of outstanding stock options. The HBI
Disclosure Schedule sets forth (i) all options which may be exercised for
issuance of HBI Common Stock (collectively, the "Stock Options") and the terms
upon which the options may be exercised, and (ii) true and complete copies of
each plan and each individual agreement pursuant to which any Stock Option was
granted, including a list of each outstanding Stock Option issued pursuant
thereto. All issued and outstanding shares of HBI Common Stock, and all issued
and outstanding shares of capital stock of each HBI Subsidiary, have been
duly authorized and validly issued, are fully paid, and nonassessable. The
authorized capital stock of Darien consists of 1,000,000 shares of common
stock, $5.00 par value per share. All of the outstanding shares of capital
stock of each HBI Subsidiary are owned by HBI and are free and clear of any
liens, encumbrances, charges, restrictions or rights of third parties. Except
for the Stock Options issued and disclosed herein and the Stock Option granted
to HUBCO pursuant to the Stock Option Agreement dated the date hereof, neither
HBI nor Darien has granted nor is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling
for the transfer, purchase, subscription or issuance of any shares of capital
stock of HBI or Darien or any securities representing the right to purchase,
subscribe or otherwise receive any shares of such capital stock or any
securities convertible into any such shares, and there are no agreements or
understandings with respect to voting of any such shares.
3.3 AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and
the transactions contemplated hereby by all applicable regulatory authorities
and by the stockholders of HBI, HBI and Darien have the full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by at
least seventy-five percent (75%) of the members of the Boards of Directors
of HBI and Darien in accordance with their respective Certificates of
Incorporation and applicable laws and regulations. Except for such approvals,
no other corporate proceedings on the part of HBI or Darien are necessary to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by HBI and Darien, and constitutes the valid
and binding obligation of each of HBI and Darien, enforceable against HBI and
Darien in accordance with its terms.
(b) Neither the execution and delivery of this
Agreement by HBI or Darien, nor the consummation by HBI or Darien of the
transactions contemplated hereby in accordance with the terms hereof, or
compliance by HBI or Darien with any of the terms or provisions hereof, will
(i) violate any provision of HBI's or Darien's Certificate of Incorporation or
By-laws, (ii) assuming that the consents and approvals set forth below are duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to HBI, Darien or any of their
respective properties or assets, or (iii) except as set forth in the HBI
Disclosure Schedule, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of HBI or Darien under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which HBI or Darien is a
party, or by which they or any of their respective properties or assets may be
bound or affected except, with respect to (ii) and (iii) above, such as
individually or in the aggregate will not have a material adverse effect on
the business, operations, assets or financial condition of HBI and the HBI
Subsidiaries, taken as a whole, and which will not prevent or materially delay
the consummation of the transactions contemplated hereby. Except for consents
and approvals of or filings or
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registrations with or notices to the Board of Governors of the Federal Reserve
System (the "FRB"), the FDIC, the Connecticut Commissioner, the Connecticut
Department of Environmental Protection (the "DEP"), the Securities and Exchange
Commission (the "SEC"), other applicable government authorities, and the
stockholders of HBI, no consents or approvals of or filings or registrations
with or notices to any third party or any public body or authority are
necessary on behalf of HBI or Darien in connection with (x) the execution and
delivery by HBI and Darien of this Agreement and (y) the consummation by HBI
of the Merger, the consummation by Darien of the Bank Merger, if any, and the
consummation by HBI and Darien of the other transactions contemplated hereby,
except (i) such as are listed in the HBI Disclosure Schedule and (ii) such as
individually or in the aggregate will not (if not obtained) have a material
adverse effect on the business, operations, assets or financial condition of
HBI and the HBI Subsidiaries taken as a whole or prevent or materially delay
the consummation of the transactions contemplated hereby. To the best of HBI's
knowledge, no fact or condition exists which HBI has reason to believe will
prevent it from obtaining the aforementioned consents and approvals.
3.4 FINANCIAL STATEMENTS.
(a) The HBI Disclosure Schedule sets forth copies of
the consolidated balance sheets of HBI as of December 31, 1994 and 1995, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the periods ended December 31, in each of the three years
1993 through 1995, in each case accompanied by the audit report of Price
Waterhouse LLP, independent public accountants with respect to HBI
(collectively, the "HBI Financial Statements"). The HBI Financial Statements
(including the related notes) have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved (except as may be indicated therein or in the notes thereto), and
fairly present the consolidated financial condition of HBI as of the respective
dates set forth therein, and the related consolidated statements of income,
changes in stockholders' equity and cash flows fairly present the results of
the consolidated operations, changes in stockholders' equity and cash flows of
HBI for the respective periods set forth therein.
(b) The books and records of HBI and Darien are
being maintained in material compliance with applicable legal and
accounting requirements.
(c) Except as and to the extent reflected, disclosed
or reserved against in the HBI Financial Statements (including the notes
thereto), as of December 31, 1995, neither HBI nor any HBI Subsidiary had any
liabilities, whether absolute, accrued, contingent or otherwise, material to
the business, operations, assets or financial condition of HBI and the HBI
Subsidiaries, taken as a whole, which were required by GAAP (consistently
applied) to be disclosed in HBI's consolidated statement of condition as of
December 31, 1995 or the notes thereto. Since December 31, 1995, HBI and Darien
have not incurred any liabilities except in the ordinary course of business and
consistent with prudent banking practice, except as related to the transactions
contemplated by this Agreement.
3.5 BROKER'S AND OTHER FEES. Except for Brown Brothers
Harriman & Co. ("Brown"), neither HBI or Darien nor any of their directors or
officers has employed any broker or finder or incurred any liability for any
broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement. The agreement with Brown is set
forth in the HBI Disclosure Schedule. Other than pursuant to the agreement with
Brown, there are no fees (other than time charges billed at usual and customary
rates) payable to any consultants, including lawyers and accountants, in
connection with this transaction or which would be triggered by consummation
of this transaction or the termination of the services of such consultants by
HBI or Darien.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as disclosed in the HBI Disclosure
Schedule, there has not been any material adverse change in the business,
operations, assets or financial condition of HBI and the HBI Subsidiaries,
taken as a whole, since December 31, 1995, and to the best of HBI's knowledge,
no fact or condition exists which HBI believes will cause such a material
adverse change in the future.
(b) Except as set forth in the HBI Disclosure
Schedule, neither HBI nor Darien has taken or permitted any of the actions set
forth in Section 5.2 hereof between December 31, 1995 and the date hereof and,
except for execution of this Agreement and the other documents contemplated
hereby, HBI has conducted its business only in the ordinary course, consistent
with past practice.
3.7 LEGAL PROCEEDINGS. Except as disclosed in the HBI
Disclosure Schedule, and except for ordinary routine litigation incidental
to the business of HBI and the HBI Subsidiaries, neither HBI nor any HBI
Subsidiary is a party to any, and there are no pending or, to the best of
HBI's knowledge, threatened legal, administrative, arbitral or other
proceedings, claims, actions or governmental investigations of any nature
against HBI or any HBI Subsidiary which, if decided adversely to HBI or an
HBI Subsidiary, are reasonably likely to have a material adverse effect on the
business, operations, assets or financial condition of HBI and the HBI
Subsidiaries taken as a whole. Except as disclosed in the HBI Disclosure
Schedule, neither HBI nor any HBI Subsidiary is a party to any order, judgment
or decree entered in any lawsuit or proceeding which is material to HBI or
such HBI Subsidiary.
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3.8 TAXES AND TAX RETURNS.
(a) HBI and each HBI Subsidiary has duly filed (and
until the Effective Time will so file) all returns, declarations, reports,
information returns and statements ("Returns") required to be filed by it on
or before the Effective Time in respect of any federal, state and local taxes
(including withholding taxes, penalties or other payments required) and has
duly paid (and until the Effective Time will so pay) all such taxes due and
payable, other than taxes or other charges which are being contested in good
faith (and disclosed to HUBCO in writing) or against which reserves have been
established. HBI and each HBI Subsidiary has established (and until the
Effective Time will establish) on its books and records reserves that are
adequate for the payment of all federal, state and local taxes not yet due
and payable, but are incurred in respect of HBI or such HBI Subsidiary through
such date. None of the federal or state income tax returns of HBI or any HBI
Subsidiary have been examined by the Internal Revenue Service (the "IRS") or
the Connecticut Division of Taxation within the past six years. To the best
knowledge of HBI, there are no audits or other administrative or court
proceedings presently pending nor any other disputes pending with respect to,
or claims asserted for, taxes or assessments upon HBI or any HBI Subsidiary,
nor has HBI or any HBI Subsidiary given any currently outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any taxes or Returns.
(b) Neither HBI nor any HBI Subsidiary (i) has
requested any extension of time within which to file any Return, which Return
has not since been filed, (ii) is a party to any agreement providing for the
allocation or sharing of taxes, (iii) is required to include in income any
adjustment pursuant to Section 481(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of a voluntary change in accounting method
initiated by HBI or such HBI Subsidiary (nor does HBI have any knowledge that
the IRS has proposed any such adjustment or change of accounting method), or
(iv) has filed a consent pursuant to Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply.
3.9 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth on the HBI Disclosure
Schedule, neither HBI nor any HBI Subsidiary maintains or contributes to any
"employee pension benefit plan" (the "HBI Pension Plans") within the meaning
of Section 3 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), "employee welfare benefit plan" (the "HBI Welfare Plans")
within the meaning of Section 3 of ERISA, stock option plan, stock purchase
plan, deferred compensation plan, severance plan, bonus plan, employment
agreement, director retirement program or other similar plan, program or
arrangement. Neither HBI nor any HBI Subsidiary has, since September 2, 1974,
contributed to any "Multiemployer Plan," as such term is defined in Section
3(37) of ERISA.
(b) HBI has delivered to HUBCO in the HBI Disclosure
Schedules a complete and accurate copy of each of the following with respect
to each of the HBI Pension Plans and HBI Welfare Plans, if any: (i) plan
document, summary plan description, and summary of material modifications
(if not available, a detailed description of the foregoing); (ii) trust
agreement or insurance contract, if any; (iii) most recent IRS determination
letter, if any; (iv) most recent actuarial report, if any; and (v) most recent
annual report on Form 5500.
(c) The present value of all accrued benefits, both
vested and non-vested, under each of the HBI Pension Plans subject to Title
IV of ERISA, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial valuation prepared by such HBI Pension Plan's
actuary, did not exceed the then current value of the assets of such plans
allocable to such accrued benefits. To the best of HBI's knowledge, the
actuarial assumptions then utilized for such plans were reasonable and
appropriate as of the last valuation date and reflect then current market
conditions.
(d) During the last six years, the Pension Benefit
Guaranty Corporation ("PBGC") has not asserted any claim for liability against
HBI or any HBI Subsidiary which has not been paid in full.
(e) All premiums (and interest charges and penalties
for late payment, if applicable) due to the PBGC with respect to each HBI
Pension Plan have been paid. All contributions required to be made to each HBI
Pension Plan under the terms thereof, ERISA or other applicable law have been
timely made, and all amounts properly accrued to date as liabilities of HBI
which have not been paid have been properly recorded on the books of HBI.
(f) Each of the HBI Pension Plans, HBI Welfare Plans
and each other employee benefit plan and arrangement identified on the HBI
Disclosure Schedule has been operated in compliance in all material respects
with the provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder, and all other applicable
governmental laws and regulations. Furthermore, if HBI maintains any HBI
Pension Plan, HBI has received or applied for a favorable determination
letter from the IRS which takes into account the Tax Reform Act of 1986
and subsequent legislation, and HBI is not aware of any fact or circumstance
which would disqualify any plan.
(g) To the best knowledge of HBI, no non-exempt
prohibited transaction, within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any HBI Welfare Plan or
HBI Pension Plan that would result in any material tax or penalty for HBI or
any HBI Subsidiary.
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(h) No HBI Pension Plan or any trust created
thereunder has been terminated, nor have there been any "reportable events"
(notice of which has not been waived by the PBGC), within the meaning of
Section 4034(b) of ERISA, with respect to any HBI Pension Plan.
(i) No "accumulated funding deficiency," within
the meaning of Section 412 of the Code, has been incurred with respect to
any HBI Pension Plan.
(j) There are no material pending, or, to the best
knowledge of HBI, material threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of, or against any of the HBI Pension Plans
or the HBI Welfare Plans, any trusts created thereunder or any other plan or
arrangement identified in the HBI Disclosure Schedule.
(k) No HBI Pension Plan or HBI Welfare Plan pro-
vides medical or death benefits (whether or not insured) beyond an employee's
retirement or other termination of service, other than (i) coverage mandated
by law, or (ii) death benefits under any HBI Pension Plan.
(l) Except with respect to customary health, life
and disability benefits, there are no unfunded benefit obligations which are
not accounted for by reserves shown on the HBI Financial Statements and
established under GAAP or otherwise noted on such Financial Statements.
(m) With respect to each HBI Pension Plan and HBI
Welfare Plan that is funded wholly or partially through an insurance policy,
there will be no liability of HBI or any HBI Subsidiary as of the Effective
Time under any such insurance policy or ancillary agreement with respect to
such insurance policy in the nature of a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability arising wholly or
partially out of events occurring prior to the Effective Time.
(n) Except for benefits due pursuant to the
employment agreements included within the HBI Disclosure Schedule and as set
forth in the HBI Disclosure Schedule or as agreed to by HUBCO in writing either
pursuant to this Agreement or otherwise, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of HBI or any HBI Subsidiary to severance pay, unemployment
compensation or any similar payment, or (ii) accelerate the time of payment
or vesting, or increase the amount of any compensation or benefits due to any
current or former employee under any HBI Pension Plan or HBI Welfare Plan.
(o) Except for the HBI Pension Plans and the HBI
Welfare Plans, and except as set forth on the HBI Disclosure Schedule, HBI
has no deferred compensation agreements, understandings or obligations for
payments or benefits to any current or former director, officer or employee
of HBI or any HBI Subsidiary or any predecessor of any thereof. The HBI
Disclosure Schedule sets forth (i) true and complete copies of the agreements,
understandings or obligations with respect to each such current or former
director, officer or employee, and (ii) the most recent actuarial or other
calculation of the present value of such payments or benefits.
(p) Except as set forth in the HBI Disclosure Schedule,
HBI does not maintain or otherwise pay for life insurance policies (other than
group term life policies on employees) with respect to any director, officer
or employee. The HBI Disclosure Schedule lists each such insurance policy and
any agreement with a party other than the insurer with respect to the payment,
funding or assignment of such policy. To the best of HBI's knowledge, neither
HBI nor any HBI Pension Plan or HBI Welfare Plan owns any individual or group
insurance policies issued by an insurer which has been found to be insolvent
or is in rehabilitation pursuant to a state proceeding.
3.10 REPORTS.
(a) The HBI Disclosure Schedule lists, and HBI has
previously delivered to HUBCO a complete copy of, each (i) final registration
statement, prospectus, annual, quarterly or special report and definitive proxy
statement filed by HBI since January 1, 1994 pursuant to the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended (the "1934
Act"), and (ii) communication (other than general advertising materials and
press releases) mailed by HBI to its stockholders as a class since January 1,
1994.
(b) Since January 1, 1994, (i) HBI has filed all
reports that it was required to file with the SEC under the 1934 Act, and (ii)
HBI and Darien each has duly filed all material forms, reports and documents
which they were required to file with each agency charged with regulating
any aspect of their business, in each case in form which was correct in all
material respects, and, subject to permission from such regulatory authorities,
HBI promptly will deliver or make available to HUBCO accurate and complete
copies of such reports. As of their respective dates, each such form, report,
or document, and each such final registration statement, prospectus, annual,
quarterly or special report, definitive proxy statement or communication,
complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading; provided that information contained in
any such document as of a later date shall be deemed to modify information as
of an earlier date. The HBI Disclosure Schedule
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lists the dates and substance of all examinations of HBI or Darien conducted
by either the FRB, the FDIC or the Connecticut Commissioner since January 1,
1994 and the dates and substance of any responses thereto submitted by HBI or
Darien.
3.11 HBI AND DARIEN INFORMATION. The information relating
to HBI and Darien, this Agreement, and the transactions contemplated hereby
(except for information relating solely to HUBCO) to be contained in the
Proxy Statement (as defined in Section 5.6(a) hereof) to be delivered to
stockholders of HBI in connection with the solicitation of their approval of
the Merger, as of the date the Proxy Statement is mailed to stockholders of
HBI, and up to and including the date of the meeting of stockholders to which
such Proxy Statement relates, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.12 COMPLIANCE WITH APPLICABLE LAW. HBI and each HBI
Subsidiary holds all licenses, franchises, permits and authorizations
necessary for the lawful conduct of its business and has complied with and
is not in default in any respect under any applicable law, statute, order,
rule, regulation, policy and/or guideline of any federal, state or local
governmental authority relating to HBI or such HBI Subsidiary (including,
without limitation, consumer, community and fair lending laws) (other than
where the failure to have a license, franchise, permit or authorization or
where such default or noncompliance will not result in a material adverse
effect on the business, operations, assets or financial condition of HBI and
the HBI Subsidiaries taken as a whole), and HBI has not received notice of
violation of, and does not know of any violations of, any of the above.
3.13 CERTAIN CONTRACTS.
(a) Except for plans referenced in Section 3.9 and
as disclosed in the HBI Disclosure Schedule, (i) neither HBI nor Darien is a
party to or bound by any written contract or understanding (whether written or
oral) with respect to the employment of any officers, employees, directors
or consultants, and (ii) the consummation of the transactions contemplated by
this Agreement will not (either alone or upon the occurrence of any additional
acts or events) result in any payment (whether of severance pay or otherwise)
becoming due from HBI or Darien to any officer, employee, director or
consultant thereof. The HBI Disclosure Schedule sets forth true and correct
copies of all severance or employment agreements with officers, directors,
employees, agents or consultants to which HBI or Darien is a party.
(b) Except as disclosed in the HBI Disclosure
Schedule and except for loan commitments, loan agreements and loan instruments
entered into or issued in the ordinary course of business, (i) as of the date
of this Agreement, neither HBI nor any HBI Subsidiary is a party to or bound
by any commitment, agreement or other instrument which is material to the
business, operations, assets or financial condition of HBI and the HBI
Subsidiaries taken as a whole, (ii) no commitment, agreement or other
instrument to which HBI or any HBI Subsidiary is a party or by which any
of them is bound limits the freedom of HBI or any HBI Subsidiary to compete
in any line of business or with any person, and (iii) neither HBI nor any HBI
Subsidiary is a party to any collective bargaining agreement.
(c) Except as disclosed in the HBI Disclosure
Schedule, neither HBI nor any HBI Subsidiary or, to the best knowledge of HBI,
any other party thereto, is in default in any material respect under any
material lease, contract, mortgage, promissory note, deed of trust, loan or
other commitment (except those under which Darien is or will be the creditor)
or arrangement, except for defaults which individually or in the aggregate
would not have a material adverse effect on the business, operations, assets
or financial condition of HBI and the HBI Subsidiaries, taken as a whole.
3.14 PROPERTIES AND INSURANCE.
(a) HBI or an HBI Subsidiary has good and, as to
owned real property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in HBI's
consolidated balance sheet as of December 31, 1995, or owned and acquired
subsequent thereto (except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of business since
December 31, 1995), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure liabilities that are
reflected in said balance sheet or the notes thereto or that secure liabilities
incurred in the ordinary course of business after the date of such balance
sheet, (ii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iii) such encumbrances, liens, mortgages, security
interests, pledges and title imperfections that are not in the aggregate
material to the business, operations, assets, and financial condition of HBI
and the HBI Subsidiaries taken as a whole, and (iv) with respect to owned
real property, title imperfections noted in title reports delivered to HUBCO
prior to the date hereof. Except as affected by the transactions contemplated
hereby, HBI and Darien as lessees have the right under valid and subsisting
leases to occupy, use, possess and control all real property leased by HBI
and Darien in all material respects as presently occupied, used, possessed
and controlled by HBI and Darien.
(b) The business operations and all insurable
properties and assets of HBI and each HBI Subsidiary are insured for their
benefit against all risks which, in the reasonable judgment of the management
of HBI, should be insured against, in each case under policies or bonds
issued by insurers of recognized responsibility, in such amounts with such
deductibles and against such risks and losses as are in the opinion of the
management of HBI adequate for the business engaged in by HBI and the HBI
Subsidiaries. As of the date hereof, neither HBI nor any HBI Subsidiary has
received any notice of cancellation or notice of a
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material amendment of any such insurance policy or bond, and to the best of
HBI's knowledge, is not in default under any such policy or bond, no coverage
thereunder is being disputed, and all material claims thereunder have been
filed in a timely fashion. The HBI Disclosure Schedule sets forth in summary
form a list of all insurance policies of HBI and the HBI Subsidiaries.
3.15 MINUTE BOOKS. The minute books of HBI and Darien
contain records of all meetings and other corporate action held of their
respective stockholders and Boards of Directors (including committees of
their respective Boards of Directors) that are complete and accurate in all
material respects.
3.16 ENVIRONMENTAL MATTERS.
(a) Neither HBI nor any HBI Subsidiary has received
any written notice, citation, claim, assessment, proposed assessment or
demand for abatement alleging that HBI or such HBI Subsidiary (either directly
or as a trustee or fiduciary, or as a successor-in-interest in connection with
the enforcement of remedies to realize the value of properties serving as
collateral for outstanding loans) is responsible for the correction or cleanup
of any condition resulting from the violation of any law, ordinance or other
governmental regulation regarding environmental matters, which correction or
cleanup would be material to the business, operations, assets or financial
condition of HBI and the HBI Subsidiaries taken as a whole. HBI has no
knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any real property owned or
leased by HBI or any HBI Subsidiary, as OREO or otherwise, or owned or
controlled by HBI or any HBI Subsidiary as a trustee or fiduciary
(collectively, "Properties"), in any manner that violates any presently
existing federal, state or local law or regulation governing or pertaining
to such substances and materials, the violation of which would have a
material adverse effect on the business, operations, assets or financial
condition of HBI and the HBI Subsidiaries, taken as a whole. None of the
Properties is in the State of New Jersey.
(b) HBI has no knowledge that any of the Properties
has been operated in any manner in the three years prior to the date of
this Agreement that violated any applicable federal, state or local law or
regulation governing or pertaining to toxic or hazardous substances and
materials, the violation of which would have a material adverse effect on the
business, operations, assets or financial condition of HBI and the HBI
Subsidiaries taken as a whole.
(c) To the best of HBI's knowledge, HBI, each HBI
Subsidiary and any and all of their tenants or subtenants have all necessary
permits and have filed all necessary registrations material to permit the
operation of the Properties in the manner in which the operations are currently
conducted under all applicable federal, state or local environmental laws,
excepting only those permits and registrations the absence of which would not
have a material adverse effect upon the operations requiring the permit or
registration.
(d) To the knowledge of HBI, there are no under-
ground storage tanks on, in or under any of the Properties and no underground
storage tanks have been closed or removed from any of the Properties while the
property was owned, operated or controlled by HBI or any HBI Subsidiary.
(e) Except as set forth on the HBI Disclosure
Schedule, HBI has no knowledge that any of the Properties meets the statutory
criteria of an "Establishment" as that term is defined pursuant to the
Connecticut Transfer of Establishments Act, P.A. 95-183 (the "Connecticut
Transfer Act").
3.17 RESERVES. As of December 31, 1995, each of the
allowance for loan losses and the reserve for OREO properties in the HBI
Financial Statements was adequate pursuant to GAAP (consistently applied),
and the methodology used to compute each of the loan loss reserve and the
reserve for OREO properties complies in all material respects with GAAP
(consistently applied) and all applicable policies of the FDIC and the
Connecticut Commissioner.
3.18 NO PARACHUTE PAYMENTS. No officer, director, employee
or agent (or former officer, director, employee or agent) of HBI or any HBI
Subsidiary is entitled now, or will or may be entitled to as a consequence of
this Agreement or the Merger, to any payment or benefit from HBI, an HBI
Subsidiary, HUBCO or the Bank which if paid or provided would constitute
an "excess parachute payment," as defined in Section 280G of the Code or
regulations promulgated thereunder.
3.19 AGREEMENTS WITH BANK REGULATORS. Neither HBI nor any
HBI Subsidiary is a party to any agreement or memorandum of understanding with,
or a party to any commitment letter, board resolution submitted to a regulatory
authority or similar undertaking to, or is subject to any order or directive
by, or is a recipient of any extraordinary supervisory letter from, any court,
governmental authority or other regulatory or administrative agency or
commission, domestic or foreign ("Governmental Entity") which restricts
materially the conduct of its business, or in any manner relates to its
capital adequacy, its credit or reserve policies or its management, nor has
HBI been advised by any Governmental Entity that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, except as
disclosed in writing to HUBCO by HBI prior to the date of this Agreement.
Neither HBI nor any HBI Subsidiary is required by Section 32 of the Federal
Deposit Insurance Act to give prior notice to a Federal banking agency of the
proposed addition of an
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individual to its board of directors or the employment of an individual as a
senior executive officer, except as disclosed in writing to HUBCO by HBI prior
to the date of this Agreement.
3.20 DISCLOSURE. No representation or warranty contained in
Article III of this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF HUBCO
References herein to the "HUBCO Disclosure Schedule" shall
mean all of the disclosure schedules required by this Article IV, dated as of
the date hereof and referenced to the specific sections and subsections of
Article IV of this Agreement, which have been delivered on the date hereof by
HUBCO to HBI. HUBCO hereby represents and warrants to HBI as follows:
4.1 CORPORATE ORGANIZATION.
(a) HUBCO is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey. HUBCO
has the corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse
effect on the business, operations, assets or financial condition of HUBCO or
the HUBCO Subsidiaries (defined below), taken as a whole. HUBCO is
registered as a bank holding company under the BHCA.
(b) Each of the HUBCO Subsidiaries is listed in
the HUBCO Disclosure Schedule. For purposes of this Agreement, the term "HUBCO
Subsidiary" means any corporation, partnership, joint venture or other legal
entity in which HUBCO, directly or indirectly, owns at least a 50% stock or
other equity interest or for which HUBCO, directly or indirectly, acts as a
general partner. Each HUBCO Subsidiary is duly organized and validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
The Bank is a state-chartered commercial bank duly organized and validly
existing and in good standing under the laws of the State of New Jersey. All
eligible accounts of depositors issued by the Bank are insured by the Bank
Insurance Fund of the FDIC to the fullest extent permitted by law. Each HUBCO
Subsidiary has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted
and is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse
effect on the business, operations, assets or financial condition of HUBCO and
the HUBCO Subsidiaries, taken as a whole. The HUBCO Disclosure Schedule sets
forth true and complete copies of the Certificate of Incorporation and By-laws
of HUBCO as in effect on the date hereof.
4.2 CAPITALIZATION. The authorized capital stock of HUBCO
consists solely of 25,000,000 common shares, no par value ("HUBCO Common
Stock"), and 4,500,000 shares of preferred stock ("HUBCO Authorized Preferred
Stock"), provided that HUBCO intends to submit a proposal at HUBCO's next
Annual Meeting of Shareholders to increase HUBCO's authorized capital stock
to 50,000,000 shares of HUBCO Common Stock and 10,000,000 shares of HUBCO
Authorized Preferred Stock. As of March 31, 1996, there were 14,342,949 shares
of HUBCO Common Stock issued and outstanding, excluding 713,534 shares of
treasury stock. From time to time hereafter, HUBCO may sell or repurchase
shares of HUBCO Common Stock. There are no shares of HUBCO Authorized Preferred
Stock outstanding. Except for shares issuable under the Agreement and Plan of
Merger, dated February 5, 1996 (the "Satellite Agreement"), between HUBCO and
Satellite American Bank and Trust Company ("Satellite"), the HUBCO 1995 Stock
Option Plan, and stock options issued to the former Chief Executive Officer
of Urban National Bank (the "HUBCO Stock Option Plans"), there are no shares
of HUBCO Common Stock issuable upon the exercise of outstanding stock options
or otherwise. All issued and outstanding shares of HUBCO Common Stock, and
all issued and outstanding shares of capital stock of the HUBCO Subsidiaries,
have been duly authorized and validly issued, are fully paid, nonassessable
and free of preemptive rights, and are free and clear of all liens,
encumbrances, charges, restrictions or rights of third parties. All of the
outstanding shares of capital stock of the HUBCO Subsidiaries are owned by
HUBCO free and clear of any liens, encumbrances, charges, restrictions or
rights of third parties. Except for the shares issuable under the HUBCO Stock
Option Plans and HUBCO's obligations under the Satellite Agreement, neither
HUBCO nor any HUBCO Subsidiary has granted or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the transfer, purchase or issuance of any shares of
capital stock of HUBCO or any HUBCO Subsidiary or any securities representing
the right to purchase, subscribe or otherwise receive any shares of such
capital stock or any securities convertible into any such shares, and there
are no agreements or understandings with respect to voting of any such shares.
4.3 AUTHORITY; NO VIOLATION.
(a) Subject to the receipt of all necessary
governmental approvals, HUBCO, Newco and the Bank have full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby
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in accordance with the terms hereof. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Boards of Directors of HUBCO, Newco
and the Bank in accordance with their respective Certificates of Incorporation
and applicable laws and regulations. Except for such approvals, no other
corporate proceedings on the part of HUBCO, Newco or the Bank are necessary
to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by HUBCO, Newco and the Bank and constitutes
the valid and binding obligation of HUBCO, Newco and the Bank, enforceable
against HUBCO, Newco and the Bank in accordance with its terms.
(b) Neither the execution or delivery of this Agreement
by HUBCO, Newco and the Bank, nor the consummation by HUBCO, Newco and the Bank
of the transactions contemplated hereby in accordance with the terms hereof, or
compliance by HUBCO, Newco and the Bank with any of the terms or provisions
hereof will (i) violate any provision of the Certificate of Incorporation or
By-laws of HUBCO, Newco or the Bank, (ii) assuming that the consents and
approvals set forth below are duly obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to HUBCO, Newco or the Bank or any of their respective properties
or assets, or (iii) violate, conflict with, result in a breach of any provision
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of HUBCO, Newco or the Bank under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which HUBCO,
Newco or the Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except, with respect to (ii)
and (iii) above, such as individually or in the aggregate will not have a
material adverse effect on the business, operations, assets or financial
condition of HUBCO and the HUBCO Subsidiaries, taken as a whole, and which
will not prevent or materially delay the consummation of the transactions
contemplated hereby. Except for consents and approvals of or filings or
registrations with or notices to the FDIC, the New Jersey Department of
Banking (the "Department"), the FRB, the Secretary of State of Delaware, or
other applicable Governmental Entities, no consents or approvals of or filings
or registrations with or notices to any third party or any public body or
authority are necessary on behalf of HUBCO, Newco in connection with (x) the
execution and delivery by HUBCO, Newco and the Bank of this Agreement, and (y)
the consummation by HUBCO, Newco and the Bank of the Merger, the Bank Merger,
if any, and the other transactions contemplated hereby, except such as are
listed in the HUBCO Disclosure Schedule or in the aggregate will not (if not
obtained) have a material adverse effect on the business, operations, assets
or financial condition of HUBCO. To the best of HUBCO's knowledge, no fact or
condition exists which HUBCO has reason to believe will prevent it from
obtaining the aforementioned consents and approvals.
4.4 FINANCIAL STATEMENTS.
(a) The HUBCO Disclosure Schedule sets forth copies
of the consolidated statements of financial condition of HUBCO as of December
31, 1994 and 1995, and the related consolidated statements of income, changes
in stockholders' equity and of cash flows for the periods ended December 31,
in each of the three fiscal years 1993 through 1995, in each case accompanied
by the audit report of Arthur Andersen & Co., independent public accountants
with respect to HUBCO (collectively, the "HUBCO Financial Statements"). The
HUBCO Financial Statements (including the related notes) have been prepared
in accordance with GAAP consistently applied during the periods involved
(except as may be indicated therein or in the notes thereto), and fairly
present the consolidated financial position of HUBCO as of the respective
dates set forth therein, and the related consolidated statements of income,
changes in stockholders' equity and of cash flows (including the related
notes, where applicable) fairly present the consolidated results of
operations, changes in stockholders' equity and cash flows of HUBCO for the
respective fiscal periods set forth therein.
(b) The books and records of HUBCO and the Bank are
being maintained in material compliance with applicable legal and accounting
requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, dis-
closed or reserved against in the HUBCO Financial Statements (including the
notes thereto), as of December 31, 1995 neither HUBCO nor any of the HUBCO
Subsidiaries had any obligation or liability, whether absolute, accrued,
contingent or otherwise, material to the business, operations, assets or
financial condition of HUBCO or any of the HUBCO Subsidiaries which were
required by GAAP (consistently applied) to be disclosed in HUBCO's consolidated
statement of condition as of December 31, 1995 or the notes thereto. Except for
the proposed acquisition of Satellite, the transactions contemplated by this
Agreement, and other proposed acquisitions by HUBCO since December 31, 1995
reflected in any Form 8-K filed by HUBCO with the SEC, neither HUBCO nor any
HUBCO Subsidiary has incurred any liabilities since December 31, 1995 except
in the ordinary course of business and consistent with past practice.
4.5 BROKER'S AND OTHER FEES. Neither HUBCO nor any of its
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement.
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4.6 HUBCO AND BANK INFORMATION. The information relating
to HUBCO and the Bank to be contained in the Proxy Statement (as defined in
Section 5.6(a) hereof), as of the date of the mailing of the Proxy Statement,
and up to and including the date of the meeting of stockholders of HBI to
which such Proxy Statement relates, will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
4.7 SUFFICIENCY OF FUNDS. HUBCO has, and at the Effective
Time will have, sufficient funds to consummate the transactions contemplated
hereby and to pay the related fees and expenses.
4.8 DISCLOSURE. No representation or warranty contained in
Article IV of this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE V - COVENANTS OF THE PARTIES
5.1 CONDUCT OF THE BUSINESS OF HBI. During the period from
the date of this Agreement to the Effective Time, HBI shall, and shall cause
Darien to, conduct their respective businesses only in the ordinary course and
consistent with prudent banking practice, except for transactions permitted
hereunder or with the prior written consent of HUBCO, which consent will not
be unreasonably withheld. HBI also shall use its best efforts to (i) preserve
its business organization and that of Darien intact, (ii) keep available to
itself and Darien the present services of its employees and those of Darien,
and (iii) preserve for itself and HUBCO the goodwill of its customers and
those of Darien and others with whom business relationships exist.
5.2 NEGATIVE COVENANTS.
(a) HBI agrees that from the date hereof to the
Effective Time, except as otherwise approved by HUBCO in writing or as
permitted or required by this Agreement, it will not, nor will it permit
Darien to:
(i) change any provision of its Certificate
of Incorporation or By-laws or any similar governing
documents of HBI or Darien;
(ii) change the number of shares of its
authorized or issued capital stock (other than upon exercise
of stock options described or the HBI Disclosure Schedule in
accordance with the terms thereof and issuance of up to 15
shares of HBI Common Stock per quarter pursuant to existing
employee incentive plans) or issue or grant any option,
warrant, call, commitment, subscription, right to purchase
or agreement of any character relating to the authorized or
issued capital stock of HBI or Darien, or any securities
convertible into shares of such stock, or split, combine or
reclassify any shares of its capital stock, or declare, set
aside or pay any dividend, or other distribution (whether
in cash, stock or property or any combination thereof) in
respect of its capital stock;
(iii) grant any severance or termination
pay (other than pursuant to policies or contracts of HBI
in effect on the date hereof and disclosed to HUBCO pursuant
hereto) to, or enter into or amend any employment or
severance agreement with, any of its directors, officers
or employees; adopt any new employee benefit plan or
arrangement of any type; or award any increase in
compensation or benefits to its directors, officers or
employees except (x) with respect to officer or employee
increases in the ordinary course of business, consistent
with past practices and policies and in any event not in
excess of 6% per year and (y) as noted in the HBI Disclosure
Schedule;
(iv) sell or dispose of any substantial
amount of assets or voluntarily incur any significant
liabilities other than in the ordinary course of business
consistent with past practices and policies or in response to
substantial financial demands upon the business of HBI or
Darien;
(v) make any capital expenditures other
than pursuant to binding commitments existing on the date
hereof, expenditures necessary to maintain existing assets in
good repair, and expenditures described in business plans or
budgets previously finished to HUBCO;
(vi) file any applications or make any
contract with respect to branching or site location or
relocation;
(vii) agree to acquire in any manner whatso-
ever (other than to realize upon collateral for a
defaulted loan) any business or entity;
(viii) make any material change in its
accounting methods or practices, other than changes required
in accordance with generally accepted accounting principles
or regulatory authorities;
(ix) take any action that would result in
any of its representations and warranties contained in
Article III of this Agreement not being true and correct
in any material respect at the Effective Time or that would
cause any of its conditions to Closing not to be satisfied;
(x) without HUBCO's prior consent, make or
commit to make any new loan or other extension of credit in an
amount of $500,000 or more, renew for a period in excess of
one year any existing loan or other extension of credit in an
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amount of $500,000 or more, or increase by $500,000 or more
the aggregate credit outstanding to any borrower or group of
affiliated borrowers, except such loan initiations, renewals
or increases that are committed as of the date of this
Agreement and identified on the HBI Disclosure Schedule and
residential mortgage loans made in the ordinary course of
business in accordance with past practice; or
(xi) agree to do any of the foregoing.
5.3 NO SOLICITATION. HBI and Darien shall not, directly or
indirectly, encourage or solicit or hold discussions or negotiations with, or
provide any information to, any person, entity or group (other than HUBCO)
concerning any merger or sale of shares of capital stock or sale of substantial
assets or liabilities not in the ordinary course of business, or similar
transactions involving HBI or Darien (an "Acquisition Transaction").
Notwithstanding the foregoing, HBI may enter into discussions or negotiations or
provide any information in connection with an unsolicited possible Acquisition
Transaction if the Board of Directors of HBI, after consulting with counsel,
determines in the exercise of its fiduciary responsibilities that such
discussions or negotiations should be commenced or such information should be
furnished. HBI will promptly communicate to HUBCO the terms of any proposal,
whether written or oral, which it may receive in respect of any such Acquisition
Transaction and the fact that it is having discussions or negotiations with a
third party about an Acquisition Transaction.
5.4 CURRENT INFORMATION. During the period from the date of
this Agreement to the Effective Time, each of HBI and HUBCO will cause one or
more of its designated representatives to confer with representatives of the
other party on a monthly or more frequent basis regarding its business,
operations, properties, assets and financial condition and matters relating to
the completion of the transactions contemplated herein. On a monthly basis, HBI
agrees to provide HUBCO, and HUBCO agrees to provide HBI, with internally
prepared profit and loss statements no later than 15 days after the close of
each calendar month. As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter (other than the last fiscal quarter
of each fiscal year) ending on or after June 30, 1996, HBI will deliver to HUBCO
and HUBCO will deliver to HBI their respective quarterly reports on Form 10-Q,
as filed with the SEC under the 1934 Act. As soon as reasonably available, but
in no event more than 90 days after the end of each calendar year, HBI will
deliver to HUBCO and HUBCO will deliver to HBI their respective Annual Reports
on Form 10-K as filed with the SEC under the 1934 Act.
5.5 ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) HBI and Darien shall permit HUBCO and its
representatives, and HUBCO and the Bank shall permit HBI and its
representatives, reasonable access to their respective properties, and shall
disclose and make available to HUBCO and its representatives, or HBI and its
representatives, as the case may be, all books, papers and records relating to
its assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and stockholders'
meetings, organizational documents, by-laws, material contracts and agreements,
filings with any regulatory authority, accountants' work papers, litigation
files, plans affecting employees, and any other business activities or
prospects in which HUBCO and its representatives or HBI and its representatives
may have a reasonable interest. Neither party shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of any customer, would contravene any law,
rule, regulation, order or judgment or would waive any privilege. The parties
will use their best efforts to obtain waivers of any such restriction (other
than waivers of the attorney-client privilege) and in any event make
appropriate substitute disclosure arrangements under circumstances in which
the restrictions of the preceding sentence apply. Notwithstanding the
foregoing, HBI acknowledges that HUBCO may be involved in discussions
concerning other potential acquisitions and HUBCO shall not be obligated to
disclose such information to HBI except as such information is disclosed to
HUBCO's shareholders generally.
(b) All information furnished by the parties hereto
previously in connection with transactions contemplated by this Agreement
or pursuant hereto shall be used solely for the purpose of evaluating the Merger
contemplated hereby and shall be treated as the sole property of the party
delivering the information until consummation of the Merger contemplated hereby,
and if such Merger shall not occur, each party and each party's advisors shall
return to the other party all documents or other materials containing,
reflecting or referring to such information, will not retain any copies of such
information, shall use its best efforts to keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purposes. In the event that the Merger
contemplated hereby does not occur, all documents, notes and other writings
prepared by a party hereto or its advisors based on information furnished by the
other party shall be promptly destroyed. The obligation to keep such information
confidential shall continue for five years from the date the proposed Merger is
abandoned but shall not apply to (i) any information which (A) the party
receiving the information can establish by convincing evidence was already in
its possession prior to the disclosure thereof to it by the other party; (B) was
then generally known to the public; (C) became known to the public through no
fault of the party receiving such information; or (D) was disclosed to the party
receiving such information by a third party not bound by an obligation of
confidentiality; or (ii) disclosures pursuant to a legal requirement or in
accordance with an order of a court of competent jurisdiction.
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5.6 REGULATORY MATTERS.
(a) For the purposes of holding the Stockholders
Meeting (as such term is defined in Section 5.7 hereof), the parties hereto
shall cooperate in the preparation and filing with the SEC of a proxy statement
satisfying all applicable requirements of applicable state and federal laws,
including the 1934 Act and applicable state securities laws and the rules and
regulations thereunder (such proxy statement in the form mailed by HBI to the
HBI shareholders, together with any and all amendments or supplements thereto,
being herein referred to as the "Proxy Statement").
(b) HUBCO shall furnish HBI with such information
concerning HUBCO and its subsidiaries as is necessary in order to cause the
Proxy Statement, insofar as it relates to such corporations, to comply with
Section 5.6(a) hereof. HUBCO agrees promptly to advise HBI if at any time prior
to the HBI shareholders' meeting referred to in Section 5.7 hereof, any
information provided by HUBCO in the Proxy Statement becomes incorrect or
incomplete in any material respect and to provide HBI with the information
needed to correct such inaccuracy or omission. HUBCO shall furnish HBI with such
supplemental information as may be necessary in order to cause the Proxy
Statement, insofar as it relates to HUBCO and its subsidiaries, to comply with
Section 5.6(a) after the mailing thereof to HBI shareholders.
(c) HBI agrees promptly to advise HUBCO if at any
time prior to the HBI Stockholders Meeting any information provided by HBI in
the Proxy Statement becomes incorrect or incomplete in any material respect and
to provide HUBCO and the HBI shareholders with the information needed to correct
such inaccuracy or omission. HBI shall ensure that the Proxy Statement, insofar
as it relates to HBI and Darien, complies with Section 5.6(a) from the date of
the mailing thereof to HBI shareholders until the Stockholders Meeting.
(d) HUBCO and HBI shall as promptly as practicable
file the Proxy Statement with the SEC, and each of HUBCO and HBI shall promptly
notify the other of all communications, oral or written, with the SEC concerning
the Proxy Statement.
(e) The parties hereto will cooperate with each
other and use their best efforts to prepare all necessary documentation, to
effect all necessary filings and to obtain all necessary permits, consents,
approvals and authorizations of all third parties and governmental bodies
necessary to consummate the transactions contemplated by this Agreement as soon
as possible, including, without limitation, those required by the FDIC, the FRB,
the Department and the Connecticut Commissioner. The parties shall each have the
right to review in advance (and shall do so promptly) all filings with,
including all information relating to the other, as the case may be, and any of
their respective subsidiaries, which appears in any filing made with, or written
material submitted to, any third party or governmental body in connection with
the transactions contemplated by this Agreement.
(f) Each of the parties will promptly furnish
each other with copies of written communications received by them or any
of their respective subsidiaries from, or delivered by any of the foregoing
to, any Governmental Entity in respect of the transactions contemplated hereby.
(g) HBI acknowledges that HUBCO is in or may be in
the process of acquiring other banks and financial institutions and that in
connection with such acquisitions, information concerning HBI may be required to
be included in the registration statements, if any, for the sale of securities
of HUBCO or in SEC reports in connection with such acquisitions. HBI agrees to
provide HUBCO with any information, certificates, documents or other materials
about HBI as are reasonably necessary to be included in such other SEC reports
or registration statements, including registration statements which may be filed
by HUBCO prior to the Effective Time. HBI shall use its reasonable efforts to
cause its attorneys and accountants to provide HUBCO and any underwriters for
HUBCO with any consents, comfort letters, opinion letters, reports or
information which are necessary to complete the registration statements and
applications for any such acquisition or issuance of securities. HUBCO shall
reimburse HBI for reasonable expenses thus incurred by HBI should this
transaction be terminated for any reason other than as described in Section
7.1(h). HUBCO shall not file with the SEC any registration statement or
amendment thereto or supplement thereof containing information regarding HBI
unless HBI shall have consented to such filing, which consent shall not be
unreasonably delayed or withheld.
(h) Between the date of this Agreement and the
Effective Time, HBI shall cooperate with HUBCO to reasonably conform HBI's
policies and procedures regarding applicable regulatory matters, including
without limitation Federal Reserve, Bank Secrecy Act and FDIC matters, to those
of HUBCO as HUBCO may reasonably identify to HBI from time to time.
5.7 APPROVAL OF STOCKHOLDERS. HBI will (i) take all steps
necessary duly to call, give notice of, convene and hold a meeting of the
stockholders of HBI (the "Stockholders Meeting") for the purpose of securing the
approval of stockholders of this Agreement, (ii) subject to the qualification
set forth in Section 5.3 hereof and the right not to make a recommendation or to
withdraw a recommendation if its investment banker withdraws its fairness
opinion prior to the Stockholders Meeting, recommend to the stockholders of HBI
the approval of this Agreement and the transactions contemplated hereby and use
its best efforts to obtain, as promptly as practicable, such approval, and (iii)
cooperate and consult with HUBCO with respect to each of the foregoing matters.
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To the extent HUBCO or its counsel deems it necessary, HUBCO
shall take all steps necessary to obtain the approval of its shareholders as
promptly as possible. In connection therewith, HUBCO shall take all steps
necessary to duly call, give notice and convene a meeting of its shareholders
for such purpose.
5.8 FURTHER ASSURANCES.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to satisfy
the conditions to Closing and to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using reasonable
efforts to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated by this Agreement and using its best efforts to prevent the breach
of any representation, warranty, covenant or agreement of such party contained
or referred to in this Agreement and to promptly remedy the same. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such necessary action. Nothing in
this section shall be construed to require any party to participate in any
threatened or actual legal, administrative or other proceedings (other than
proceedings, actions or investigations to which it is a party or subject or
threatened to be made a party or subject) in connection with consummation of the
transactions contemplated by this Agreement unless such party shall consent in
advance and in writing to such participation and the other party agrees to
reimburse and indemnify such party for and against any and all costs and damages
related thereto.
(b) HUBCO agrees that from the date hereof to the
Effective Time, except as otherwise approved by HBI in writing or as permitted
or required by this Agreement, it will not, nor will it permit the Bank to take
any action that would result in any of its representations and warranties
contained in Article IV of this Agreement not being true and correct in any
material respect at the Effective Time or that would cause any of its conditions
to Closing not to be satisfied or that would constitute a breach or default of
its obligations under this Agreement or which is reasonably likely to delay or
jeopardize the receipt of any of the regulatory approvals required hereby
(except that any delay in the receipt of any regulatory approval required hereby
arising from an action taken by HUBCO or the Bank with respect to the possible
acquisition of any other banking or financial institutions shall not give rise
to a claim by HBI that HUBCO has breached this provision).
5.9 PUBLIC ANNOUNCEMENTS. HUBCO and HBI shall cooperate with
each other in the development and distribution of all news releases and other
public filings and disclosures with respect to this Agreement or the Merger
transactions contemplated hereby, and HUBCO and HBI agree that unless approved
mutually by them in advance, they will not issue any press release or written
statement for general circulation relating primarily to the transactions
contemplated hereby, except as may be otherwise required by law or regulation
in the opinion of counsel.
5.10 FAILURE TO FULFILL CONDITIONS. In the event that HUBCO
or HBI determines that a material condition to its obligation to consummate the
transactions contemplated hereby cannot be fulfilled on or prior to February 28,
1997 and that it will not waive that condition, it will promptly notify the
other party. Except for any acquisition or merger discussions HUBCO may enter
into with other parties, HBI and HUBCO will promptly inform the other of any
facts applicable to HBI or HUBCO, respectively, or their respective directors or
officers, that would be likely to prevent or materially delay approval of the
Merger by any Governmental Entity or which would otherwise prevent or materially
delay completion of the Merger.
5.11 EMPLOYEE MATTERS.
(a) Following consummation of the Merger, HUBCO
shall honor the existing written contracts with officers and employees of HBI
and Darien that are included in the HBI Disclosure Schedule.
(b) Following consummation of the Merger, HUBCO
shall make available to all employees and officers of Darien employed by the
Bank coverage under the benefit plans generally available to HUBCO's employees
and officers (including pension and health and hospitalization) on the terms and
conditions available to the Bank's employees and officers, and shall honor the
severance policies of HBI and Darien previously disclosed to HUBCO in writing.
After the Effective Time, HUBCO may terminate, merge or change existing HBI and
Darien benefit plans. Employees of Darien employed by the Bank will receive
credit for prior employment by Darien for the sole purpose of determining
whether such employees are eligible to participate in or be vested under the
Bank's medical, vacation, sick leave, disability, pension, and other employee
benefit plans. Credit for prior service will not be given for purposes of
benefit accrual under any defined benefit pension plan of HUBCO. No prior
existing condition limitation shall be imposed with respect to any medical
coverage plan of the Bank.
5.12 DISCLOSURE SUPPLEMENTS. From time to time prior to the
Effective Time, each party hereto will promptly supplement or amend (by written
notice to the other) its respective Disclosure Schedules delivered pursuant
hereto with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Schedules or which is necessary to correct any
information in such Schedules which has been rendered materially inaccurate
thereby. For the purpose of determining satisfaction of the conditions set forth
in Article VI and subject to Sections 6.2(a) and 6.3(a), no supplement or
amendment to the parties' respective Disclosure Schedules shall
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correct or cure any warranty which was untrue when made, but shall enable the
disclosure of subsequent facts or events to maintain the truthfulness of any
warranty.
5.13 TRANSACTION EXPENSES OF HBI AND HUBCO.
(a) For planning purposes, HBI shall, within 15
days from the date hereof, provide HUBCO with its estimated budget of
transaction-related expenses reasonably anticipated to be payable by HBI in
connection with this transaction, including the fees and expenses of counsel,
accountants, investment bankers and other professionals. HBI shall promptly
notify HUBCO if or when it determines that it will expect to exceed its budget.
(b) Promptly after the execution of this Agree-
ment, HBI shall ask all of its attorneys and other professionals to render
current and correct invoices for all unbilled time and disbursements. HBI shall
accrue and/or pay all of such amounts as soon as possible.
(c) HBI shall advise HUBCO monthly of all out-of-
pocket expenses which HBI has incurred in connection with this
transaction.
(d) HUBCO, in reasonable consultation with HBI,
shall make all arrangements with respect to the printing and mailing of the
Proxy Statement and, subject to Section 8.1(b) hereof, HUBCO shall pay all
expenses related to such printing and mailing. In addition, HUBCO shall pay all
expenses and fees related to filing of the Proxy Statement and related documents
with the SEC and filings pursuant to state "blue sky" laws and regulations in
connection with the Merger, if any.
5.14 INDEMNIFICATION.
(a) For a period of six years after the Effective
Time, HUBCO shall indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director, officer, employee or agent of HBI or Darien or
serves or has served at the request of HBI or Darien in any capacity with any
other person (collectively, the "Indemnitees") against any and all claims,
damages, liabilities, losses, costs, charges, expenses (including, without
limitation, reasonable costs of investigation, and the reasonable fees and
disbursements of legal counsel and other advisers and experts as incurred),
judgments, fines, penalties and amounts paid in settlement, asserted against,
incurred by or imposed upon any Indemnitee by reason of the fact that he or she
is or was a director, officer, employee or agent of HBI or Darien or serves or
has served at the request of HBI or Darien in any capacity with any other
person, in connection with, arising out of or relating to (i) any threatened,
pending or completed claim, action, suit or proceeding (whether civil,
criminal, administrative or investigative), including, without limitation,
any and all claims, actions, suits, proceedings or investigations by or on
behalf of or in the right of or against HBI or Darien or any of their
respective affiliates, or by any former (but not any present) shareholder of
HBI (collectively, "Claims"), including, without limitation, any Claim which is
based upon, arises out of or in any way relates to the Merger, this Agreement,
any of the transactions contemplated by this Agreement, the Indemnitee's service
as a member of the Board of Directors or HBI or Darien or of any committee of
HBI's Board of Directors, the events leading up to the execution of this
Agreement, any statement, recommendation or solicitation made in connection
therewith or related thereto and any breach of any duty in connection with any
of the foregoing, or (ii) the enforcement of the obligations of HUBCO set forth
in this Section 5.14, in each case to the fullest extent permitted under any of
(x) applicable law, (y) the Certificate of Incorporation of HBI or Darien, as
applicable, or (z) the By-Laws of HBI or Darien, as applicable (and HUBCO shall
also advance expenses as incurred to the fullest extent permitted under any
thereof).
(b) From and after the Effective Time, HUBCO shall
assume and honor any obligation of HBI or Darien immediately prior to the
Effective Time with respect to the indemnification of the Indemnitees arising
out of the Certificate of Incorporation or ByLaws of HBI or Darien as if such
obligations were pursuant to a contract or arrangement between HUBCO and such
Indemnitees.
(c) In the event HUBCO or any of its successors or
assigns (i) reorganizes or consolidates with or merges into or enters into
another business combination transaction with any other person or entity and is
not the resulting, continuing or surviving corporation or entity of such
consolidation, merger or transaction, or (ii) liquidates, dissolves or transfers
all or substantially all of its properties and assets to any person or entity,
then, and in each such case, proper provision shall be made so that the
successors and assigns of HUBCO assume the obligations set forth in this Section
5.14.
(d) HUBCO shall cause HBI's and Darien's officers
and directors to be covered under HUBCO's then current officers' and directors'
liability insurance policy for a period of six years after the Effective Time,
or, in the alternative, to be covered under an extension of HBI's and Darien's
existing officers' and directors' liability insurance policy. However, HUBCO
shall only be required to insure such persons upon terms and for coverages
substantially similar to HBI's and Darien's existing officers' and directors'
liability insurance.
(e) Any Indemnitee wishing to claim indemnification
under this Section 5.14 shall promptly notify HUBCO upon learning of any Claim,
but the failure to so notify shall not relieve HUBCO of any liability it may
have to such Indemnitee if such failure does not materially prejudice HUBCO.
In the event of any Claim (whether arising before or after the Effective
A-20
<PAGE>
Time) as to which indemnification under this Section 5.14 is applicable, (x)
HUBCO shall have the right to assume the defense thereof and HUBCO shall not
be liable to such Indemnitees for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnitee in connection with the
defense thereof, except that if HUBCO elects not to assume such defense, or
counsel for the Indemnitees advises that there are issues which raise conflicts
of interest between HUBCO and the Indemnitees, the Indemnitees may retain
counsel satisfactory to them, and HUBCO shall pay the reasonable fees and
expenses of such counsel for the Indemnitees as statements therefor are
received; provided, however, that HUBCO shall be obligated pursuant to this
Section 5.14(e) to pay for only one firm of counsel for all Indemnitees in
any jurisdiction with respect to a matter unless the use of one counsel for
multiple Indemnitees would present such counsel with a conflict of interest
that is not waived, and (y) the Indemnitees will cooperate in the defense of
any such matter. HUBCO shall not be liable for settlement of any claim, action
or proceeding hereunder unless such settlement is effected with its prior
written consent. Notwithstanding anything to the contrary in this Section
5.14, HUBCO shall not have any obligation hereunder to any Indemnitee when
and if a court of competent jurisdiction shall ultimately determine, and
such determination shall have become final and nonappealable, that the
indemnification of such Indemnitee in the manner contemplated hereby is
prohibited by applicable law or public policy.
5.15 BANK MERGER. Notwithstanding that HBI believes that it
has established all reserves and taken all provisions for possible loan losses
required by GAAP and applicable laws, rules and regulations, HBI recognizes that
HUBCO has adopted different loan, accrual and reserve policies (including loan
classifications and levels of reserves for possible loan losses). From and after
the date of this Agreement to the Effective Time and in order to formulate the
plan of integration for the Bank Merger, HBI and HUBCO shall consult and
cooperate with each other with respect to (i) conforming, based upon such
consultation, HBI's loan, accrual and reserve policies to those policies of
HUBCO to the extent appropriate, provided that any required change in HBI's
practices in connection with the matters described in this clause (i) need not
be effected until the parties receive all necessary governmental approvals and
consents to consummate the transactions contemplated hereby, (ii) new extensions
of credit or material revisions to existing terms of credits by Darien, in each
case where the aggregate exposure exceeds $500,000.00, and (iii) conforming,
based upon such consultation, the composition of the investment portfolio and
overall asset/liability management position of HBI and Darien to the extent
appropriate.
5.16 RIGHTS PLAN. Prior to the Closing Date, HBI will
redeem all rights issued to the shareholders of HBI pursuant to the Common
Shares Rights Agreement dated September 20, 1990 in accordance with the terms
of such agreement.
ARTICLE VI - CLOSING CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS
AGREEMENT. The respective obligations of each party under this Agreement to
consummate the Merger shall be subject to the satisfaction, or, where
permissible under applicable law, waiver at or prior to the Effective Time of
the following conditions:
(a) Approval of HBI Stockholders. This Agreement
and the transactions contemplated hereby shall have been approved by the
requisite vote of the stockholders of HBI and, if necessary in the opinion of
HUBCO's counsel, the stockholders of HUBCO.
(b) Regulatory Filings. All necessary regulatory
or governmental approvals and consents (including without limitation any
required approval of the FDIC, the Department, the FRB and the Connecticut
Commissioner) required to consummate the transactions contemplated hereby shall
have been obtained without any term or condition which would materially impair
the value of HBI and Darien, taken as a whole, to HUBCO. All conditions required
to be satisfied prior to the Effective Time by the terms of such approvals and
consents shall have been satisfied; and all statutory waiting periods in respect
thereof (including the Hart-Scott-Rodino waiting period if applicable) shall
have expired.
(c) Suits and Proceedings. No order, judgment or
decree shall be outstanding against a party hereto or a third party that would
have the effect of preventing completion of the Merger; no suit, action or other
proceeding shall be pending or threatened by any governmental body in which it
is sought to restrain or prohibit the Merger; and no suit, action or other
proceeding shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit the Merger or obtain other substantial
monetary or other relief against one or more parties hereto in connection with
this Agreement and which HUBCO or HBI determines in good faith, based upon the
advice of their respective counsel, makes it inadvisable to proceed with the
Merger because any such suit, action or proceeding has a significant potential
to be resolved in such a way as to deprive the party electing not to proceed of
any of the material benefits to it of the Merger.
6.2 CONDITIONS TO THE OBLIGATIONS OF HUBCO UNDER THIS
AGREEMENT. The obligations of HUBCO under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time, of
the following conditions:
(a) Representations and Warranties; Performance of
Obligations of HBI and Darien. Except for those representations which are made
as of a particular date, the representations and warranties of HBI contained in
this Agreement shall be true and correct in all material respects on the date of
the Closing ("Closing Date") as though made on and as of the Closing Date. HBI
shall have performed in all material respects the agreements, covenants and
obligations to be performed by
A-21
<PAGE>
it prior to the Closing Date. With respect to any representation or warranty
which as of the Closing Date has required a supplement or amendment to the
HBI Disclosure Schedule to render such representation or warranty true and
correct in all material respects as of the Closing Date, the representation
and warranty shall be deemed true and correct as of the Closing Date only if
(i) the information contained in the supplement or amendment to the HBI
Disclosure Schedule related to events occurring following the execution of
this Agreement and (ii) the facts disclosed in such supplement or amendment
would not either alone, or together with any other supplements or amendments
to the HBI Disclosure Schedule, materially adversely affect the representation
as to which the supplement or amendment relates.
(b) Opinion of Counsel. HUBCO shall have received
an opinion of counsel to HBI, dated the Closing Date, in form and substance
reasonably satisfactory to HUBCO, covering the matters customarily covered in
opinions of counsel in transactions of this type.
(c) Certificates. HBI shall have furnished HUBCO
with such certificates of its officers or other documents to evidence
fulfillment of the conditions set forth in this Section 6.2 as HUBCO may
reasonably request.
(d) No Parachute Payments. No payments under any
severance agreement or any other plan or arrangement with HBI or Darien will
constitute an "excess parachute payment," as defined in Section 280G of the
Code or regulations promulgated thereunder.
(e) Legal Fees. HBI shall have furnished HUBCO
with letters from all attorneys representing HBI and Darien in any matters
certifying that all legal fees have been paid in full for services rendered as
of the Effective Time.
(f) Merger-Related Expense. HBI shall have pro-
vided HUBCO with an accounting of all merger-related expenses incurred by it
through the Closing Date, including a good faith estimate of such expenses
incurred but as to which invoices have not been submitted as of the Closing
Date. The merger-related expenses of HBI shall be reasonable.
(g) Connecticut DEP Compliance. With respect to
any Properties which are Establishments under the Connecticut Transfer Act,
prior to the Closing HBI shall have delivered to HUBCO an appropriate Form in
form and content acceptable to the DEP and prior to the Closing shall have
fully accrued on HBI's books and disclosed to HUBCO the entire anticipated
costs associated with any requested or reasonably anticipated clean-up.
6.3 CONDITIONS TO THE OBLIGATIONS OF HBI UNDER THIS
AGREEMENT. The obligations of HBI under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time,
of the following conditions:
(a) Representations and Warranties; Performance of
Obligations of HUBCO. Except for those representations which are made as of a
particular date, the representations and warranties of HUBCO contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date. HUBCO shall have performed in all
material respects the agreements, covenants and obligations to be performed by
it prior to the Closing Date. With respect to any representation or warranty
which as of the Closing Date has required a supplement or amendment to the HUBCO
Disclosure Schedule to render such representation or warranty true and correct
in all material respects as of the Closing Date, the representation and warranty
shall be deemed true and correct as of the Closing Date only if (i) the
information contained in the supplement or amendment to the HUBCO Disclosure
Schedule related to events occurring following the execution of this Agreement
and (ii) the facts disclosed in such supplement or amendment would not either
alone, or together with any other supplements or amendments to the HUBCO
Disclosure Schedule, materially adversely effect the representation as to which
the supplement or amendment relates.
(b) Opinion of Counsel to HUBCO. HBI shall have
received an opinion of counsel to HUBCO, dated the Closing Date, in form and
substance reasonably satisfactory to HBI, covering the matters customarily
covered in opinions of counsel in transactions of this type.
(c) Fairness Opinion. HBI shall have received an
opinion from Brown, dated no more than three days prior to the date the Proxy
Statement is mailed to HBI's stockholders, to the effect that, in its opinion,
the consideration to be paid to stockholders of HBI hereunder is fair to such
stockholders from a financial point of view ("Fairness Opinion"), and HUBCO
shall not have taken any action (including the announcement of any other
proposed acquisition) which causes Brown to withdraw its Fairness Opinion prior
to the Closing.
(d) Certificates. HUBCO shall have furnished HBI
with such certificates of its officers or others and such other documents to
evidence fulfillment of the conditions set forth in this Section 6.3 as HBI may
reasonably request.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated
prior to the Effective Time, whether before or after approval of
this Agreement by the stockholders of HBI:
(a) by mutual written consent of the parties
hereto;
A-22
<PAGE>
(b) by HUBCO or HBI (i) if the Effective Time
shall not have occurred on or prior to February 28, 1997 unless the failure of
such occurrence shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe its agreements set forth herein to be
performed or observed by such party at or before the Effective Time, or (ii) if
a vote of the stockholders of HBI is taken and such stockholders fail to approve
this Agreement at the meeting (or any adjournment thereof) held for such
purpose, or (iii) if a vote of the stockholders of HUBCO is required by law or
applicable Nasdaq rules, such vote is taken and such stockholders fail to
approve this Agreement at the meeting (or any adjournment thereof) held for such
purpose;
(c) by HUBCO or HBI upon written notice to the
other if any application for regulatory or governmental approval necessary to
consummate the Merger and the other transactions contemplated hereby shall have
been denied or withdrawn at the request or recommendation of the applicable
regulatory agency or Governmental Entity or by HUBCO upon written notice to HBI
if any such application is approved with conditions which materially impair the
value of HBI and Darien, taken as a whole, to HUBCO;
(d) by HUBCO if (i) there shall have occurred a
material adverse change in the business, operations, assets, or financial
condition of HBI and Darien, taken as a whole, from that disclosed by HBI in
HBI's Annual Report on Form 10-K for the year ended December 31, 1995; or (ii)
there was a material breach in any representation, warranty, covenant, agreement
or obligation of HBI hereunder and such breach shall not have been remedied
within 30 days after receipt by HBI of notice in writing from HUBCO to HBI
specifying the nature of such breach and requesting that it be remedied;
(e) by HBI, if there was a material breach in any
representation, warranty, covenant, agreement or obligation of HUBCO hereunder
and such breach shall not have been remedied within 30 days after receipt by
HUBCO of notice in writing from HBI specifying the nature of such breach and
requesting that it be remedied;
(f) by HUBCO if the conditions set forth in
Section 6.2 are not satisfied and are not capable of being satis-
fied by February 28, 1997;
(g) by HBI if the conditions set forth in Section
6.3 are not satisfied and are not capable of being satisfied by
February 28, 1997;
(h) by HBI, if HBI's Board of Directors shall have
approved an Acquisition Transaction after determining, upon advice of counsel,
that such approval was necessary in the exercise of its fiduciary obligations
under applicable laws.
7.2 EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement by either HUBCO or HBI pursuant to Section
7.1, this Agreement (other than Section 5.5(b), the penultimate sentence of
Section 5.6(g), and Section 8.1) shall forthwith become void and have no
effect, without any liability on the part of any party or its officers,
directors or stockholders. Nothing contained herein, however, shall relieve
any party from any liability for any breach of this Agreement.
7.3 AMENDMENT. This Agreement may be amended by action taken
by the parties hereto at any time before or after adoption of this Agreement by
the stockholders of HBI but, after any such adoption, no amendment shall be made
which reduces or changes the amount or form of the consideration to be delivered
to the shareholders of HBI without the approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all the parties hereto.
7.4 EXTENSION; WAIVER. The parties may, at any time prior to
the Effective Time of the Merger, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.
ARTICLE VIII - MISCELLANEOUS
8.1 EXPENSES.
(a) Except as otherwise expressly stated herein,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including legal, accounting and investment
banking fees and expenses) shall be borne by the party incurring such costs
and expenses. Notwithstanding the foregoing, HUBCO may bear the expenses of
the Bank and HBI may bear the expenses of Darien.
(b) Notwithstanding any provision in this Agree-
ment to the contrary, in the event that either of the parties shall willfully
default in its obligations hereunder, the non-defaulting party may pursue any
remedy available at law or in equity to enforce its rights and shall be paid by
the willfully defaulting party for all damages, costs and expenses, including
without
A-23
<PAGE>
limitation legal, accounting, investment banking and printing expenses,
incurred or suffered by the non-defaulting party in connection herewith or in
the enforcement of its rights hereunder.
8.2 SURVIVAL. The respective representations, warranties,
covenants and agreements of the parties to this Agreement shall not survive the
Effective Time, but shall terminate as of the Effective Time, except for Article
II, this Section 8.2 and Sections 5.5(b), 5.11 and 5.14.
8.3 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or by reputable overnight courier or sent by registered or certified
mail, postage prepaid, as follows:
(a) If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, President
and Chief Executive Officer
Copy to:
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: D. Lynn Van Borkulo-Nuzzo, Esq.
And copy to:
Pitney, Hardin, Kipp & Szuch
(Delivery) 200 Campus Drive
Florham Park, New Jersey
(Mail) P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Michael W. Zelenty, Esq.
(b) If to HBI, to:
Hometown Bancorporation, Inc.
20 West Avenue
Darien, Connecticut 06820-0513
Attn.: Kevin E. Gage, President
and Chief Executive Officer
Copy to:
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza
New York, New York 10112
Attn.: Peter G. Smith, Esq.
or such other addresses as shall be furnished in writing by any party, and any
such notice or communications shall be deemed to have been given as of the date
actually received.
8.4 PARTIES IN INTEREST; ASSIGNABILITY. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Nothing in this Agreement is intended to
confer, expressly or by implication, upon any other person any rights or
remedies under or by reason of this Agreement except the Indemnitees described
in Section 5.14. This Agreement and the rights and obligations of the parties
hereunder may not be assigned.
8.5 ENTIRE AGREEMENT. This Agreement, which includes the
Disclosure Schedules hereto and the other documents, agreements and instruments
executed and delivered pursuant to or in connection with this Agreement,
contains the entire Agreement between the parties hereto with respect to the
transactions contemplated by this Agreement and supersedes all prior
negotiations, arrangements or understandings, written or oral, with respect
thereto, other than any confidentiality agreements entered into by the parties
hereto.
8.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
A-24
<PAGE>
8.7 GOVERNING LAW. This Agreement shall be governed by
the laws of the State of New Jersey, without giving effect to the
principles of conflicts of laws thereof.
8.8 DESCRIPTIVE HEADINGS. The descriptive headings of
this Agreement are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agree-
ment.
8.9 KNOWLEDGE. Representations made herein which are
qualified by the phrase to the best of HBI's knowledge or similar phrases
refer as of the date hereof to the best knowledge of the Chief Executive
Officer, the Chief Financial Officer and the Chief Lending Officer of HBI and
thereafter refer to the best knowledge of any senior officer of HBI or any HBI
Subsidiary. Representations made herein which are qualified by the phrase to
the best of HUBCO's knowledge or similar phrases refer as of the date hereof
to the best of the knowledge of the President and Chief Executive Officer, the
Executive Vice President/Legal and the Chief Financial Officer of HUBCO and
thereafter refer to the best knowledge of any senior officer of HUBCO or any
HUBCO Subsidiary.
IN WITNESS WHEREOF, HUBCO, the Bank, HBI and Darien have
caused this Agreement to be executed by their duly authorized officers as of
the day and year first above written.
ATTEST: HUBCO, INC.
By:/s/ D. Lynn Van Borkulo-Nuzzo By:/s/ Kenneth T. Neilson
---------------------------- -------------------------------
D. Lynn Van Borkulo-Nuzzo Kenneth T. Neilson, President
Secretary and Chief Executive Officer
ATTEST: HOMETOWN BANCORPORATION, INC.
By:/s/ Peter L. Truebner By:/s/ Kevin E. Gage
---------------------------- -------------------------------
Peter L. Truebner Kevin E. Gage, President
Secretary and Chief Executive Officer
ATTEST: HUDSON UNITED BANK
By:/s/ D. Lynn Van Borkulo-Nuzzo By:/s/ Kenneth T. Neilson
---------------------------- -------------------------------
D. Lynn Van Borkulo-Nuzzo Kenneth T. Neilson, President
Secretary and Chief Executive Officer
ATTEST: THE BANK OF DARIEN
By:/s/ Peter L. Truebner By:/s/ Kevin E. Gage
---------------------------- -------------------------------
Peter L. Truebner Kevin E. Gage, President
Secretary and Chief Executive Officer
ATTEST: HOMETOWN ACQUISITION COMPANY
By: /s/ D. Lynn Van Borkulo-Nuzzo By: /s/ Kenneth T. Neilson
------------------------------ -------------------------------
D. Lynn Van Borkulo-Nuzzo Kenneth T. Neilson, President
Secretary and Chief Executive Officer
A-25
<PAGE>
CERTIFICATE OF HBI AND DARIEN DIRECTORS
Reference is made to the Amended and Restated Agreement and
Plan of Merger, dated as of April 28, 1996 (the "Agreement"), among HUBCO,
Inc., Hudson United Bank, Hometown Bancorporation, Inc., and The Bank of
Darien. Capitalized terms used herein have the meanings given to them in the
Agreement.
Each of the following persons, being all of the directors of
HBI and Darien, agrees to vote or cause to be voted all shares of HBI Common
Stock which are held by such person, or over which such person exercises full
voting control (except as trustee or in a fiduciary capacity, or as nominee),
in favor of the Merger.
/s/ Richard A. Allen /s/ Douglas D. Milne, III
- ----------------------------------- ----------------------------------
Richard A. Allen, Director Douglas D. Milne, III, Director
/s/ Malcolm Beinfield /s/ Theodore F. Shaker
- ----------------------------------- ----------------------------------
Dr. Malcolm Beinfield, Director Theodore F. Shaker, Director
/s/ Kevin E. Gage /s/ Etta M. Stanko
- ----------------------------------- ----------------------------------
Kevin E. Gage, Director Etta M. Stanko, Director
/s/ Louis T. Hogopian /s/ Peter L. Truebner
- ----------------------------------- ----------------------------------
Louis T. Hogopian, Director Peter L. Truebner, Director
/s/ John C. Hammerslough /s/ Charles E. Waggner
- ----------------------------------- ----------------------------------
John C. Hammerslough, Director Charles E. Waggner, Director
/s/ Arnold H. Libner /s/ Robert O. White
- ----------------------------------- ----------------------------------
Arnold H. Libner, Director Robert O. White, Director
/s/ Joseph G. McIntyre, Jr.
- -----------------------------------
Joseph G. McIntyre, Jr., Director
Dated: June 27, 1996
A-26
<PAGE>
ANNEX B
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
Commission File Number 0-1627
------
Hometown Bancorporation, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1199559
-------- ----------
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
20 West Avenue, Darien, Connecticut 06820-0513
(Address of principal executive offices, including zip code)
(203) 656-2265
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
- -------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
Common Stock Purchase Rights
----------------------------
(Title of Class)
B-1
<PAGE>
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 requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $18,085,728 on February 29, 1996. On that date 1,706,481shares
of Common Stock, par value $1.00 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of 10-K into which incorporated
-------- ------------------------------------
Proxy Statement for 1996
Annual Meeting of Stockholders Parts I and III
B-2
<PAGE>
TABLE OF CONTENTS
Part I. Page
- ------- ----
Item 1 - Business B-4
Item 2 - Properties B-7
Item 3 - Legal Proceedings B-8
Item 4 - Submission of Matters to a Vote of Security Holders B-8
Item 4A - Executive Officers of the Registrant B-8
Part II.
- --------
Item 5 - Markets for the Company's Common Stock and Related
Stockholder Matters B-9
Item 6 - Selected Financial Data B-10
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations B-10
Item 8 - Financial Statements and Supplementary Data B-23
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure B-52
Part III.
- ---------
Item 10 - Directors and Executive Officers of Registrant B-52
Item 11 - Executive Compensation B-52
Item 12 - Security Ownership of Certain Beneficial Owners
and Management B-52
Item 13 - Certain Relationships and Related Transactions B-53
Part IV.
- --------
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K B-53
B-3
<PAGE>
Part I
------
Item 1 - Business
- -----------------
Hometown Bancorporation, Inc. (the "Company") was incorporated under
the laws of the State of Delaware on April 14, 1987 to operate principally as
a bank holding company for The Bank of Darien (the "Bank"). On July 21, 1987,
each share of the Bank's outstanding common stock was exchanged for one share
of Common Stock, par value $1.00, of the Company. In 1987, the Company sold
1,285,000 shares of common stock to the public. Net proceeds from the
offering totalled $10,962,000. The Bank is the sole subsidiary of the
Company. The business of the Company consists of ownership of the capital
stock of the Bank.
The Bank began operations in 1985. On December 1, 1989, the second
office of the Bank opened in Westport, Connecticut.
In April 1992, the Bank assumed all of the deposits and purchased
certain assets of The Norwalk Bank which had been declared insolvent and for
which the Federal Deposit Insurance Corporation (the "FDIC") had been
appointed as receiver.
The Bank engages in the commercial banking business tailored to meet
the needs of the residents and businesses of Darien and Westport, Connecticut,
and the surrounding areas. The Bank offers a broad range of deposit accounts
with emphasis on serving the needs of individuals, small and medium-sized
businesses and professionals. The Bank does not currently offer trust
services or international banking services.
The Bank faces strong competition from numerous existing Connecticut
and out-of-state bank holding companies, commercial banks, savings banks and
savings and loan associations which have been in business for many years and
have established customer bases and which may provide a greater range of
services than the Bank. Competition also comes from other businesses which
provide financial services, including consumer finance companies, credit
unions, factors, mortgage brokers, insurance companies, securities brokerage
firms, money market mutual funds and private lenders. Many of these
competitors are substantially larger than the Bank and have greater lending
limits, serve larger geographic markets and have larger customer bases than
the Bank.
Over time, intense market demands, economic pressures and
significant legislative and regulatory actions have eroded banking industry
classifications which were once clearly defined and have increased competition
among banks as well as other financial institutions. This increase in
competition has forced banks and other financial service institutions to
diversify their services and become more cost effective as a result of
competition with one another and with new types of financial service
companies, including non-bank competitors. These events have resulted in
increasing homogeneity in the financial services offered by banks and other
financial institutions.
B-4
<PAGE>
The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956, which regulates and limits the activities of the
Company. In general, the Company and its subsidiaries are prohibited from
engaging in or acquiring direct or indirect control of any company engaged in
nonbanking activities unless such activities are so closely related to banking
as to be a proper incident thereto. In addition, the Company must obtain the
prior approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") to acquire control of any bank; to acquire, with
certain exceptions, more than 5% of the outstanding voting stock of any other
company; or to merge or consolidate with another bank holding company.
Federal antitrust laws also place limitations on the acquisition of
additional banks and other businesses.
The Company is an "affiliate" of the Bank, within the meaning of the
Federal Reserve Act and of FDIC regulations, which impose certain restrictions
on loans by the Bank to affiliates, on investments in their stock or
securities, and on taking their stock or securities as collateral for loans to
any borrower. The Company and the Bank are subject to examination by the
Federal Reserve Board.
The FDIC's enforcement powers have been significantly expanded under
the Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA"),
many provisions of which became effective as of December 19, 1992. The types
of actions which may be taken by the FDIC under the statute vary depending
upon, among other things, the institution's placement in one of five
categories, based on capital position, ranging from "well capitalized" to
"critically undercapitalized," and on its financial condition and prospects
generally. As of December 31, 1995, the Bank believes that it was "well
capitalized" within the meaning of FDICIA.
The Bank is subject to federal and state laws applicable to banks
and is subject to regulation and examination by the Banking Commissioner of
Connecticut (the "Commissioner") and the FDIC. Effective in January, 1996,
the Bank became party to an informal agreement among itself, the Commissioner
and the FDIC. The agreement requires, among other things, the submission of
written plans to the Commissioner and the FDIC and periodic written progress
reports. At this time all such plans have been submitted.
Under Connecticut law, state bank and trust companies and other
banking institutions are no longer prohibited from opening offices in Darien.
Connecticut law permits the acquisition of Connecticut banks or Connecticut
bank holding companies by out-of-state bank holding companies with the prior
approval of the Commissioner. In 1994, federal legislation was passed which
would permit nationwide branching by banks beginning in 1996. While state
legislatures can elect not to have this statute apply to their states, the
Connecticut legislature has
B-5
<PAGE>
not, as of the date hereof, taken any action which would prevent the new
federal law from applying in Connecticut. The Company cannot assess the
impact of this legislation or the action of the banking authorities on the
Bank but anticipates that it will likely result in increased competition.
On January 27, 1989, the Federal Reserve Board issued its final risk
based capital guidelines for banks and bank holding companies. The rule
currently requires a minimum ratio of total capital to risk weighted assets of
8%. The Company's consolidated and the Bank's ratios of total capital to risk
weighted assets at December 31, 1995 were 16.36% and 15.46%, respectively.
There are no concentrations of the Bank's loans within a single
industry or group of related industries. However, approximately 71% and 15%
of the Bank's loans outstanding at December 31, 1995 were collateralized by
residential and commercial real estate, respectively.
There are no major concentrations of the Bank's deposits made by an
individual or small group of individuals such that the loss of any one of
which would have a material adverse effect on the Bank's financial position
and/or liquidity.
The Bank offers a broad range of consumer and commercial banking
services, with emphasis on serving the needs of individuals, small and medium-
sized businesses and professionals in its service area. The deposit accounts,
both consumer and commercial, which the Bank offers include checking accounts,
interest-bearing "NOW" accounts, insured money market accounts, certificates
of deposit, savings accounts, Individual Retirement Accounts and Keogh
Accounts. Other services include credit cards, money orders, travelers'
checks and access to an automated teller network.
The Bank offers real estate loans to individuals including
mortgages, home improvement, bridge loans and home equity lines of credit.
Other personal loans include overdraft lines of credit and loans for
automobiles, boats, tuition and for the purchase of marketable securities.
Loans offered to small and medium-sized businesses include, accounts
receivable financing, unsecured and secured loans to service companies,
manufacturers, wholesalers, retailers and professionals doing business in the
region.
The Bank offers both fixed rate and adjustable rate mortgages for
the purchase or refinancing of residences. The Bank's adjustable rate
mortgages have generally provided for annual adjustments of interest based on
an index of U.S. government securities. The maximum interest rate increase
per year on the Bank's variable rate mortgages is 2% and the maximum increase
over the life of the mortgage is 6%. Both the fixed rate and the adjustable
rate mortgages offered or purchased by the Bank generally have terms of either
fifteen or thirty years, although the Bank will consider any other maturity
requested by the borrower. Mortgages may be sold to the secondary market.
B-6
<PAGE>
The Bank makes commercial loans to smaller and medium-sized local
businesses and professionals, generally for working capital purposes or to
finance the purchase of real estate or equipment. Such loans are usually made
at a floating interest rate based on the Bank's "prime rate." The interest
rate on such loans changes whenever the prime rate changes.
The Bank makes a variety of types of personal loans, including
automobile, boat, credit card and other installment loans. While the Bank
offers fixed rates on some of its consumer loans, most of its consumer loans,
with the exception of credit cards, have variable interest rates. Consumer
loans account for approximately 5% of the Bank's loan portfolio.
The Bank has developed relationships with other banks to provide
services requested by the Bank's customers which the Bank does not currently
make available. The Bank will request other banks to participate in loans to
customers where the loan amounts exceed the Bank's policies or legal lending
limits.
The Bank's market for deposits is concentrated in Darien, Norwalk,
Stamford and Westport, Connecticut. Its lending area includes principally the
cities of Stamford and Norwalk, Connecticut and the towns of Darien,
Greenwich, Westport, New Canaan, Wilton and Weston, Connecticut.
The Bank has no material patents, trademarks or licenses.
The Bank spent $30,000, $1,000 and $16,000 on market research during
the years ended December 31, 1995, 1994 and 1993, respectively.
Compliance by the Bank with federal, state and local provisions
which have been enacted or adopted regulating or otherwise relating to the
discharge of materials into the environment is not expected to have any
material effect upon the capital expenditures, earnings and competitive
position of the Bank.
The number of persons employed by the Bank is 89. The Company has
no employees who are not also employees of the Bank.
While the business of the Bank is generally not seasonal, there may
be times of the year when mortgage origination activity is stronger than at
other times.
The Bank does not engage in material operations in foreign countries
and a material portion of its revenues is not derived from customers in
foreign countries.
Item 2 - Properties
- -------------------
The Bank leases a building at 20 West Avenue, Darien, Connecticut,
for a term ending in May, 2010. The building serves as the headquarters of the
Company and the Bank, and as the Darien banking office. The Company and the
Bank currently lease approximately 18,250 square feet. The Company and the
Bank occupy approximately 13,500 square feet and sublease approximately 4,750
square feet at $21 per square foot.
The Bank leases a portion of a building at 90 Post Road East,
Westport, Connecticut, for a ten-year period with an option for two successive
terms of five years each. The lease, which
B-7
<PAGE>
began in November, 1989, is for the Bank's Westport Regional Branch Office
and covers approximately 4,000 square feet.
Item 3 - Legal Proceedings
- --------------------------
There are no material pending legal proceedings to which the Company
or the Bank is a party or of which any of their property is subject.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of 1995, no matter was submitted to a vote
of stockholders of the Company.
Item 4A - Executive Officers of the Registrant
- ----------------------------------------------
The following table sets forth the names of all executive officers
of the Company or the Bank, their ages and all positions held by them with the
Company or the Bank.
Name Age Title
- ---- --- -----
Douglas D. Milne, III 44 Chairman of the Board of the Company and
the Bank
Kevin E. Gage 36 President and Chief Executive Officer of
the Company and the Bank
Peter T. Hovey 48 Senior Vice President and Senior Lending
Officer of the Bank
Albert T. Jaronczyk 44 Senior Vice President, Treasurer and Chief
Financial Officer of the Company and the Bank
Christine J. Scholtz 44 Senior Vice President and Senior Credit
Officer of the Bank
Information concerning the business experience of Messrs. Milne and
Gage is included under "Election of Directors" in the Company's Proxy
Statement for its 1996 Annual Meeting of Stockholders (the "1996 Proxy") and
is incorporated herein by reference.
Prior to becoming Senior Vice President and Senior Lending Officer
of the Bank in January, 1996, Mr. Hovey served as Vice President with National
Westminster Bank in Connecticut for more than five years.
Prior to becoming Senior Vice President and Chief Financial Officer
of the Company and the Bank in August, 1995, Mr. Jaronczyk served as Chief
Financial Officer of The Bank of Great Neck for more than five years.
Ms. Scholtz has been employed by the Bank for more than 5 years.
All of the executive officers were elected at the organization
meeting of the Board of Directors of the Company in May, 1995 except for
Messrs. Jaronczyk and Hovey who were elected to their positions by the Boards
of Directors of the Company and the Bank in August, 1995 and January, 1996,
respectively. The term of office of each extends until the organization
B-8
<PAGE>
meeting of the Board of Directors of the Company or the Bank, as the case may
be, following the next annual meeting of shareholders. None of the executive
officers has been elected pursuant to any arrangement with any other person.
There is no family relationship between any executive officer and
another executive officer. None of the executive officers is involved in any
legal proceeding requiring disclosure pursuant to Item 401(f) of Regulation
S-K of the Securities and Exchange Commission.
Part II
-------
Item 5 - Market for the Company's Common Stock and Related Stockholder
Matters
--------------------------------------------------------------
The Company's Common Stock is included in the NASDAQ National Market
System (symbol: HTWN). The following table sets forth for the periods
indicated the range of high and low sales prices by quarter as reported by
NASDAQ. The Company did not pay any dividends on its common stock during 1995
or 1994. The Company has approximately 485 stockholders of record.
1995 Low High 1994 Low High
---- --- ---- ---- --- ----
First Quarter $ 9.50 $11.75 First Quarter $10.00 $14.50
Second Quarter 9.50 12.625 Second Quarter 12.00 14.50
Third Quarter 10.00 13.00 Third Quarter 12.00 13.875
Fourth Quarter 12.25 14.25 Fourth Quarter 9.25 14.00
During 1990, the Company adopted a Common Shares Rights Agreement
designed to protect stockholders of the Company from abusive takeover tactics
by declaring a dividend of one right on each outstanding share of Common
Stock.
Subject to certain conditions, the rights will be exercisable only if
a person or a group (an "Acquiring Person") (i) acquires or obtains the right
to acquire 14.5% or more of the outstanding Common Stock of the Company, or
(ii) commences or announces an intention to make a tender offer or exchange
offer that will result in the Acquiring Person's obtaining 14.5% or more of
the outstanding Common Stock of the Company. Upon the occurrence of any of the
foregoing events, each holder of a right will be entitled to purchase from the
Company one share of its Common Stock at an exercise price of $20.00 per
share, subject to adjustment ( the "Purchase Price"). Before that time, the
rights trade with the Common Stock but thereafter they become separately
tradeable.
Subsequently, in the event (i) the Company is the surviving
corporation in a merger with an Acquiring Person and its Common Stock is not
changed or exchanged, (ii) an Acquiring Person engages in a specified "self-
dealing" transaction such as certain preferential sales, transfers or
exchanges of Company assets or securities, special compensation or unfair
loans, (iii) a person obtains 15% or more of the Common Stock of the Company
other than pursuant to a tender offer deemed fair by the Board of Directors or
(iv) an Acquiring Person's ownership is increased by more than 1% by any
event, then the holder of a right, other than those held by an Acquiring
Person, will be entitled to purchase from the Company for the Purchase Price a
number of shares of Common Stock of the Company with a market value equal to
twice the Purchase Price. Similarly, in the event (i) the Company is acquired
in a merger or other business combination in which the Company is not the
survivor or in which the outstanding Common
B-9
<PAGE>
Stock of the Company is changed or exchanged or (ii) 50% or more of the
consolidated assets or earning power of the Company is sold other than in
transactions in the ordinary course of business, each holder of a right,
other than those held by an Acquiring Person, will be entitled to purchase
from the corporation acquiring the Company, for the Purchase Price, a number
of shares of common stock of the acquiring corporation with a market value
equal to twice the Purchase Price.
The rights are redeemable at the option of the Company for one cent
per right (subject to adjustment) up to the tenth day (or such later date
determined by the Board of Directors) after the accumulation of 14.5% or more
of the Company's shares by an Acquiring Person if such redemption is approved
by both the Board of Directors of the Company and the majority of the Board of
Directors of the Company not affiliated with an Acquiring Person. The rights
expire on the earliest of September 20, 2000, the redemption or exchange of
the rights or the consummation of an acquisition of the Company satisfying
certain conditions.
Item 6 - Selected Financial Data
- --------------------------------
Set forth below is selected financial data for the Company for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991.
Hometown Bancorporation, Inc.
Selected Financial Data
(thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the Year Ended December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend revenue $15,080 $12,702 $11,304 $11,097 $9,445
Interest expense 7,668 5,813 4,995 5,236 5,281
Net interest income 7,412 6,889 6,309 5,861 4,164
Provision for loan losses 75 75 360 1,258 800
Net investment securities gains 26 46 27 367 375
Before cumulative effect:
Net income (loss) 1,309 1,049 1,239 605 (173)
Net income (loss) per share .75 .60 .72 .37 (.11)
After cumulative effect:
Net income (loss) 1,309 1,049 2,364 861 (173)
Net income (loss) per share .75 .60 1.38 .53 (.11)
- -----------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------
Assets $229,220 $213,991 $201,352 $187,235 $118,902
Loans, net 103,407 74,940 85,461 85,322 60,786
Allowance for loan losses 2,883 3,004 3,640 3,111 1,825
Deposits 178,000 182,731 159,641 154,721 107,617
Average shares outstanding 1,752,523 1,750,988 1,708,207 1,629,710 1,597,194
- -----------------------------------------------------------------------------------------
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
The Company earned $1,309,000 or $.75 per share for the year ended
December 31, 1995. This compares to earnings of $1,049,000 or $.60 per share
and $2,364,000 or $1.38 per share for the years ended December 31, 1994 and
1993, respectively. The results for 1993 included the one-time cumulative
effect of the adoption of the Statement of Financial Accounting
B-10
<PAGE>
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), of $1,125,000
or $.66 per share.
Results of operations
The Company's results of operations depend primarily on enhancing
net interest income, limiting credit losses as reflected through the provision
for loan losses, maximizing other operating income and controlling other
operating expenses. The Company's other operating income is generated
primarily from fees and service charges, net gains on the sale of investment
securities and fees generated from mortgages originated and sold to the
secondary market. The Company's principal operating expenses are salaries and
benefits, occupancy, FDIC insurance, depreciation, advertising and marketing
expenses and other general and administrative expenses. The Company's results
of operations are also significantly affected by prevailing economic
conditions, particularly changes in market interest rates and government
policies and regulations concerning, among other things, monetary and fiscal
affairs, housing and financial institutions.
Net interest income is the difference between the income earned on
loans and investments, the results of interest rate swaps and interest expense
on deposits and borrowings. Interest income on loans and investments is a
function of the balances outstanding during the period, the rates earned on
such loans and investments and the amortization of fees earned on loans
recorded. Interest expense is a function of the amount of deposits and
borrowings outstanding during the period and the rates paid on such amounts.
Net interest income
Net interest income increased $523,000 or 7.6% during 1995 versus
1994 due to an increase in net average interest earning assets and an
improvement in net interest margin to 3.58% in 1995 compared to 3.44% in 1994.
The improvement in net interest margin for 1995 was the result of an improved
rate spread and increase in net non-interest bearing liabilities and capital.
Net interest income increased $580,000 or 9.2% during 1994 versus 1993, due to
an increase in net average interest earning assets offset by a decrease of net
interest margins to 3.44% in 1994, from 3.59% in 1993.
The following tables set forth for the periods indicated, the
average balances of interest earning assets and interest bearing liabilities
and the interest earned or paid thereon expressed in dollars and rates, with
the changes for each category analyzed as to the impact of rates and volume.
B-11
<PAGE>
<TABLE>
Hometown Bancorporation, Inc.
Rate Volume Analysis
(thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994 Fluctuations In Interest
Interest Interest Income/Expense(3)
Average Income/ Average Average Income/ Average Due To Change In:
For the Year Ended December 31, Balance Expense Rate Balance Expense Rate Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans(2) $81,948 $ 7,625 9.30% $85,968 $6,912 8.04% $(374) $1,087 $713
Taxable investment securities(4) 124,325 7,403 5.96% 112,713 5,739 5.09% 692 972 1,664
Federal funds sold 990 52 5.25% 1,573 51 3.24% (31) 32 1
- ------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 207,263 15,080 7.28% 200,254 12,702 6.34% 287 2,091 2,378
- ------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 7,288 6,952
Allowance for loan losses (2,990) (3,267)
Other 7,130 8,292
- ----------------------------------------------------------------------
Total Assets $218,691 $212,231
======================================================================
Interest Bearing Liabilities:
NOW deposits $25,448 $364 1.43% $26,586 $387 1.46% 16 7 23
Money market deposits 50,100 1,896 3.78% 51,578 1,520 2.95% 56 (432) (376)
Savings deposits 13,304 292 2.20% 15,834 337 2.13% 56 (11) 45
Time deposits 66,830 3,463 5.18% 54,860 2,215 4.04% (620) (628) (1,248)
Other 24,444 1,653 6.76% 25,568 1,354 5.30% 76 (375) (299)
- ------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 180,126 7,668 4.26% 174,426 5,813 3.33% (416) (1,439) (1,855)
Demand deposits 22,209 20,259
Other 947 2,367
Stockholders' equity 15,409 15,179
- ----------------------------------------------------------------------
Total liabilities and equity $218,691 $212,231
======================================================================
Net interest income $7,412 $6,889 $(129) $652 $523
========================================================================================================================
Net interest margin 3.58% 3.44%
========================================================================================================================
B-12
<PAGE>
<CAPTION>
1994 1993 Fluctuations In Interest
Interest Interest Income/Expense(3)
Average Income/ Average Average Income/ Average Due To Change In:
For the Year Ended December 31, Balance Expense Rate Balance Expense Rate Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Interest Earning Assets:
Loans(2) $85,968 $6,912 8.04% $91,043 $6,596 7.24% $(412) $728 $316
Taxable investment securities(4) 112,713 5,739 5.09% 80,875 4,598 5.69% 1,626 (485) 1,141
Federal funds sold 1,573 51 3.24% 3,839 110 2.87% (73) 14 (59)
- ------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 200,254 12,702 6.34% 175,757 11,304 6.43% 1,141 257 1,398
- ------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 6,952 6,669
Allowance for loan loses (3,267) (3,353)
Other 8,292 12,074
- ----------------------------------------------------------------------
Total assets $212,231 191,147
======================================================================
Interest Bearing Liabilities:
NOW deposits $ 26,586 $387 1.46% $24,635 $488 1.98% (27) 128 101
Money market deposits 51,578 1,520 2.95% 50,228 1,381 2.75% (39) (100) (139)
Savings deposits 15,834 337 2.13% 14,535 343 2.36% (28) 34 6
Time deposits 54,860 2,215 4.04% 43,033 1,610 3.74% (476) (129) (605)
Other 25,568 1,354 5.30% 24,170 1,173 4.85% (72) (109) (181)
- ------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 174,426 5,813 3.33% 156,601 4,995 3.19% ( 642) (176) (818)
Demand deposits 20,259 17,701
Other 2,367 3,163
Stockholders' equity 15,179 13,682
- ----------------------------------------------------------------------
Total liabilities and equity $212,231 $191,147
======================================================================
Net interest income $6,889 $6,309 $499 $81 $580
========================================================================================================================
Net interest margin 3.44% 3.59%
========================================================================================================================
</TABLE>
(1) The rate volume analysis reflects the changes in net interest income
arising from changes in interest rates and from asset and liability volume,
including mix. The change in interest attributable to volume includes changes
in interest attributable to mix.
(2) Includes non-accruing loans.
(3) Favorable/(unfavorable) fluctuations.
(4) Yields are calculated at historical cost and excludes the effect of
unrealized gain or (loss) on Investment Available-for-Sale.
B-13
<PAGE>
Provision for loan losses and allowance for loan losses
The Company maintains an allowance for loan losses. The allowance
is recorded through a periodic provision for loan losses, which is charged to
operations based on management's assessment of such loan related factors as
risk, including collateral and liquidation value of that collateral, loan
type, economic conditions and other pertinent factors.
The Company, in its assessment of the allowance for loan losses,
utilizes a risk rating system. This system involves an ongoing review of the
loan portfolio that culminates in loans being assigned a risk factor based
upon various credit criteria. If the review indicates a possibility that some
portion of the loan may result in a loss, a specific allowance is established
for the amount of the estimated loss. If the review indicates that it is
probable that some portion of the loan will result in a loss, that portion of
the loan is charged-off as a reduction of the loan and the allowance for loan
losses balance. In determining the allowance for loan losses for the balance
of the portfolio, loans are classified as to industry and collateral type with
risk assessments made for each category of loans. Reserve requirements are
then established for each category and provided for in the allowance for loan
losses.
During 1995 the Company provided to the allowance for loan losses
$75,000 or .03% of average total assets as compared to $75,000 or .04 % of
average total assets and $360,000 or .19% of average total assets during 1994
and 1993, respectively. Improved loan portfolio performance and reserve
coverage enabled the Company to reduce the level of the provision for loan
losses from 1993 to 1994.
At December 31, 1995, non-performing loans were $1,475,000 or 1.39%
of total gross loans as compared to $851,000 or 1.09% of gross loans and
$1,583,000 or 1.78% of gross loans at December 1994 and 1993, respectively.
Net loan charge-offs for the years ended December 31, 1995, 1994 and 1993 were
$227,000 or .28% of average loans, $711,000 or 0.83% of average loans and
$280,000 or 0.31% of average loans, respectively.
On December 31, 1995, 1994 and 1993 restructured and non-performing
loans were $544,000, $865,000 and $1,238,000, respectively. Performing loans
past due 90 days or more as to principal and or interest at December 31, 1995,
1994 and 1993 were $2,000, $11,000 and $475,000, respectively.
The ratio of the Company's allowance for loan losses to total loans
at December 31, 1995, 1994 and 1993 was 2.71%, 3.85% and 4.09%, respectively.
The Company's ratio of the allowance for loan losses to nonperforming loans at
December 31, 1995, 1994 and 1993 was 195%, 353% and 230%, respectively. The
Company's ratio of the allowance for loan losses to nonperforming assets at
December 31, 1995, 1994 and 1993 was 139%, 161% and 128%, respectively.
B-14
<PAGE>
The following schedule reflects the allocation of the allowance for
loan losses at December 31, 1995 and 1994.
Hometown Bancorporation, Inc.
Allocation of the Allowance for Loan Losses
(thousands of dollars)
- -------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------
% of Loans % of Loans
in Each in Each
Balance at end of year Category to Category to
applicable to: Amount Total Loans Amount Total Loans
- -------------------------------------------------------------------------
Real estate mortgage $1,807 85% $2,337 82%
Commercial 841 9% 541 11%
Installment 225 5% 108 6%
Real estate construction 10 1% 18 1%
- -------------------------------------------------------------------------
$2,883 100% $3,004 100%
=========================================================================
- -------------------------------------------------------------------------
Other operating income
Deposit and other service charge income decreased $22,000 or 3% to
$687,000 in 1995 compared to 1994 and increased $8,000 or 1% to $709,000
during 1994. The decrease in deposit and other service charge income reflects
decreased deposit account activity in 1995.
Mortgage origination fees (fees generated from mortgages originated
and sold to the secondary market) during 1995, 1994 and 1993 were $459,000,
$507,000 and $893,000, respectively. The decreases during years 1995 and 1994
were due to the decrease in mortgage origination volume as a result of the
increase in interest rates throughout the period which discouraged mortgage
refinancing activity.
Other income included in other operating income was $248,000 which
reflected a $113,000, or 84%, increase over 1994. This increase is primarily
due to $98,000 in net gains on the disposal of other real estate owned during
1995. The remaining increase results from increased service charge revenues on
the Company's Merchant program. The Merchant program provides efficient and
cost effective credit card processing services to the Company's retail
merchant customers.
Other operating expenses
A 3% increase in salary and benefit expense for 1995 in the amount
of $94,000 is attributed to an increase in the number of full-time equivalent
employees during 1995 and normal scheduled employee raises. This compares with
a $362,000 or 14% increase in 1994 as compared to 1993, which primarily
related to an increase in medical
B-15
<PAGE>
insurance premiums and other benefits, and to an increase in the number of
full-time equivalent employees during 1994. The average number of full-time
equivalent employees at December 31, 1995, 1994 and 1993 were 80, 79 and 77,
respectively.
Professional fees increased by $558,000 to $663,000 in 1995 from
$105,000 in 1994. This increase is attributed to fees that were incurred in
connection with the Company's internal investigation during 1995 related to
certain accounting errors and irregularities which led to a restatement of
earnings for the years ended 1992 through 1994. During 1994, professional fees
increased $4,000 or 4%, from $101,000 for 1993, and reflects the normal level
of business expense for those periods.
FDIC insurance premiums decreased $176,000 or 46% during 1995 to
$210,000, from $386,000 during 1994. During 1994, premiums decreased $17,000
or 4% from $403,000 during 1993. Effective June, 1995, The FDIC reduced
premiums charged to its member banks as a result of the Bank Insurance Fund's
meeting certain mandated recapitalization requirements. The decline in premium
expense for 1995 relates primarily to this reduction in the Bank Insurance
Fund premium rate assessed the Company, net of premiums on a net increase in
deposit balances outstanding on average for 1995. The decrease during 1994 was
due to a decrease in the premium amounts charged by the FDIC due to the Bank's
improved capital classification.
Depreciation and amortization expense decreased $75,000, or 19%
during 1995, from $396,000 in 1994. The decrease during 1995 was due to fixed
assets which were fully depreciated in excess of new fixed asset additions
for 1995. Depreciation and amortization expense increased to $396,000 during
1994, up $51,000 or 15% from 1993 when total depreciation and amortization
expense was $345,000. The increase during 1994 was primarily attributable to
fixed asset expenditures required to upgrade the Bank's computer systems.
Advertising and marketing expenses increased $12,000 or 5% from
$250,000 in 1994 to $262,000 in 1995. The increase during 1995 was due to
increased advertising and marketing programs for the Bank's loan products
during our 10th Anniversary year. Programs were geared to celebrate the
anniversary and improve name recognition in the communities served. During
the period from 1993 to 1994 Advertising and marketing expenses increased
$50,000 or 25% from $200,000 in 1993. The increase during 1994 was also
related to increased advertising and marketing aimed at the Company's loan
products.
B-16
<PAGE>
Foreclosure expenses and the cost of other real estate owned consist
of legal, property management and appraisal expenses relating to the
foreclosure of property securing loans and the maintenance of other real
estate owned acquired through foreclosure. During 1995, foreclosure expenses
and the cost of other real estate owned increased $23,000 or 19% from $120,000
in 1994 to $143,000 in 1995. The increase reflects the increased costs of
holding OREO property in inventory and the costs associated with maintenance,
marketing and disposal of such properties. The significant period to period
decline in such properties held at year end and positive earnings previously
reported on the disposals of such properties validate the increased costs to
carry such inventory. During 1994, foreclosure expenses and the cost of other
real estate owned declined $63,000 or 34% from $183,000 in 1993 to $120,000
during 1994.
Other expense included in Other operating expenses increased
$143,000 or 11% to $1,478,000 in 1995 as compared with $1,335,000 for 1994.
Increased costs relating to consultants fees, software maintenance expense for
systems upgrades and director fees account for the increase in 1995. Other
operating expenses - other increased $213,000 or 19% to $1,335,000 during
1994. The increase is attributable to variable expenses such as data
processing and postage which increased as a result of the Bank's 14% growth in
assets during 1994.
Income Taxes
The Company recorded income tax provisions of $497,000, $593,000 and
$800,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Net income for the year ended December 31, 1993 included the cumulative effect
of an accounting change of $1,125,000 or $.66 per share fully-diluted due to
the adoption of FAS 109.
Note 10 to the Consolidated Financial Statements contains additional
income tax information.
Liquidity and capital resources
An important element in evaluating the Company's performance and
potential performance is its liquidity position and the maturity of its short-
and long-term assets and liabilities. Asset liquidity is achieved through the
continuous maturity of earning assets. Liability liquidity is available
through deposit growth, maturity structure and access to borrowed funds.
Total assets of the Company increased to $229 million at December
31, 1995, a $15 million or 7% increase from December 31, 1994 when total
assets were $214 million. Total loans were $106 million at December 31, 1995,
a $28 million increase from December 31, 1994 when total loans were $78
million.
B-17
<PAGE>
The Bank is a member of the Federal Home Loan Bank of Boston (the
"FHLBB"). As a member of the FHLBB, the Bank has access to a flexible source
of short- and long-term liquidity (approximately $80 million) and to interest
rate risk management programs. In addition, the FHLBB's Triple-A status make
it a financially stable and reliable provider of wholesale correspondent
banking services.
The growth in assets during 1995 was funded by a $16 million
increase in short-term borrowings from the FHLBB and offset by a $4.7 million
decline in deposits during 1994.
The Company's funding sources consisted principally of deposits from
individuals and businesses in its service area. Total deposits at December
31, 1995 were $178.0 million, a $4.7 million or 3% decrease in deposits from
December 31, 1994.
Asset and liability management
As part of the Company's asset and liability management policy, the
Company, through the Bank's Asset and Liability Management Committee, has
strived to minimize its interest rate and liquidity risk. Interest rate risk
is minimized by entering into variable rate loans and investments.
Commercial, real estate mortgage and real estate construction loans are
predominately floating rate loans tied to changes in the prime rate of
interest. Residential mortgages held in the Company's portfolio generally
reprice annually if there is a shift in the underlying United States Treasury
Securities Index, subject to a two percentage point maximum increase or
decrease at each reprice date. Generally, fixed rate loans are funded through
matched deposits. The investment portfolio maintains a position in U. S.
Agency ARM securities which also reprice with the Constant Maturity Treasury
(CMT) index. These securities are subject to periodic two percentage point
limits on changes from the then current coupon. Finally, interest rate risk
is controlled on a total portfolio basis striving to manage the "gap" position
of the Company, the difference between interest sensitive assets and
liabilities repricing within a given time frame. Liquidity risk is managed
through the matching of investment, loan and deposit maturities and through
accessing other funding sources for short-term liquidity needs.
The following table illustrates the repricing schedule of the
Company's interest earning assets and interest bearing liabilities for future
time periods as of December 31, 1995 and the principal period in which they
mature (or which, in the case of mortgage-backed securities, they are expected
to be repaid) or the period in which their rates are eligible to reprice. The
repricing schedule of mortgage-backed securities is an estimate of when such
securities will be repaid based upon past repayment rates experienced by the
Company. In preparing the table, it was assumed that prime rate commercial
loans will reprice immediately. The maturity schedules included in Notes 3, 4
and 6 to the Consolidated Financial Statements reflect contractual maturity
only, without consideration of anticipated prepayment of mortgage-backed
securities and the periodic repricing of variable rate loans and investments.
The Company anticipates that its short and long-term liquidity and net
interest income will not be adversely affected by changes
B-18
<PAGE>
in the interest rate environment due to the relatively short-term maturity and
repricing of its investment, loan and deposit portfolios.
Hometown Bancorporation, Inc.
Repricing Schedule
(thousands of dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Less Three Six Months Greater
Than Three to Six to Than
December 31, 1995 Months Months One Year One Year Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets
Loans (1) $39,698 $7,505 $14,957 $42,655 $104,815
Investment securities 71,283 10,763 21,320 5,751 109,117
- ------------------------------------------------------------------------------------
Total interest earning assets 110,981 18,268 36,277 48,406 213,932
- ------------------------------------------------------------------------------------
Interest Bearing Liabilities
Savings deposits 1,286 2,572 3,857 5,143 12,858
Money market and NOW accounts 6,920 13,840 20,760 27,680 69,200
Certificates of deposit of
$100 and over 3,451 2,992 2,992 1,301 10,736
Other fixed rate time deposits 19,929 23,777 8,219 3,199 55,124
Variable rate certificates of
deposit of $100 and over 218 - - - 218
Other variable rate certificates
of deposit 3,800 - - - 3,800
FHLBB advances 27,116 5,000 - - 32,116
- ------------------------------------------------------------------------------------
Total interest bearing
liabilities 62,720 48,181 35,828 37,323 184,052
Net interest rate swaps 1,000 - (17,500) 16,500 -
- ------------------------------------------------------------------------------------
Gap 49,261 (29,913) (17,051) 27,583 29,880
- ------------------------------------------------------------------------------------
Cumulative gap 49,261 19,348 2,297 29,880
====================================================================================
Gap to total assets 1.21 .87 .93 1.12
====================================================================================
Cumulative gap to total assets 1.21 1.08 1.01 1.13
====================================================================================
(1) Non-accruing loans of $1,475,000 are not included in loan balances.
- ------------------------------------------------------------------------------------
</TABLE>
Investments
The Company adopted FAS 115, Accounting for Certain Investments in
Debt and Equity Securities, as of December 31, 1993, which requires the
classification of debt and equity securities into one of three categories:
held-to-maturity; available-for-sale; or trading. Held-to-maturity securities
are reported at amortized cost and available-for-sale securities are reported
at fair market value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity. The Company
does not have a trading portfolio and does not anticipate creating a trading
portfolio in the near future. In December, 1995 the Company reclassified
$21,776,000 in Investments-Held-To-Maturity to Investments-Available-for-Sale
as described in note 4 to the Financial Statements.
The Company's investment portfolio decreased $14,331,000 to
$108,796,000 at December 31, 1995, an 11.6% decrease from December 31, 1994,
when total investments were $123,127,000. The decrease in investments
reflects a shift of funds
B-19
<PAGE>
into loans during 1995. Currently, the Company invests in taxable U.S.
government and U.S. government agency securities (primarily mortgage-backed
securities, collaterialized mortgage obligations and U.S. government agency
bonds) as well as other mortgage-backed securities rated AA or better.
It is the Company's policy to maintain asset and liability interest
sensitivity matching through adjustments to the investment portfolio and to
provide for the liquidity needs of the Company. The policy also provides for
balancing return while minimizing risks.
The amortized cost and fair values of investment securities together
with average yield by maturity at December 31, 1995 and 1994 are shown below.
Mortgage backed securities are not reported by their contractual maturities as
they are subject to prepayment. These securities are reported by their
average life to maturity.
The fair market value of investments is based on quoted market
prices and/or dealer quotes.
B-20
<PAGE>
<TABLE>
Hometown Bancorporation, Inc.
Investment Tables
(thousands of dollars)
<CAPTION>
1995 1994
Amortized Estimated Average Amortized Estimated Average
Investments held-to-maturity Cost Fair Value Yield Cost Fair Value Yield
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Due after 1 but within 5 years $ - $ - - $ 1,013 $ 999 6.32%
- ------------------------------------------------------------------------------------------------------------------
Subtotal - - - 1,013 999 6.32%
- ------------------------------------------------------------------------------------------------------------------
U.S. Agency Mortgage-Backed Securities
Due in 1 year or less 2,994 2,987 5.41% 5,509 5,415 5.30%
Due after 1 but within 5 years 2,711 2,718 6.70% 9,494 9,216 5.58%
Due after 5 years but within 10 years - - - 5,771 5,622 4.33%
Due after 10 years - - - 4,117 4,002 5.38%
- ------------------------------------------------------------------------------------------------------------------
Subtotal 5,705 5,705 6.02% 24,891 24,255 5.10%
- ------------------------------------------------------------------------------------------------------------------
Other U.S. Agency Obligations
Due after 1 but within 5 years 2,946 2,880 6.19% 10,404 9,973 6.75%
- ------------------------------------------------------------------------------------------------------------------
Subtotal 2,946 2,880 6.19% 10,404 9,973 6.75%
- ------------------------------------------------------------------------------------------------------------------
Other Mortgage-Backed Securities
Due after 1 but within 5 years 2,239 2,137 5.56% 9,068 8,840 6.09%
Due after 5 but within 10 years 4,210 4,041 6.95% 897 898 5.02%
- ------------------------------------------------------------------------------------------------------------------
Subtotal 6,449 6,178 6.47% 9,965 9,738 5.99%
- ------------------------------------------------------------------------------------------------------------------
Total investments held-to-maturity $15,100 $14,763 6.25% $46,273 $44,965 5.69%
==================================================================================================================
<CAPTION>
1995 1994
Amortized Estimated Average Amortized Estimated Average
Investments available-for-sale Cost Fair Value Yield Cost Fair Value Yield
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Due in 1 year or less $3,016 $3,019 5.52% $ 1,025 $ 1,012 5.08%
Due after 1 but within 5 years - - - 2,066 2,007 4.76%
- ------------------------------------------------------------------------------------------------------------------
Subtotal 3,016 3,019 5.52% 3,091 3,019 4.86%
- ------------------------------------------------------------------------------------------------------------------
U.S. Agency Mortgage-Backed Securities
Due in 1 year or less 134 133 7.03% 13,925 13,300 4.60%
Due after 1 but within 5 years 51,751 51,808 6.55% 14,028 13,494 4.77%
Due after 5 years but within 10 years 9,115 8,855 6.05% 11,796 11,310 5.30%
Due after 10 years 1,985 1,919 6.27% 12,142 11,240 5.01%
- ------------------------------------------------------------------------------------------------------------------
Subtotal 62,985 62,715 6.47% 51,891 49,344 4.90%
- ------------------------------------------------------------------------------------------------------------------
Other U.S. Agency Obligations
Due after 1 but within 5 years 3,478 3,564 7.27% - - -
- ------------------------------------------------------------------------------------------------------------------
Subtotal 3,478 3,564 7.27% - - -
- ------------------------------------------------------------------------------------------------------------------
Other Mortgage-Backed Securities
Due after 1 but within 5 years 19,520 19,422 6.68% 20,028 19,946 6.48%
Due after 5 but within 10 years 3,301 3,259 8.82% 3,030 2,828 6.71%
- ------------------------------------------------------------------------------------------------------------------
Subtotal 22,821 22,681 7.09% 23,058 22,774 6.51%
- ------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Stock 1,717 1,717 6.70% 1,717 1,717 7.69%
- ------------------------------------------------------------------------------------------------------------------
Total investments available-for-sale $ 94,017 $ 93,696 6.62% $79,757 $76,854 5.42%
==================================================================================================================
TABLE>
B-21
<PAGE>
Equipment and leasehold improvements
Equipment and leasehold improvements, as reflected in Note 5 to the
Consolidated Financial Statements, decreased $171,000 to $1,456,000 at
December 31, 1995, from $1,627,000 at December 31, 1994. The decrease is
primarily due to the normal levels of depreciation expense net of fixed asset
acquisitions.
Stockholders' equity
The increase in stockholders' equity of $4,281,000 to $16,818,000 at
December 31, 1995, reflects the improvement in the unrealized loss on
investments available-for-sale of $2,716,000 and net income in the amount of
$1,309,000 earned during 1995. Listed below are the Bank's Tier 1 leverage
and risk-based capital ratios as of December 31, 1995 and the regulatory
minimum.
The Bank Regulatory
of Darien Minimum
Tier 1 Leverage Capital Ratio 7.46% 4.00%
Risk-Based Capital Ratio 15.85% 8.00%
Short-term borrowings
Short-term borrowings from the FHLB in the amount of $32.1 million
at December 31, 1995 (maximum amount outstanding at any month end during 1995)
with a weighted average rate of 6.38%, have a weighted maturity of 1.0 months.
The average amount outstanding during 1995 was $24.4 million. See note 7 to
the Financial Statements.
Recent developments
In May 1993, the FASB issued its Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS
114"), and in October 1994 its Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" ("FAS 118"). The Company adopted FAS 114 and FAS 118
effective January 1, 1995 and the adoption thereof was immaterial. See note 3
to the Financial Statements.
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121") which is effective for fiscal
years beginning after December 15, 1995. This statement addresses situations
where information indicates that a company might be unable to recover, through
future operations or sales, the carrying amount of long-lived assets,
identifiable intangibles, and goodwill related to those assets. A company must
first determine whether existing conditions indicate an impairment might
B-22
<PAGE>
exist. If an indicator of impairment should exist, the company must determine
if impairment exists using undiscounted cash flow analysis. If impairment
exists, the company must determine the amount of impairment using discounted
cash flow analysis. The Cmpany adopted this standard prospectively on January
1, 1996. The adoption of FAS No. 121 is not expected to have a material impact
on the Company, since the Company's existing policies for determining
impairment of assets are similar to the new standard.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") which
is effective for fiscal years beginning after December 15, 1995. This
statement defines a fair-value based method of accounting for employee stock
options or similar equity instruments and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation for
those plans using the intrinsic value based method currently prescribed by
Accounting Principles Board Opinion No. 25 provided certain pro forma
disclosures are made that disclose what the impact on net earning would have
been had the company adopted the accounting provisions of FAS 123. The
Company plans to continue the current accounting and make the disclosures
required by FAS No. 123. Therefore, there will be no impact on the Company's
financial position on results of operations from adopting this standard.
In January, 1996, the Bank became party to an informal agreement
among itself, the Commissioner and the FDIC. The agreement requires, among
other things, the submission of written plans to the Commissione and the FDIC
and periodic written progress reports. At this time all such plans have been
submitted. The Company does not expect any material impact upon its Balance
Sheet or Statement of Operations from such agreement.
Effects of inflation
During the period of the Company's operations, the effects of
inflation have not been significant.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Set forth below are the consolidated financial statements required
by this item. The supplementary data required by this item is set forth under
the caption "Note 13 - Quarterly Financial Data (Unaudited)" and
"Supplementary Financial Data."
B-23
<PAGE>
Hometown Bancorporation, Inc.
Consolidated Balance Sheet
(thousands of dollars except par value amounts)
- -----------------------------------------------------------------------------
December 31, 1995 1994
- -----------------------------------------------------------------------------
Assets
Cash and due from banks $ 9,891 $ 8,549
Investments available-for-sale, at fair value 93,696 76,854
Investments held-to-maturity
(fair value: $14,763 in 1995 and $44,965 in 1994) 15,100 46,273
Loans, less allowance for loan losses of
$2,883 in 1995 and $3,004 in 1994 103,407 74,940
Equipment and leasehold improvements, net of
accumulated depreciation of $1,897 in 1995 and
$1,576 in 1994 1,456 1,627
Other real estate owned, net 603 1,016
Accrued interest and other assets 5,067 4,732
- -----------------------------------------------------------------------------
Total Assets $229,220 $213,991
=============================================================================
Liabilities and Stockholders' Equity
Deposits:
Demand deposit accounts $ 26,064 $24,932
NOW and money market accounts 69,200 77,050
Savings accounts 12,858 14,369
Certificates of deposit of $100 and over 10,954 9,351
Time deposits 58,924 57,029
- -----------------------------------------------------------------------------
Total deposits 178,000 182,731
Short-term borrowings 32,116 16,681
Accrued interest and other liabilities 2,286 2,042
- -----------------------------------------------------------------------------
Total Liabilities 212,402 201,454
- -----------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 8 & 9) - -
Stockholders' Equity
Preferred stock, par value $1; 2,000,000
shares authorized, none issued - -
Common stock, par value $1; 10,000,000
shares authorized, 1,833,381 and 1,833,351
issued and outstanding 1,833 1,833
Surplus 14,123 13,960
Retained earnings 1,784 534
Treasury stock, 126,935 and 153,255 shares
in 1995 and 1994, respectively, at cost (735) (887)
Unrealized loss on investments
available-for-sale, net of applicable taxes (187) (2,903)
- -----------------------------------------------------------------------------
Total Stockholders' Equity 16,818 12,537
- -----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $229,220 $213,991
=============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
B-24
<PAGE>
</TABLE>
<TABLE>
Hometown Bancorporation, Inc.
Consolidated Statement of Income
(thousands of dollars except per share amounts)
<CAPTION>
- ----------------------------------------------------------------------------------------
For the year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and Dividend Income:
Loans including fees $ 7,625 $ 6,912 $ 6,596
Investment securities:
Obligations of U.S. government agencies 5,267 3,491 3,094
Other 2,002 2,139 1,407
Federal funds sold 52 51 110
Dividends 134 109 97
- ----------------------------------------------------------------------------------------
Total interest and dividend income 15,080 12,702 11,304
- ----------------------------------------------------------------------------------------
Interest Expense:
Deposits 6,171 4,459 3,823
Short-term borrowings 1,497 1,354 1,172
- ----------------------------------------------------------------------------------------
Total interest expense 7,668 5,813 4,995
- ----------------------------------------------------------------------------------------
Net interest income 7,412 6,889 6,309
Provision for loan losses 75 75 360
Provision for other real estate owned losses 95 290 60
- ----------------------------------------------------------------------------------------
Net interest income after provisions for loan
and other real estate owned losses 7,242 6,524 5,889
Other Operating Income:
Deposit and other service charges 687 709 701
Mortgage origination fees 459 507 893
Net investment securities gains 26 46 27
Other 248 135 199
- ----------------------------------------------------------------------------------------
Net interest and operating income 8,662 7,921 7,709
- ----------------------------------------------------------------------------------------
Other Operating Expenses:
Salaries and benefits 3,067 2,973 2,611
Occupancy expense 561 569 564
Professional fees 663 105 101
FDIC insurance 210 386 403
Depreciation and amortization 321 396 345
Advertising and marketing 262 250 200
Foreclosure expenses and costs of other
real estate owned 143 120 183
Equipment expense 101 95 91
Amortization of goodwill 50 50 50
Other 1,478 1,335 1,122
- ----------------------------------------------------------------------------------------
Total other operating expenses 6,856 6,279 5,670
- ----------------------------------------------------------------------------------------
Income before taxes and cumulative effect
of an accounting change 1,806 1,642 2,039
Provision for federal and state income taxes 497 593 800
- ----------------------------------------------------------------------------------------
Income before cumulative effect of an
accounting change 1,309 1,049 1,239
Cumulative effect of an accounting
change - FAS 109 - - 1,125
- ----------------------------------------------------------------------------------------
Net income $ 1,309 $ 1,049 $ 2,364
=======================================================================================
Earnings per share
Income before cumulative effect of an
accounting change $0.75 $0.60 $0.72
Cumulative effect of an accounting
change - FAS 109 - - 0.66
- ----------------------------------------------------------------------------------------
Net income $0.75 $0.60 $1.38
=======================================================================================
Average shares outstanding 1,752,523 1,750,988 1,708,207
=======================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
B-25
<PAGE>
Hometown Bancorporation, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(thousands of dollars)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss)
Retained On
Shares Issued Treasury Earnings Investments
and Common Stock (Accumulated Available-for-
Outstanding Stock At Cost Surplus Deficit) Sale ("IAFS") Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 1,833,206 $1,833 $(1,360) $13,959 $(2,887) $ - $11,545
Net income 2,364 2,364
Stock options exercised 352 29 381
Employee stock awards 90 1 1
Cumulative effect of
adopting FAS 115 163 163
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 1,833,296 1,833 (1,008) 13,960 (494) 163 14,454
- --------------------------------------------------------------------------------------------------------------------------
Net income 1,049 1,049
Stock options exercised 121 (21) 100
Employee stock awards 55 -
Change on IAFS, net (3,066) (3,066)
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 1,833,351 1,833 (887) 13,960 534 (2,903) 12,537
- --------------------------------------------------------------------------------------------------------------------------
Net income 1,309 1,309
Stock options exercised 152 163 (59) 256
Employee stock awards 30 -
Change on IAFS, net 2,716 2,716
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 1,833,381 $1,833 $(735) $14,123 $1,784 $(187) $16,818
==========================================================================================================================
</TABLE>
B-26
<PAGE>
Hometown Bancorporation, Inc.
Consolidated Statement of Cash Flows
(thousands of dollars)
For the Year Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $1,309 $1,049 $2,364
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization, net 627 552 501
Provisions for loan and OREO losses 170 365 420
Net investment securities gains (26) (46) (27)
Decrease (increase) in other assets (641) 381 (2,053)
(Decrease) increase in other liabilities 244 (216) 1,288
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,683 2,085 2,493
- ------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of investments
held-to-maturity 9,397 15,545 13,803
Purchase of investments held-to-maturity - (23,513) (35,500)
Proceeds from the sale of investments (1) - - 7,738
Proceeds from maturities of investments
available-for-sale 14,766 17,282 -
Purchase of investments available-for-sale (27,656) (52,763) -
Proceeds from the sale of investments
available-for-sale 20,566 10,620 -
Decrease (increase) in loans (28,542) 11,157 (668)
Proceeds from sale of OREO 318 (35) 1,100
Purchase of equipment and leasehold
improvements (150) (194) (630)
- ------------------------------------------------------------------------------
Net cash used in investing activities (11,301) (21,901) (14,157)
- ------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net (decrease) increase in demand deposits,
NOW accounts, money market accounts and
savings accounts (8,229) (725) 5,866
Net increase (decrease) in certificates of
deposit and other time deposits 3,498 23,815 (946)
(Decrease) increase in short term borrowings 15,435 (8,319) 5,000
Proceeds from exercise of stock options 256 100 381
- ------------------------------------------------------------------------------
Net cash provided by financing activities 10,960 14,871 10,301
- ------------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents 1,342 (4,945) (1,363)
Cash and cash equivalents at the beginning
of the year 8,549 13,494 14,857
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $9,891 $8,549 $13,494
==============================================================================
Cash paid during the year for:
Income taxes $647 $73 $230
==============================================================================
Interest $7,550 $5,648 $4,995
==============================================================================
(1) Prior to the adoption of FAS 115 on December 31, 1993
The accompanying notes are an integral part of the consolidated
financial statements.
B-27
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Hometown Bancorporation,
Inc. (the "Company") and its subsidiary conform to generally accepted
accounting principles and general practices within the banking industry. The
following footnotes describe the most significant of these policies.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported assets
and liabilities as of the date of the consolidated balance sheet. The same is
true of revenues and expenses reported for the period. Actual results could
differ significantly from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, The Bank of Darien (the "Bank").
All significant intercompany balances and transactions have been eliminated
in consolidation.
Investment Securities
In May 1993, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"). Prior to December 31, 1993, all investment
securities were carried at historical cost adjusted for amortization of
premiums and accretion of discounts. The Company adopted FAS 115 effective
December 31, 1993.
Investment securities for which management has the positive intent
and ability to hold to maturity are classified as "held-to-maturity" and are
carried at cost net of unamortized premiums and discounts.
Investments not classified as "held-to-maturity" (investments that
may be sold prior to maturity as part of asset/liability management,
liquidity or in response to other factors) are classified as "available-for-
sale" and are carried at fair value, with the change in fair value excluded
from earnings and reported as a separate component of stockholders' equity.
B-28
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
The Company does not have a trading portfolio and does not
anticipate creating a trading portfolio in the near future.
Gains and losses on sales of investment securities are reported as
a separate component of the Consolidated Statement of Income and are computed
using the specific identification method. Securities transactions are recorded
on a trade date basis.
B-29
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
Equipment and Leasehold Improvements
Equipment and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Depreciation is computed based on
estimated useful lives of equipment using straight line methods. Leasehold
improvements are amortized ratably over the shorter of estimated service
lives or the terms of the leases. Major renewals and betterments are
capitalized and recurring repairs and maintenance are charged to income.
Gains and losses on dispositions of assets are included in income as
realized.
Other Real Estate Owned
Real estate acquired in foreclosure (or considered to be in-
substance foreclosure) of loans is valued at the lower of the loan value or
fair value less estimated selling costs. At the time of foreclosure the
excess, if any, of the loan value over the fair value less estimated selling
costs is charged to the allowance for loan losses. Subsequent to the time of
foreclosure, a decline in the value of the foreclosed properties is
recognized as provision for other real estate owned losses. Other
expenditures not recoverable from the anticipated sale are charged to
foreclosure expenses and costs of other real estate owned, as incurred.
Loans
Loans are reflected at the principal amount outstanding net of
unearned income and the allowance for loan losses. Interest on loans is
calculated by using the simple-interest method on the daily balances of the
principal amounts outstanding.
Accrual of interest on loans is generally discontinued when a loan
becomes contractually past-due by 90 days or more with respect to principal
or interest, or earlier when full, timely collection of interest and
principal becomes uncertain. When a loan is placed on nonaccrual status, all
interest previously accrued but not collected is generally reversed against
income. When a loan is placed on nonaccrual status, all interest is then
recognized only to the extent the cash is received, provided in the judgment
of management, the loan is estimated to be fully collectible as to both
principal and interest.
Loans held for sale which are included in Other Assets are carried
at the lower of cost or market value.
B-30
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
Allowance for Loan Losses
The allowance for loan losses is established through charges
against income and is maintained at a level considered adequate to provide
for potential loan losses based on management's evaluation of inherent risks
in the loan portfolio. When a loan, or a portion of a loan, is considered
uncollectible it is charged against the allowance for loan losses.
Recoveries of loans previously charged-off are credited to the allowance for
loan losses when cash is received.
Management's evaluation of the allowance for loan losses is based
on a continuing review of the loan portfolio, which includes many factors,
including identification and review of individual problem situations that may
affect the borrower's ability to repay the loan; review of overall portfolio
quality through an analysis of current charge-offs, delinquency, and
nonperforming loan data; review of regulatory authority examinations and
their evaluation of loans; an assessment of current and expected economic
conditions; and changes in the size and character of the loan portfolio.
Loan Commitment and Origination Fees and Costs
Fees and direct origination costs of loans and mortgage-backed
securities are deferred and the net fee or cost is recognized in interest
income using the level yield method in accordance with Statement of Financial
Accounting Standards No. 91 ("FAS 91"). Net deferred fees and costs
applicable to prepayments are recognized in interest income at the time of
prepayment.
Disclosure About Fair Values of Financial Instruments
The estimated fair values of financial instruments as presented
throughout the footnotes, have been determined by management using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data to develop the
estimates of fair value. Accordingly the estimates presented herein are not
necessarily indicative of the amounts the Bank could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Derivatives
The Company enters into interest rate swap transactions as a means
of reducing its interest rate exposure on specific assets or liabilities.
B-31
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
The Company's derivative activities are all end-user related and the Company
has no transactions classified as trading. The periodic net settlements on
interest rate swap agreements are recorded as an adjustment to interest
income on investments on an accrual basis.
Statement of Cash Flows
For purposes of reporting cash flows, the Company defines cash and
cash equivalents as cash and due from banks, federal funds sold, and interest
bearing deposits in banks with original maturities of three months or less.
Income Taxes
In February 1992, the FASB issued Statement No. 109, "Accounting
for Income Taxes" ("FAS 109"). FAS 109 requires that income taxes be
accounted for under the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced, through a valuation allowance, if necessary, by the
amount of such benefits that is not expected to be realized based on current
available evidence. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
settlement date. The Company prospectively adopted FAS 109 effective January
1, 1993 and the effect of the adoption is discussed in Note 10.
Earnings Per Share Calculations
Net income per common share is computed by dividing net income by
the weighted average number of common shares outstanding for each period
presented plus the dilution effect of stock options.
Dividends
The Company does not currently pay dividends. However, if the
Company were to pay dividends, Connecticut law restricts the payment of
dividends by the Bank to the Company except from "net profits" (as defined).
Although the restriction does not apply to the payment of dividends by the
bank holding company, the Company's ability to pay dividends is dependent on
its receiving dividends from the Bank.
B-32
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 2 - RESTRICTED CASH BALANCES
Regulations of the Federal Reserve Board require depository
institutions to maintain a portion of their deposits in the form of either
cash or deposits with the Federal Reserve Bank which are noninterest bearing
and not available for investment purposes. At December 31, 1995 and 1994 the
Company maintained $3,157,000 and $3,070,000, respectively, at the Federal
Reserve Bank.
B-33
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 3 - LOANS
Major classifications of loans at December
31, 1995 and 1994 were as follows:
December 31, 1995 1994
- ---------------------------------------------------------------------------
(thousands of dollars)
Real estate mortgage $90,545 $64,203
Commercial 9,214 8,597
Real estate construction 1,060 754
Installment 5,471 4,390
- ---------------------------------------------------------------------------
106,290 77,944
Allowance for loan losses (2,883) (3,004)
- ---------------------------------------------------------------------------
$103,407 $74,940
===========================================================================
The estimated fair market value of loans at December 31, 1995 and
1994 was $103.1 million and $73.4 million, respectively. The estimated fair
market value of loans is estimated based on present values using applicable
risk-adjusted spreads to the U.S. Treasury curve to approximate current
entry-value interest rates. No adjustment was made to the entry value
interest rates for changes in credit of performing commercial loans for which
there are no known credit concerns.
Management segregates loans in appropriate risk categories.
Management believes that the risk factor embedded in the entry-value interest
rates, along with the general reserves applicable to the performing
commercial loan portfolio, for which there are no known credit concerns,
results in a fair valuation of such loans on an entry-value basis.
Final contractual loan maturities and rate sensitivity of the loan
portfolio at December 31, 1995 were as follows:
Within One to After
One Five Five
Year Years Years Total
- ------------------------------------------------------------------------------
(thousands of dollars)
Real estate mortgage $12,012 $11,614 $66,919 $90,545
Commercial 4,517 3,083 1,614 9,214
Real estate construction 772 288 - 1,060
Installment 159 3,119 2,193 5,471
- ------------------------------------------------------------------------------
$17,460 $18,104 $70,726 $106,290
==============================================================================
Loans at fixed interest rates $2,746 $4,514 $9,619 $16,879
Loans at variable interest rates 14,714 13,590 61,107 89,411
- ------------------------------------------------------------------------------
$17,460 $18,104 $70,726 $106,290
==============================================================================
At December 31, 1995 and 1994 the Company was not accruing interest
on loans having outstanding balances of $1,475,000 and $851,000 or 1.39% and
1.09% of the respective year's gross loan balance.
B-34
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
Had these non-accrual loans been current, including any portion charged-off
during 1995, gross income on these loans for 1995 and 1994 would have been
$167,000 and $99,000, respectively. Interest income actually recorded on
these loans totaled $22,000 and $61,000, respectively.
Loans to officers, employees and directors (and companies in which
they have a 10 percent or more beneficial ownership) aggregated $2,246,000
and $1,675,000 at December 31, 1995 and 1994, respectively. During 1995,
aggregate additions and paydowns to related party loans were $1,019,000 and
$448,000, respectively. These loans were made in the ordinary course of
business as to the loan amount, rate of interest and payment terms. All
loans to officers, employees and directors were current as of December 31,
1995.
Transactions in the allowance for loan losses during 1995, 1994 and
1993 are summarized as follows:
December 31, 1995 1994 1993
- ----------------------------------------------------------------------
(thousands of dollars)
Balance at beginning of period $3,004 $3,640 $3,111
Charge-offs:
Commercial loans (23) (44) (22)
Real estate mortgage loans (302) (693) (264)
Installment loans (22) (6) (39)
- ----------------------------------------------------------------------
Total charge-offs (347) (743) (325)
- ----------------------------------------------------------------------
Recoveries:
Commercial loans 15 18 21
Real estate mortgage loans 93 4 17
Installment loans 12 10 7
- ----------------------------------------------------------------------
Total recoveries 120 32 45
- ----------------------------------------------------------------------
Net charge-offs (227) (711) (280)
- ----------------------------------------------------------------------
Provision for loan losses 75 75 360
Loan purchase 31 - 449
- ----------------------------------------------------------------------
Balance at end of period $2,883 $3,004 $3,640
======================================================================
Net charge-offs to average loans 0.28% 0.83% 0.31%
======================================================================
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting for Creditors for Impairment of a Loan," ("FAS 114")and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," ("FAS 118")as
of January 1, 1995. FAS 114 requires that certain impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's original effective interest rate. As a practical expedient, impairment
may be measured based on the loan's observable market price or the fair value
of the collateral. If the value of the loan is less
B-35
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
than the recorded investment, the impairment is recorded through a valuation
allowance.
The Company had previously measured the allowance for loan losses
for impaired loans using methods similar to those prescribed in FAS 114 and
FAS 118. As a result of adopting these statements, no additional allowance
for loan losses was required as of January 1, 1995. Impaired loans having
recorded book value of $2,989,000 at December 31, 1995 and $2,947,000 at
December 31, 1994 have been recognized in conformity with FAS 114 as amended
by FAS 118. The average recorded investment in impaired loans during 1995 and
1994 was $2,961,000 and $3,562,000, respectively. The total allowance for
loan losses related to these loans was $823,000 and $762,000 at December 31,
1995 and 1994, respectively. This allowance is included in the allowance for
loan losses on the Balance Sheet. Interest income on impaired loans of
$162,000 and $192,000 were recognized for cash payments received in 1995 and
1994, respectively.
Loans having carrying values of $268,000 and $442,000 were
transferred to other real estate owned in 1995 and 1994, respectively.
The Company is not committed to lend additional funds to debtors
whose loans have been modified or are considered impaired.
B-36
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 4-INVESTMENT SECURITIES
The amortized cost and estimated fair values of investments held-
to-maturity and available-for-sale together with gross unrealized gains and
losses at December 31, 1995 and 1994, are shown below:
<TABLE>
<CAPTION>
Gross Gross
December 31, 1995 (thousands of dollars) Amortized Unrealized Unrealized Fair
Investments held-to-maturity Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Agency Mortgage-Backed Securities $ 5,705 $ 27 $ 27 $ 5,705
Other U.S. Agency Obligations 2,946 - 66 2,880
Other Mortgage-Backed Securities 6,449 - 271 6,178
- -------------------------------------------------------------------------------------------------------
$15,100 $ 27 364 $14,763
=======================================================================================================
<CAPTION>
Gross Gross
December 31, 1995 (thousands of dollars) Amortized Unrealized Unrealized Fair
Investments available-for-sale Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 3,016 $ 4 $ 1 $ 3,019
U.S. Agency Mortgage-Backed Securities 62,985 361 631 62,715
Other U.S. Agency Obligations 3,478 86 - 3,564
Other Mortgage-Backed Securities 22,821 70 210 22,681
Federal Home Loan Bank Stock 1,717 - - 1,717
- -------------------------------------------------------------------------------------------------------
$94,017 $ 521 $ 842 $ 93,696
=======================================================================================================
<CAPTION>
Gross Gross
December 31, 1994 (thousands of dollars) Amortized Unrealized Unrealized Fair
Investments held-to-maturity Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,013 $ - $ 14 $ 999
U.S. Agency Mortgage-Backed Securities 24,891 5 641 24,255
Other U.S. Agency Obligations 10,404 8 439 9,973
Other Mortgage-Backed Securities 9,965 7 234 9,738
- -------------------------------------------------------------------------------------------------------
$46,273 $ 20 $1,328 $ 44,965
=======================================================================================================
<CAPTION>
Gross Gross
December 31, 1994 (thousands of dollars) Amortized Unrealized Unrealized Fair
Investments available-for-sale Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 3,091 $ - $ 72 $ 3,019
U.S. Agency Mortgage-Backed Securities 51,891 - 2,547 49,344
Other Mortgage-Backed Securities 23,058 49 333 22,774
Federal Home Loan Bank Stock 1,717 - - 1,717
- -------------------------------------------------------------------------------------------------------
$79,757 $ 49 $2,952 $76,854
=======================================================================================================
</TABLE>
The Company realized net securities gains of $26,000, $46,000 and
$27,000 in 1995, 1994, and 1993, respectively. Cost for investments sold was
determined on a specific identification basis.
B-37
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
At December 31, 1995 and December 31, 1994 there was $2,923,000 and
$2,484,000, respectively, in U.S. Treasury and other securities pledged to
secure municipal deposits as required by law.
On November 15, 1995, the FASB issued a special report entitled, "A
Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities, Questions and Answers" ("the
Guide"). The Guide permitted a one-time reassessment and related
reclassifications from the held-to-maturity category (no later than December
31, 1995) that will not call into question the intent of the enterprise to
hold other debt securities until maturity in the future. On December 21, 1995,
the Company performed a reassessment of its investment and mortgage-backed
securities portfolio which resulted in a reclassification of $21,776,000 of
investment securities from held-to-maturity to available-for-sale. The impact
upon the Company's financial condition resulting from this transfer was not
material. There was no impact on the Company's results from operations
resulting from this transfer.
The amortized cost and estimated fair value of investment securities
at December 31, 1995, by maturity, are presented in the table below.
Mortgaged backed securities are reported by the average life to maturity.
B-38
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
December 31, 1995 (thousands of dollars)
===============================================================================
Amortized Estimated Average
Investments held-to-maturity Cost Fair Value Yield
- -------------------------------------------------------------------------------
U.S. Agency Mortgage-Backed Securities
Due in 1 year or less $ 2,994 $ 2,987 5.41%
Due after 1 but within 5 years 2,711 2,718 6.70%
- -------------------------------------------------------------------------------
Subtotal 5,705 5,705 6.02%
- -------------------------------------------------------------------------------
Other U.S. Agency Obligations
Due after 1 but within 5 years 2,946 2,880 6.19%
- -------------------------------------------------------------------------------
Subtotal 2,946 2,880 6.19%
- -------------------------------------------------------------------------------
Other Mortgage-Backed Securities
Due after 1 but within 5 years 2,239 2,137 5.56%
Due after 5 but within 10 years 4,210 4,041 6.95%
- -------------------------------------------------------------------------------
Subtotal 6,449 6,178 6.47%
- -------------------------------------------------------------------------------
Total investments held-to-maturity $15,100 $14,763 6.25%
===============================================================================
Amortized Estimated Average
Investments available-for-sale Cost Fair Value Yield
- -------------------------------------------------------------------------------
U.S. Treasury Securities
Due in 1 year or less $3,016 $3,019 5.52%
- -------------------------------------------------------------------------------
Subtotal 3,016 3,019 5.52%
- -------------------------------------------------------------------------------
U.S. Agency Mortgage-Backed Securities
Due in 1 year or less 134 133 7.03%
Due after 1 but within 5 years 51,751 51,808 6.55%
Due after 5 years but within 10 years 9,115 8,855 6.05%
Due after 10 years 1,985 1,919 6.27%
- -------------------------------------------------------------------------------
Subtotal 62,985 62,715 6.47%
- -------------------------------------------------------------------------------
Other U.S. Agency Obligations
Due after 1 but within 5 years 3,478 3,564 7.27%
- -------------------------------------------------------------------------------
Subtotal 3,478 3,564 7.27%
- -------------------------------------------------------------------------------
Other Mortgage-Backed Securities
Due after 1 but within 5 years 19,520 19,422 6.68%
Due after 5 but within 10 years 3,301 3,259 8.82%
- -------------------------------------------------------------------------------
Subtotal 22,821 22,681 7.09%
- -------------------------------------------------------------------------------
Federal Home Loan Bank Stock 1,717 1,717 6.70%
- -------------------------------------------------------------------------------
Total investments available-for-sale $ 94,017 $ 93,696 6.62%
===============================================================================
B-39
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 5-EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The major components of fixed assets at December 31, 1995 and 1994
were as follows:
December 31, 1995 1994
- -----------------------------------------------------------------------------
(thousands of dollars)
Leasehold improvements $1,523 $1,491
Furniture and equipment 1,830 1,712
- -----------------------------------------------------------------------------
3,353 3,203
Less: Accumulated depreciation and amortization (1,897) (1,576)
- -----------------------------------------------------------------------------
$1,456 $1,627
=============================================================================
NOTE 6-DEPOSITS
Included in total interest bearing deposits are certificates of
deposit in amounts of $100,000 and over. These certificates and their
remaining maturities at December 31, 1995 and 1994 are as follows:
December 31, 1995 1994
- -----------------------------------------------------------------------------
(thousands of dollars)
Three months or less $3,669 $5,203
Over three, through six months 2,992 3,287
Over six, through twelve months 2,993 461
Over twelve months 1,300 400
- -----------------------------------------------------------------------------
$10,954 $9,351
=============================================================================
Interest expense incurred on deposits during 1995, 1994, and 1993
was as follows:
For the Year Ended December 21, 1995 1994 1993
- -----------------------------------------------------------------------------
(thousands of dollars)
NOW and money market accounts $2,261 $1,907 $1,869
Other time deposits 2,853 1,941 1,368
Certificates of deposit of $100 or over 609 274 242
Savings 448 337 344
- -----------------------------------------------------------------------------
$6,171 $4,459 $3,823
=============================================================================
The estimated fair value of total deposits at December 31, 1995 and
1994 was $177.9 million and $183.1 million, respectively. The estimated fair
value of demand deposits, savings accounts and money market deposits is the
amount payable on demand at December 31, 1995 and 1994. The estimated fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
B-40
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 7 - SHORT-TERM BORROWINGS
Short-term Borrowings consist of federal funds purchased (variable
rate overnight advances) and fixed rate term advances from the Federal Home
Loan Bank ("FHLB"). At December 31, 1995 and 1994, the Company had federal
funds purchased outstanding of $22,116,000 and $11,681,000, respectively. The
interest rates on these overnight advances at December 31, 1995 and 1994 were
6.40% and 6.16%, resectively.
Fixed rate term advances from the FHLB consist of the following at
December 31, 1995 and 1994:
Maturity Date Interest Rate 1995 1994
- --------------------------------------------------------------------------
May 3, 1995 4.22% $ - $5,000,000
February 23, 1996 6.30% 5,000,000 -
May 23, 1996 6.39% 5,000,000 -
- --------------------------------------------------------------------------
Totals $10,000,000 $5,000,000
==========================================================================
The weighted average rate for total short-term borrowings was 6.21%
and 5.30% on average daily outstanding balances of $23,638,000 and $25,568,000
for the year ended December 31, 1995 and 1994, respectively. The estimated
value of short-term borrowings is based upon the outstanding borrowings
discounted at current market rates.
NOTE 8 - COMMITMENTS AND RENTAL EXPENSE
The Company leases its premises and other property under
noncancelable agreements requiring minimum monthly rentals through their
remaining terms. The total minimum commitment at December 31, 1995 under the
leases are as follows:
Due in the year ending 1996 $671
December 31, 1997 653
(thousands of dollars) 1998 650
1999 644
2000 and after 5,490
- ----------------------------------------------------------------------
$8,108
======================================================================
Effective May 1, 1995, the Company entered into a lease modification
agreement with its landlord concerning its home office location in Darien,
Connecticut. The modification reduced annual rentals by $38,000 per annum
effective June 1, 1995, and extends the term of the lease 37 months to May 31,
2010. The net increase in lease outlay in current dollars over the term of
the lease is $1,173,000. This modification is reflected in the above summary.
B-41
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
Total occupancy and equipment rental expense was $617,000, $610,000,
and $603,000 for the years ended December 31, 1995, 1994, and 1993,
respectively
NOTE 9-FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-
sheet-risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit, and interest rate swaps. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Consolidated Financial Statements. The contractual
or notional amounts of these instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual or
notional amount of those instruments. For interest rate swap transactions,
the contractual or notional amounts do not represent exposure to credit loss.
The Company manages the credit risk of its interest rate swap agreements
through credit approvals, limits, and monitoring procedures.
A summary of the contractual amount or notional value of off-
balance-sheet financial instruments as of December 31, 1995 and 1994 is as
follows:
December 31, 1995 1994
- ---------------------------------------------------------------------------
(thousands of dollars)
Interest rate swap agreements $34,000 $34,000
Commitments to extend credit:
Unused lines of credit 12,614 10,905
Commercial real estate 1,486 874
Other 11,284 8,673
Standby letters of credit 108 102
Interest rate swap agreements are used by the Company to manage its
interest rate risk. These agreements involve the exchange of fixed and
variable interest rate payments based upon a notional principal amount and
maturity date. The risk associated with these agreements arises from the
potential of the counterparties' failure to meet the terms of the agreements.
However, the Company does not anticipate nonperformance by the counterparties.
Commitments to extend credit are agreements to lend to a customer
provided there is no violation of any condition in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since it is possible that some of the commitments
could expire without being drawn
B-42
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
upon, the total commitment amounts outstanding at December 31, 1995 do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit is based
on management's credit evaluation of the customer.
Standby letters of credit are obligations to make payments under
certain conditions to meet contingencies related to customers' contractual
agreements and are subject to the same risk, credit review, and approval
process as loans. Letters of credit are primarily used to enhance credit for
private borrowing arrangements and to guarantee a customer's financial
performance. The credit risk involved in issuing standby letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
The estimated fair value of interest rate swap agreements, at
December 31, 1995 and 1994 were $(127,000), $(683,000), respectively.
Financial instruments, such as commitments to extend credit and Standby
Letters of Credit, generally are not sold or traded, and estimated fair
values are not readily available. However, the fair value of commitments
to extend credit and standby letters of credit is based on fees charged to
enter into similar agreements with comparable credit risks and the current
creditworthiness of the counterparties. Commitments to extend credit issued
by the Company are generally short-term in nature and, if drawn upon, are
issued under current market terms and conditions for credits with
comparable risks.
At December 31, 1995 and 1994, there was no significant unrealized
appreciation or depreciation on these financial instruments.
NOTE 10-INCOME TAXES
The Company adopted FAS 109 effective January 1, 1993 and the
cumulative effect of this change is reported in the 1993 Consolidated Income
Statement.
Income tax expense for the three years ended December 31, 1995, 1994
and 1993 consisted of the following components:
December 31, 1995 1994 1993(a)
- -----------------------------------------------------------------------------
(thousands of dollars)
Current
Federal $379 $435 $416
State 135 137 120
Deferred
Federal (87) (37) 144
State 70 58 120
- -----------------------------------------------------------------------------
$497 $593 $800
=============================================================================
(a) Excludes the cumulative effect of the adoption of FAS 109.
B-43
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
A reconciliation setting forth the differences between the effective
tax rate of the Company and the U.S. statutory federal tax rate is as follows:
- ----------------------------------------------------------------------------
December 31, 1995 1994 1993
- ----------------------------------------------------------------------------
U.S. statutory rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 7.5% 7.8% 7.8%
Release of valuation allowance (14.9%) (11.6%) (2.7%)
Goodwill amortization 1.0% 1.0% 1.0%
Other, net - 4.9% (0.9%)
- ----------------------------------------------------------------------------
27.6% 36.1% 39.2%
============================================================================
Deferred tax asset and liabilities included in other assets at
December 31, 1995 and 1994 consist of the following:
Net deferred tax asset: December 31, 1995 1994
(thousands of dollars)
Loan loss reserve $702 $817
OREO reserves 40 139
Net deferred loan fees 6 48
Depreciation 48 48
Foreclosure costs 26 51
Unrealized loss on IAFS 133 -
Other, net 60 27
- ----------------------------------------------------------------------
1,015 1,130
Valuation allowance (100) (290)
- ----------------------------------------------------------------------
Net deferred tax asset $915 $840
=======================================================================
B-44
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 11-PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are the condensed financial statements of Hometown
Bancorporation, Inc. (parent company). The consolidated financial statements
should be read in conjunction with these statements.
- ----------------------------------------------------------------------
Hometown Bancorporation, Inc. (parent company only) Balance Sheet
- ----------------------------------------------------------------------
December 31, 1995 1994
- ----------------------------------------------------------------------
(thousands of dollars)
Assets
Cash due from Bank $473 $348
Investment in subsidiary 16,257 12,195
Other assets 95 -
- ----------------------------------------------------------------------
Total assets $16,825 $12,543
======================================================================
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities 6 6
- ----------------------------------------------------------------------
Total stockholders' equity 16,819 12,537
- ----------------------------------------------------------------------
Total liabilities and stockholders' equity $16,825 $12,543
======================================================================
Hometown Bancorporation, Inc. (parent company only) Statement of Income
- ------------------------------------------------------------------------------
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
(thousands of dollars except per share amounts)
Equity in undistributed income of subsidiary $1,346 $1,139 $2,465
- ------------------------------------------------------------------------------
Total income 1,346 1,139 2,465
Legal expenses 8 30 21
Other expenses 29 60 80
- ------------------------------------------------------------------------------
Total expenses 37 90 101
- ------------------------------------------------------------------------------
Net income $1,309 $1,049 $2,364
- ------------------------------------------------------------------------------
Net income per share $ .75 $ .60 $ 1.38
==============================================================================
Hometown Bancorporation, Inc. (parent company only) Statement of Cash Flows
- ------------------------------------------------------------------------------
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
(thousands of dollars)
Cash Flows From Operating Activities:
Net income $1,309 $1,049 $2,364
Equity in undistributed income of subsidiary (1,346) (1,139) (2,465)
Net change in other liabilities - 6 -
Net change in other assets (95) 20 (14)
Other, net - 2 2
- ------------------------------------------------------------------------------
Net cash used in operating activities (132) (62) (113)
- ------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from exercise of stock options 257 98 381
- ------------------------------------------------------------------------------
Net cash provided by financing activities 257 98 381
- ------------------------------------------------------------------------------
Net increase in cash 125 36 268
Cash at the beginning of the year 348 312 44
- ------------------------------------------------------------------------------
Cash at the end of the year $ 473 $ 348 $ 312
==============================================================================
B-45
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 12-STOCK OPTION PLAN
On April 14, 1987, the Company adopted an incentive and non-
qualified stock option plan under which 250,000 shares of common stock were
reserved. Options granted become exercisable between the grant date and five
years after the grant date and expire 10 years after the grant date. Under
the plan, the option price of incentive options shall not be less than 100% of
the fair market value of the Company's Common Stock on the date the option is
granted. The number of shares under option, the exercise price per share and
the aggregate thereof outstanding, granted, exercised and cancelled or expired
during the years ended December 31, 1995, 1994 and 1993 are summarized as
follows:
- ------------------------------------------------------------------------------
Average
Shares Option Price
- ------------------------------------------------------------------------------
Options outstanding at December 31, 1992 211,000 $4.41
Granted 16,000 $7.50
Exercised (60,800) $6.38
Cancelled or expired (7,200) $6.41
- ------------------------------------------------------------------------------
Options outstanding at December 31, 1993 159,000 $3.93
Granted 13,500 $12.50
Exercised (20,900) $4.73
Cancelled or expired (3,000) $6.42
- ------------------------------------------------------------------------------
Options outstanding at December 31, 1994 148,600 $4.54
Granted 19,500 $11.00
Exercised (26,300) $3.65
Cancelled or expired (12,200) $10.43
- ------------------------------------------------------------------------------
Options outstanding at December 31, 1995 129,600 $5.14
- ------------------------------------------------------------------------------
In 1995, the Company adopted the 1995 Omnibus Stock Incentive
Program pursuant to which an additional 100,000 shares of authorized but
unissued Common Stock were reserved. Under this program, incentive stock
options, non-qualified stock options, stock appreciation rights and stock
awards may be granted. Options would become exercisable between six months
from the date of grant and the date determined at the time of grant. Under the
program, the option price of incentive options shall not be less than 100% of
the fair market value of the Company's Common Stock on the date the option is
granted, and the option price of non-qualified options shall not be less than
85% of such fair market value. As of December 31, 1995, no benefits had been
awarded under this program.
At December 31, 1995, options for 105,370 shares were exercisable
and 111,400 shares were available for granting additional options under the
two current plans combined.
B-46
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
NOTE 13-QUARTERLY FINANCIAL DATA (UNAUDITED) (A)
- -----------------------------------------------------------------------------
1995 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Total
(thousands of dollars except
per share amounts)
Interest income $3,710 $3,830 $3,812 $3,728 $15,080
Net interest income 1,844 1,857 1,868 1,843 7,412
Provision for loan losses 25 - 25 25 75
Net income 370 476 13 450 1,309
Net income per share $.21 $.27 $.01 $.26 $.75
1994 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Total
(thousands of dollars except
per share amounts)
Interest income $2,842 $3,048 $3,380 $3,432 $12,702
Net interest income 1,670 1,704 1,805 1,710 6,889
Provision for loan losses 25 - 25 25 75
Net income 387 290 329 43 1,049
Net income per share $.22 $.17 $.19 $.02 $.60
(A) See note 16 below.
NOTE 14-FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the fair values of financial
instruments which are disclosed throughout the footnotes to the Consolidated
Financial Statements.
- -----------------------------------------------------------------------------
December 31, 1995 1994
- -----------------------------------------------------------------------------
Carring Fair Carrying Fair
(thousands of dollars) Amount Value Amount Value
- -----------------------------------------------------------------------------
Financial Assets:
Cash and due from banks $9,891 $9,891 $8,549 $8,549
Investments available-for-sale
(Note 4) 93,823 93,823 76,854 76,854
Investments held-to-maturity
(Note 4)(A) 15,100 14,763 46,273 44,965
Net loans (Note 3) 103,407 103,138 73,474 73,474
Financial Liabilities:
Deposits (Note 6) 178,000 177,935 182,731 183,075
Short-term borrowings (Note 7) 32,116 32,064 16,681 16,726
Off-Balance Sheet (Note 8):
Interest rate swap agreements (127) (127) - (683)
Commitments to extend credit - - - -
Standby letters of credit - - - -
(A) Excludes effect of interest rate swap agreements.
NOTE 15 - EMPLOYEE BENEFIT PLAN
The Bank maintains a qualified deferred compensation plan under
Section 401(k) of the Internal Revenue Code. Under the plan, employees may
elect to defer up to 17% of their salary, subject to Internal Revenue Code
limits. The Bank contributes a matching 100% of the first 1% of employee
contributions and 25% of the next 5% of employee contributions to a combined
maximum match of $3,000 per employee, per
B-47
<PAGE>
Hometown Bancorporation, Inc.
Notes to the Consolidated Financial Statements
(continued)
year. The plan covers substantially all full-time employees. Bank
contributions to the plan amounted to $35,613, $35,056, and $22,239 for 1995,
1994, and 1993 respectively.
NOTE 16 - RESTATEMENT OF FINANCIAL STATEMENTS
On August 25, 1995 the Audit Committee of the Company concluded an
investigation of accounting errors and irregularities which were initially
discovered in July 1995. Based upon the findings of the investigation, the
Board of Directors of the Company concluded that the errors and irregularities
resulted from the activities of a former employee who manipulated records and
circumvented controls. The results of such actions required the restatement
of financial statements for the years ended December 31, 1992 through 1994.
The cumulative after-tax effects of these adjustments reduced shareholders'
equity as of December 31, 1994 by $1,368,000.
Earnings per share before extraordinary credit and cumulative effect
of accounting change was reduced by $.54, $.08, and $.16 for 1994, 1993 and
1992, respectively. Earnings per share after extraordinary credit and
cumulative effect of accounting change and extraordinary credit was reduced by
$.54, $.10, and $.28 for 1994, 1993 and 1992, respectively.
B-48
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT ACCOUNTANTS
January 25, 1996
To the Stockholders and Board of Directors of Hometown Bancorporation, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows, after the restatement discussed in Note 16, present fairly, in all
material respects, the financial position of Hometown Bancorporation, Inc. and
its subsidiary (the "Company") at December 31, 1995 and 1994, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
changed its method of accounting for investment securities and income taxes in
1993.
PRICE WATERHOUSE LLP
B-49
<PAGE>
<TABLE>
HOMETOWN BANCORPORATION, INC.
Supplementary Financial Data
(thousands of dollars except per share)
<CAPTION>
For the Year Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest income $15,080 $12,702 $11,304 $11,097 $9,445
Total interest expense 7,668 5,813 4,995 5,236 5,281
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 7,412 6,889 6,309 5,861 4,164
Provision for loan losses 75 75 360 1,258 800
Provision for losses on
other real estate owned 95 290 60 212 145
Other operating income 1,420 1,397 1,820 1,534 812
Other operating expenses 6,856 6,279 5,670 5,046 4,204
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) before taxes,
extraordinary credit and cumulative
effect of an accounting change 1,806 1,642 2,039 879 (173)
Provision for federal and state
income taxes 497 593 800 274 -
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) before extraordinary
credit and cumulative effect of an
accounting change 1,309 1,049 1,239 605 (173)
Extraordinary credit - - - 256 -
Cumulative effect of an accounting
change - FAS 109 - - 1,125 - -
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $1,309 $1,049 $2,364 $861 $(173)
=====================================================================================================================
Per Share Data:
Before extraordinary credit and an
accounting change:
Net income (loss) $.75 $.60 $.72 $.37 $(.11)
After extraordinary credit and an
accounting change
Net income (loss) $.75 $.60 $1.38 $.53 $(.11)
Stockholders' equity $9.60 $7.16 $8.46 $7.08 $6.69
Average common shares outstanding 1,752,523 1,750,988 1,708,207 1,629,710 1,597,194
Common shares outstanding 1,833,381 1,680,096 1,659,141 1,598,251 1,597,231
Year End Balance Sheet Data:
Total assets $229,220 $213,991 $201,352 $187,235 $118,902
Loans, net 103,407 74,940 85,461 85,322 60,786
Investments held-to-maturity 15,100 46,273 40,060 79,869 47,727
Investments available-for-sale 93,696 76,854 54,016 - -
Total deposits 178,000 182,731 159,641 154,721 107,617
Total stockholders' equity 16,818 12,537 14,454 11,545 10,682
Financial Ratios:
Net income (loss) before extraordinary
credit and an accounting change to
average:
Total assets 0.60% 0.49% 0.65% 0.38% (0.16)%
Stockholders' equity 8.50% 6.91% 9.06% 5.40% (1.63)%
Net income (loss) after extraordinary
credit and an accounting change to
average:
Total assets 0.60% 0.49% 1.24% 0.54% (0.16)%
Stockholders' equity 8.50% 6.91% 17.28% 57.68% (1.63)%
Year End:
Gross loans to total assets 46.37% 36.42% 44.25% 47.23% 51.12%
B-50
<PAGE>
Gross loans to deposits 59.71% 42.66% 55.81% 57.16% 56.48%
Risk-based capital to assets 16.37% 15.46% 14.10% 12.07% 14.37%
Primary capital to total assets 8.60% 8.50% 8.75% 7.70% 10.36%
Tier one capital to assets 15.10% 13.44% 11.76% 9.37% 8.98%
Average stockholders' equity to average
total assets 7.05% 7.15% 7.16% 6.98% 9.82%
Nonperforming assets to total assets 0.91% 0.87% 1.42% 2.86% 4.72%
Nonperforming loans to gross loans 1.39% 1.09% 1.78% 3.38% 4.51%
</TABLE>
B-51
<PAGE>
Item 9 - Changes in and Diagreements with Accountants on
Accounting and Financial Disclosure
There is no event reportble under this item, except as has been
previously reported (as defined in Rule 12b-2 under the Securities Exchange
Act of 1934) in the Company's Current Report on Form 8-K dated March 5, 1996.
PART III
ITEM 10 - Directors and Executive Officers of the Registrant
Directors of the Company.
The information required by this item appears under the caption
"Election of Directors" in the 1996 Proxy. Such information is incorporated
by reference and made a part hereof.
Executive Officers of the Company
The information required by this item apppears in Item 4A hereof.
Item 11 - Executive Compensation
The information required by this item appears under the caption,
"Compensation of Directors and Executive Officers" in the 1996 Proxy. Such
information is incorporated herein by reference and made a part hereof.
Since the Company qualifies as a "small business issuer," as defined
by Item 10 (a)(1) of Regulation S-B, information incorporated by reference to
the 1996 Proxy in response to this item contains the disclosure required by
paragraphs (b), (c)(1), (c)(2)(i)-(v), (d), (e), (g), (h), (i)(1) and (2) of
Item 402 of Regulation S-K.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears under the caption
"Voting Securities and Principal Holders" in the 1996 Proxy. Such information
is incorporated herein by reference and made a part hereof.
B-52
<PAGE>
Item 13 - Certain Relationships and Related Transactions
The information required by this item appears under the caption
"Certain Relationships and Related Transactions" in the 1996 Proxy. Such
information is incorporated herein by reference and made a part hereof.
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report and
appear on the pages indicated:
(1) Financial Statements:
Page in this
Form 10-K
Consolidated Balance Sheet as of December 31, 1995 and 1994 B-24
Consolidated Statement of Income for the Years Ended
December 31, 1995, 1994 and 1993 B-25
Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended December 31, 1995, 1994 and 1993 B-26
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 B-27
Notes to the Consolidated Financial Statements B-28
Report of Independent Accountants B-49
B-53
<PAGE>
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable.
(3) Exhibits
Exhibit No. Description
3.1 The Company's Certificate of Incorporation (incorporated by reference
to Exhibit 3(a) the Company's Registration Statement on Form S-4
[Commission File Number 33-13466] filed on June 15, 1987).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3(b) to
the Company's Registration Statement on Form S-4 [Commission File
Number 33-13466] filed on June 15, 1987).
4 Common Shares Rights Agreement dated as of September 20, 1990
(incorporated by reference to Exhibit 4 to the Company's Current
Report on Form 8-K dated September 20, 1990 [Commission File
Number 0-16272]).
10.1 Hometown Bancorporation, Inc. 1987 Stock Option Plan (incorporated
by reference to Exhibit 10(iii)(A)(b) to the Company's Registration
Statement on Form S-4 [Commission File Number 33-13466] filed on
June 15, 1987).
10.2 Hometown Bancorporation, Inc. 1995 Omnibus Stock Incentive Program
(incorporated by reference to Exhibit 10(1) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 [Commission
File Number 0-16272]).
10.3 Lease dated as of January 29, 1987 between NJM Realty Limited
Partnership and the Bank (incorporated by reference to Exhibit
10(ii)(D)(b) to the Company's Registration Statement on Form S-4
[Commission File Number 33-13466] filed on June 15, 1987).
10.4 Lease Modification Agreement dated as of May 1, 1995, between NJM
Realty Limited Partnership and the Bank (incorporated by reference to
Exhibit 10(3) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 [Commission File Number 0-16272]).
B-54
<PAGE>
10.5 Lease dated as of June 8, 1989 beetween Old Town Hall, Inc. and the
Bank (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989
[Commission File Number 0-16272]).
10.6 Description of the Bank's Officer Incentive Plan (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1989 [Commission File Number
0-16272]).
10.7 Employment Agreement executed January 2, 1991 between the Bank and
Kevin E. Gage, as amended by Amendment No. 1 thereto dated as of
November 18, 1993 (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 [Commission File Number 0-16272]).
10.8 Amendment No. 2, dated as of June 16, 1995, to Employment Agreement
dated as of January 2, 1991 among the Company, the Bank and Kevin E.
Gage (incorporated by reference to Exhibit 10(2) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
[Commission File Number 0-16272]).
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of the Company (incorporated by reference to Exhibit
21 to the Company's Annual Reporton Form 10-K for the year ended
December 31, 1993 [Commission File Number 0-16272]).
23 Consent of Independent Accountants.
24 Powers of Attorney
27 Financial Data Schedule.
B-55
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Hometown Bancorporation, Inc.
By: /s/ Kevin E. Gage
--------------------------------------
Kevin E. Gage
President and Chief Executive Officer
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Name Title
- ---- -----
Douglas D. Milne, III Chairman of the Board )
and Director )
)
Kevin E. Gage President and Chief )
Executive Officer and )
Director )
)
Richard A. Allen Director )
)
Louis T. Hagopian Director )
)
Arnold H. Libner Director ) By /s/ Kevin E. Gage
) ------------------
) Kevin E. Gage
Joseph G. McIntyre, Jr. Director ) Attorney-in-Fact
)
Robert O. White Director ) March 29, 1995
)
Albert T. Jaronczyk Senior Vice President )
and Chief Financial )
Officer (Principal )
Accounting Officer) )
B-56
<PAGE>
ANNEX C
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to_____________
Commission file number 0-16272
-------
HOMETOWN BANCORPORATION, INC.
-----------------------------
(Exact name of Registrant as specified its charter)
DELAWARE 06-1199559
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 WEST AVENUE, P.O. BOX 1265, DARIEN, CT 06820
------------------------------------------------
(Address of principal executive offices)
(203) 656-2265
--------------
(Registrant's telephone number, including area 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 requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date:
CLASS OUTSTANDING AT APRIL 30, 1996
----- -----------------------------
Common Stock (Voting), $1 par
Value 1,708,046
---------
C-1
<PAGE>
HOMETOWN BANCORPORATION, INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. - Financial Statements
-------
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995 C-3
Consolidated Statement of Income -
Three Months Ended March 31, 1996 and 1995 C-4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 C-5
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations C-6
PART II - EXHIBITS C-11
------------------
SIGNATURES C-12
C-2
<PAGE>
Part I
ITEM 1. - FINANCIAL STATEMENTS
- -------------------------------
HOMETOWN BANCORPORATION, INC.
CONSOLIDATED BALANCE SHEET
(000'S OF DOLLARS EXCEPT PAR VALUE AND SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1996 1995
---- ----
ASSETS (unaudited)
Cash and due from banks $7,213 $9,891
Investments available for sale, at fair value 76,626 93,696
Investments held to maturity (fair value:
$14,621 in 1996 and $14,763 in 1995) 14,561 15,100
Loans, less allowance for loan losses of
$2,914 in 1996 and $2,883 in 1995 106,080 103,407
Equipment and leasehold improvements, net of
accumulated depreciation of $1,981 in 1996
and $1,897 in 1995 1,435 1,456
Other real estate owned 683 603
Other assets 6,310 5,067
------- -------
Total Assets $212,908 $229,220
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $23,747 $26,064
NOW and money market accounts 72,024 69,200
Savings deposits 12,288 12,858
Certificates of deposit of $100 and over 10,688 14,056
Other time deposits 56,287 55,822
------- -------
175,034 178,000
Short-term borrowings 19,001 32,116
Accrued interest and other liabilities 1,681 2,286
------- -------
Total Liabilities 195,716 212,402
------- -------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $1; 2,000,000 shares
authorized, none issued and outstanding
Common Stock, par value $1; 10,000,000 shares
authorized, 1,833,381 issued
and outstanding in 1996 and 1995 1,833 1,833
Surplus 14,123 14,123
Retained earnings 2,123 1,784
Unrealized loss on investments available for sale (152) (187)
Treasury Stock - 126,900 and 126,935 shares in 1996
and 1995, respectively, at cost (735) (735)
------- -------
Total Stockholders' Equity 17,192 16,818
------- -------
Total Liabilities and Stockholders' Equity $212,908 $229,220
======= =======
C-3
<PAGE>
HOMETOWN BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF INCOME
(000'S OF DOLLARS EXCEPT PAR VALUE AND SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
MARCH 31,
1996 1995
Interest and dividend income: (unaudited) (unaudited)
Interest and fees on loans $2,303 $1,769
Interest on investment securities:
Obligations of U.S. Agencies 994 1,403
Other 459 505
Interest on federal funds sold 1 --
Dividends 28 33
------- -------
Total interest and dividend income 3,785 3,710
Interest expense:
Deposits 1,448 1,554
Short-term borrowings 366 312
------- -------
Total interest expense 1,814 1,866
Net interest income 1,971 1,844
Provision for loan losses 25 25
------- -------
Net interest income after provision for
loan losses 1,946 1,819
Other operating revenue:
Deposit and other service charges 162 173
Mortgage origination fees 79 56
Securities losses (2) --
Other 58 33
------- -------
Net interest income and operating revenue 2,243 2,081
Other operating expenses:
Salaries and benefits 853 754
Occupancy expense 136 145
FDIC insurance premiums 1 102
Depreciation 84 91
Advertising and marketing 67 55
Legal and Accounting 53 23
Foreclosure expense and cost of OREO 41 30
Other operating expenses-other 425 309
------- -------
Total other operating expenses 1,660 1,509
Income before federal and state income taxes 583 572
Provision for federal and state income taxes 244 202
------- -------
Net income $339 $370
======= =======
Earnings per share $.19 $.21
===== =====
Average number of shares outstanding 1,780,741 1,762,349
========= =========
C-4
<PAGE>
HOMETOWN BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
FOR THE THREE MONTHS ENDED
MARCH 31,
1996 1995
Cash Flows from Operating Activities: (unaudited) (unaudited)
Net income $339 $370
Adjustments to reconcile net income to net cash
(used) by operating activities:
Depreciation and amortization, net 135 91
Provision for loan losses 25 25
Securities losses 2 --
(Increase) decrease in other assets (1,329) 179
(Decrease) in other liabilities (605) (1,659)
------- -------
Net cash (used) by operating activities (1,433) (994)
------- -------
Cash Flows from Investing Activities:
Proceeds from the maturity of investments held
to maturity 539 1,199
Proceeds from the maturity of investments
available for sale 6,347 1,629
Purchase of investment securities available
for sale (1,026) (16,910)
Proceeds from the sale of investments available
for sale 11,817 3,742
Net decrease in loans (2,698) (53)
Decrease (increase) in OREO (80) 1
Purchase of capital assets (63) (67)
------- -------
Net cash provided (used) by investing activities 14,836 (10,459)
------- -------
Cash Flows from Financing Activities:
Net (decrease) in demand deposits, NOW
accounts, money market accounts and
savings accounts (63) (266)
Net (decrease) in certificates of deposit
and other time deposits (2,903) (142)
(Decrease) increase in short-term borrowings (13,115) 9,598
Exercise of stock options -- 14
------- -------
Net cash (used) provided by financing activities (16,081) 9,204
------- -------
Net decrease in cash and cash equivalents (2,678) (2,249)
Cash and cash equivalents at the beginning of
the period 9,891 8,549
------- -------
Cash and cash equivalents at the end of the period $7,213 $6,300
====== ======
C-5
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
------------
Hometown Bancorporation, Inc. (the "Company") was formed to become a
holding company for The Bank of Darien (the "Bank") to raise additional
capital and to provide a vehicle for other permitted holding company
activities. On July 21, 1987, each share of the Bank's outstanding
common stock was exchanged for one share of Common Stock, par value
$1.00, of the Company. This transaction was recorded in a manner
analogous to a pooling of interests.
The Bank is the sole subsidiary of the Company. The business of the
Company consists of ownership of the capital stock of the Bank.
The Bank, which currently has branch offices in Darien and Westport,
Connecticut, is a full service commercial institution with a market area
within Southern Fairfield County. Its commitment to service excellence
is supported by a flexible approach to banking, immediate problem
resolution and local decision making with fast turnaround. The staff's
commitment to excellence is evidenced by low turnover of personnel and
courteous and efficient service.
The Bank, a member of the FDIC, offers a complete line of financial
services to the retail and commercial market segments. Deposit products
include checking, NOW and money market accounts, savings accounts,
certificates of deposit, individual retirement accounts and Keoghs.
Loan products include personal and commercial loans, mortgages, home
equity lines of credit, secured and unsecured loans, MasterCard, VISA
and Gold MasterCard credit cards.
RESULTS OF OPERATIONS
---------------------
The Company earned consolidated net income of $339,000 or $.19 per
share and $370,000 or $.21 per share for the three months ended March
31, 1996 and 1995, respectively. The decrease in net income for the
first quarter of 1996 as compared to the first quarter of 1995 was
primarily the result of increases in other operating expense and the
provisions for federal and state income taxes which offset a 7% increase
in net interest income.
NET INTEREST INCOME
-------------------
Net interest income increased $127,000 or 7% from $1,844,000 for the
three months ended March 31, 1995 to $1,971,000 for the three months
ended March 31, 1996. The increase in net interest income was due to a
10% increase in the comparative period interest rate spread which was
offset by a $6,629,000 decline in the period's average interest earning
assets.
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<PAGE>
Below is the yield analysis for the three months ended March 31, 1996
and for the year ended December 31, 1995.
<TABLE>
HOMETOWN BANCORPORATION, INC.
YIELD ANALYSIS
(000'S of dollars)
<CAPTION>
For the Three Months Ended For the Year Ended
March 31, 1996 December 31, 1995
Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Interest earning assets:
Loans $106,719 $2,303 8.63% $ 81,948 $ 7,625 9.30%
Investment securities 97,219 1,482 6.10% 124,325 7,403 5.95%
Federal funds sold 80 1 5.00% 990 52 5.25%
------------------------------------------------------------
Total interest earning assets 204,018 3,786 7.42% 207,263 15,080 7.28%
------------------------------------------------------------
Non interest earning assets:
Cash and due from banks 7,940 7,288
Allowance for loan losses (2,905) (2,990)
Other assets 5,511 7,130
-------- --------
Total assets $214,564 $218,691
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Interest bearning liabilities:
Savings deposits $ 12,348 61 1.98% $13,304 292 2.19%
NOW accounts 26,451 82 1.24% 25,448 364 1.43%
Money market deposits 43,088 365 3.39% 50,100 1,896 3.78%
Time deposits 68,392 901 5.27% 66,830 3,463 5.18%
Other interest bearning liabilities 25,167 405 6.44% 24,444 1,653 6.76%
------------------------------------------------------------
Total interest bearning liabilities 175,446 1,814 4.14% 180,126 7,668 4.26%
------------------------------------------------------------
Non interest bearing liabilities:
Demand deposits 21,964 22,209
Other liabilities 583 947
Stockholders' equity 16,571 15,409
-------- --------
Total liabilities and stockholders'
equity $214,564 $218,691
======== ========
------ ------
Net interest income $1,972 $7,412
====== ======
Net yield on interest earning assets 3.87% 3.58%
==== ====
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses which is recorded
through a provision for loan losses. The provision for loan losses is
charged to operations based on management's assessment of such loan
related factors as loan risk, including collateral and
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<PAGE>
liquidation value of that collateral, loan type, current economic
conditions and other pertinent factors.
The Company, in its assessment of the allowance for loan losses,
utilizes a risk rating system. This system involves an ongoing review
of the loan portfolio that culminates in loans being assigned a risk
factor based upon various credit criteria. If the review indicates a
possibility that some portion of the loan may result in a loss, a
specific allowance is established for the amount of the estimated loss.
If the review indicates that it is probable that some portion of the
loan will result in a loss, that portion of the loan is charged-off as a
reduction of the loan and allowance for loan losses balance. In
determining the allowance for loan losses for the balance of the
portfolio, loans are classified as to industry and collateral type with
risk assessments made for each category of loans. Reserve requirements
are then established for each category and provided for in the allowance
for loan losses.
The Company recorded a $25,000 provision to the allowance for loan
losses for the three-month periods ended March 31, 1996 and 1995. The
following table illustrates nonperforming assets and allowance for
possible loan loss coverage ratios for the Company at March 31, 1996 and
December 31, 1995.
March 31, December 31,
1996 1995
(thousands of dollars)
Nonaccruing loans $1,191 $1,475
Other real estate owned, net 683 603
----- -----
Total nonperforming assets $1,874 $2,078
===== =====
Restructured and performing loans $533 $544
Nonaccruing loans to gross loans 1.09% 1.39%
Nonperforming assets to total assets 0.88% 0.91%
Allowance for loan losses $2,914 $2,883
Coverage Ratios:
Allowance for loan losses to gross loans 2.67% 2.71%
Allowance for loan losses to nonperforming 155.50% 138.74%
assets
Had the nonaccruing loans in the table above been current, gross
interest income on these loans for the three months ended March 31, 1996
would have been approximately $30,000. There was no interest income
recorded on these loans during 1996.
OTHER OPERATING REVENUE
-----------------------
For the three months ended March 31, 1996, total other operating
revenue increased $35,000 or 13% as compared to the three months ended
March 31, 1995. This increase was due to a $23,000 or 41% improvement in
mortgage origination fees from $56,000 for the quarter ended March 31, 1995
to $79,000 for the quarter ended March 31, 1996. The
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<PAGE>
increase in mortgage activity was primarily due to improved primary and
new market coverage by Company personnel. Other operating income, other,
increased $25,000 for the quarter ended March 31, 1996 to $58,000, compared
with $33,000 at March 31, 1995. The increase in other revenues was related
to increased OREO rental income and increased fees on the merchant credit
card processing and other retail-based services.
OTHER OPERATING EXPENSES
------------------------
Total other operating expenses increased $151,000 or 10% from
$1,509,000 for the three months ended March 31, 1995 to $1,660,000 for
the three months ended March 31, 1996. The increase in total other
operating expenses during the three months ended March 31, 1996 was
primarily due to increases in salaries and benefits.
For the three months ended March 31, 1996 salaries and benefits
expense increased $99,000 or 12% versus the three months ended March 31,
1995. This increase reflects increases in the cost of comprehensive
benefits, primarily medical and dental insurance offered to employees
combined with unemployment and FICA taxes, and an increase in salary
expense related to the addition and changes in personnel.
Occupancy expense decreased $9,000 or 6% for the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995.
This decrease is due primarily to a renegotiated lease on the Darien
facility during the second quarter of 1995.
For the three months ended March 31, 1996, FDIC insurance premiums
decreased $101,000 as compared to the three months ended March 31, 1995.
During the second quarter of 1995 the FDIC reduced premiums charged to its
member banks as a result of the Bank Insurance Fund's meeting certain
federally mandated recapitalization requirements. The decline in
premium expense for the quarter ended March 31, 1996 relates to this
reduction in premiums.
Depreciation expense decreased $7,000 or 8% for the three months
ended March 31, 1996 as compared to the three months ended March 31,
1995. This decrease was due to more assets becoming fully depreciated
during the quarter than were purchased.
For the three months ended March 31, 1996 advertising and marketing
expense increased $12,000 or 22% from $55,000 for the three months ended
March 31, 1995 to $67,000 for the three months ended March 31, 1996.
The increase is due to increased advertising, public relations, and
direct marketing of the Bank's products in the first quarter of 1996.
Legal and accounting expense increased $30,000 for the three months
ended March 31, 1996 as compared to the three month period ended March
31, 1995. The increase reflects increased fees billed by our external
independent accountants and increased legal fees related to regulatory
matters. Foreclosure expense and cost of OREO increased $11,000 from
$30,000 for the three months ended March 31, 1995 to $41,000 for the
quarter ended March 31, 1996. The increase is due to increased
operating costs this past winter of OREO properties.
For the three months ended March 31, 1996, other operating expenses-
other increased $116,000 as compared to the three months ended March 31,
1995. This increase was due to increased expense related to customer
statement preparation, outside consulting assignments and other variable
fees and expenses for operations.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Total deposits of the Company decreased $2,966,000 to $175.0 million
at March 31, 1996 from December 31, 1995 when total deposits were $178.0
million. This decrease was due primarily to lower demand and time
deposit balances at March 31, 1996.
In addition to deposits (the Bank's primary funding and liquidity
source) liquidity is managed through continuous maturity of earning
assets, federal funds lines of credit and Federal Home Loan Bank of Boston
(the "FHLBB") advances. FHLBB advances decreased $13.1 million from $32.1
million at December 31, 1995 to $19.0 million at March 31, 1996.
The Company's total capital increased $374,000 from December 31,
1995 to March 31, 1996. The improvement was due to the net income
realized during the quarter of $339,000 and to an improvement in net
unrealized loss on the available-for-sale investment portfolio in the
amount of $35,000. Illustrated below are the Company's capital to asset
ratios and the corresponding regulatory minimums.
Capital Ratios
March 31, Regulatory
1996 Minimum
---- -------
HOMETOWN BANCORPORATION, INC.
-----------------------------
Tier one leverage capital ratio 7.88% 4.00%
Risk-based capital ratio 17.21% 8.00%
The following summarizes the Company's investment portfolio by type
of security at March 31, 1996:
Carrying Approximate
Amount Fair Value
------ ----------
(thousands of dollars)
Investments held to maturity:
U. S. Agency Mortgage-Backed Securities $5,293 $5,284
Obligations of U. S. Government Agencies 2,950 2,944
Other mortgage-backed securities 6,318 6,066
------ ------
Total investments held-to-maturity $14,561 $14,294
====== ======
Investments available for sale:
U. S. Agency Mortgage-Backed Securities $50,601 $50,485
Obligations of U. S. Government Agencies 1,019 1,038
Other mortgage-backed securities 19,523 19,383
U. S. Treasury Securities 4,026 4,003
FHLBB stock 1,717 1,717
------ ------
Total investments available-for-sale $76,886 $76,626
====== ======
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<PAGE>
Part II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
NO. DESCRIPTION
--- -----------
27 Financial Data Schedule
(b) During the quarter ended March 31, 1996, the Company filed a
Current Report on Form 8-K dated March 5, 1996, as amended,
reporting information pursuant to Item 4.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Hometown Bancorporation, Inc.
Date: May 14, 1996 By: /S/ KEVIN E. GAGE
---------------------------
Kevin E. Gage
President and
Chief Executive Officer
Date: May 14, 1996 By: /S/ ALBERT T. JARONCZYK
----------------------------
Albert T. Jaronczyk
Senior Vice President and
Chief Financial Officer
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<PAGE>
ANNEX D
April 26, 1996
PRIVATE AND CONFIDENTIAL
------------------------
The Board of Directors
Hometown Bancorporation, Inc.
20 West Avenue
Darien, CT 06820
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Hometown Bancorporation ("Hometown") of the
terms of a proposed merger (the "Merger") whereby Hometown will be merged with
and into HUBCO, Inc. ("HUBCO"). The terms of the Merger are set forth in the
Agreement and Plan of Merger dated April 27, 1996 (the "MERGER AGREEMENT").
The terms of the Merger Agreement provide that each share of Hometown
common stock other than shares held by persons exercising dissenters' rights
will be exchanged for $17.75 in cash (the "CASH PRICE").
Brown Brothers Harriman & Co., in its capacity as financial advisor, is
regularly engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, equity and debt financings, and
valuations for estate, corporate, and other purposes. We have advised
Hometown in its discussions and negotiations with HUBCO and, through our
participation in such discussions and our advice to Hometown, have assisted in
the development of the terms of the Merger Agreement.
In connection with our analysis of the proposed transaction, Hometown and
HUBCO have furnished us with information concerning the Merger Agreement and
their respective businesses and operations, and we have reviewed financial and
operating data provided to us by Hometown and HUBCO, as well as information
contained in documents filed with regulatory authorities or otherwise
available from published sources. We have reviewed the Merger Agreement and
all related agreements, including the Stock Option Agreement dated April 27,
1996, between Hometown and HUBCO, supporting documentation and schedules. We
have had discussions with management personnel of Hometown and HUBCO with
respect to the foregoing. Our review also included consideration of the
following:
1. financial and statistical information for Hometown and HUBCO,
including comparative per share data and the pro forma financial
effects of the combination;
D-1
<PAGE>
2. the business, operations, and general prospects of Hometown as
discussed by management with us;
3. the reported share price range and dividend history for the equity
securities of Hometown;
4. general financial and statistical comparative analyses of Hometown,
with selected public companies in the same industry;
5. the terms and conditions of other business combinations in the U.S.
commercial banking industry which we deemed to be comparable or
otherwise relevant; and
6. such other financial studies, analyses and investigations as we
deemed necessary.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of information furnished to us by Hometown, and we have not
assumed any responsibility for independent verification of such information or
any independent valuation or appraisal of any of the assets of Hometown.
On the basis of the foregoing, as of the date hereof, we are of the
opinion that the Cash Price to be received by holders of the Common Stock
pursuant to the Merger Agreement is fair to the stockholders of Hometown from
a financial point of view.
Yours very truly,
Brown Brothers Harriman & Co.
D-2
<PAGE>
ANNEX E
CONFORMED COPY
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") dated April
28, 1996, is by and between HUBCO, Inc., a New Jersey corporation and
registered bank holding company ("HUBCO") for Hudson United Bank (the "Bank"),
and Hometown Bancorporation, Inc., a Delaware corporation and registered bank
holding company ("HBI") for The Bank of Darien ("Darien").
BACKGROUND
1. HUBCO, the Bank, HBI and Darien have executed an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which HUBCO will acquire HBI
through a merger of HBI with and into HUBCO (the "Merger").
2. As an inducement to HUBCO to enter into the Merger Agreement and in
consideration for such entry, HBI desires to grant to HUBCO an option to
purchase authorized but unissued shares of common stock of HBI in an amount
and on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements
set forth herein and in the Merger Agreement, HUBCO and HBI, intending to be
legally bound hereby, agree:
1. GRANT OF OPTION. HBI hereby grants to HUBCO the option to purchase
435,000 shares of common stock, $1.00 par value (the "Common Stock") of HBI
at an exercise price of $13.75 per share (the "Option Price"), on the terms
and conditions set forth herein (the "Option").
2. EXERCISE OF OPTION. This Option shall not be exercisable until the
occurrence of a Triggering Event (as such term is hereinafter defined). Upon
or after the occurrence of a Triggering Event, HUBCO may exercise the Option,
in whole or in part, at any time or from time to time until the termination of
this Agreement in accordance with Section 19 and in accordance with the terms
and conditions hereof.
As used in this Agreement, the term "Triggering Event" means the
occurrence of any of the following events:
A person or group (as such terms are defined in the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder) other than HUBCO or an affiliate of HUBCO, without HUBCO's prior
written consent:
a. acquires beneficial ownership (as such term is defined in Rule
13d-3 as promulgated under the Exchange Act) of at least 20% of the then
outstanding shares of Common Stock;
b. enters into a letter of intent or an agreement, whether oral
or written, with HBI pursuant to which such person or any affiliate of such
person would (i) merge or consolidate, or enter into any similar transaction
with HBI, (ii) acquire all or a significant portion of the assets or
liabilities of HBI, or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote
securities representing, 20% or more of the then outstanding shares of
Common Stock;
c. makes a filing with any bank regulatory authorities or
publicly announces a bona fide proposal (a "Proposal") for (i) any merger,
consolidation or acquisition of all or a significant portion of all the assets
or liabilities of HBI or any other business combination involving HBI, or (ii)
a transaction involving the transfer of beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote
securities representing, 20% or more of the outstanding shares of Common
Stock, and thereafter, if such Proposal has not been Publicly Withdrawn
(as such term is hereinafter defined) at least 15 days prior to the meeting
of stockholders of HBI called to vote on the Merger and HBI stockholders fail
to approve the Merger by the vote required by applicable law at the meeting
of stockholders called for such purpose;
d. makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, HBI willfully takes any action in any
manner which would materially interfere with its desire or ability to
consummate the Merger or materially reduce the value of the Merger transaction
to HUBCO; or
e. which is the holder of more than 5% of the Common Stock
solicits proxies in opposition to approval of the Merger.
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<PAGE>
The term "Triggering Event" also means the taking of any direct or
indirect action by HBI or any of its directors, officers or agents to invite
or solicit any proposal which has as its purpose a tender offer for the shares
of HBI Common Stock, a merger, consolidation, plan of exchange, plan of
acquisition or reorganization of HBI, or a sale of shares of HBI Common
Stock or 25% or more of the assets or liabilities of HBI.
"Publicly Withdrawn", for purposes of clauses (c) and (d) above, shall
mean an unconditional bona fide withdrawal of the Proposal coupled with a
public announcement of no further interest in pursuing such Proposal or in
acquiring any controlling influence over HBI or in soliciting or inducing
any other person (other than HUBCO or any affiliate) to do so.
Notwithstanding the foregoing, the Option may not be exercised at any
time (i) in the absence of any required governmental or regulatory approval
or consent necessary for HBI to issue the shares of Common Stock subject to
the Option (as such number of shares may be adjusted pursuant to Section 5
hereof, the "Option Shares") or HUBCO to exercise the Option or prior to the
expiration or termination of any waiting period required by law, or (ii) so
long as any injunction or other order, decree or ruling issued by any federal
or state court of competent jurisdiction is in effect which prohibits the
sale or delivery of the Option Shares.
HBI shall notify HUBCO promptly in writing of the occurrence of any
Triggering Event known to it, it being understood that the giving of such
notice by HBI shall not be a condition to the right of HUBCO to exercise the
Option. HBI will not take any action which would have the effect of preventing
or disabling HBI from delivering the Option Shares to HUBCO upon exercise of
the Option or otherwise performing its obligations under this Agreement.
In the event HUBCO wishes to exercise the Option, HUBCO shall send a
written notice to HBI (the date of which is hereinafter referred to as the
"Notice Date") specifying the total number of Option Shares it wishes
to purchase and a place and date for the closing of such a purchase (a
"Closing"); provided, that a Closing shall not occur prior to two days
after the later of receipt of any necessary regulatory approvals and the
expiration of any legally required notice or waiting period, if any.
3. PAYMENT AND DELIVERY OF CERTIFICATES. At any Closing hereunder (a)
HUBCO will make payment to HBI of the aggregate price for the Option Shares
so purchased by wire transfer of immediately available funds to an account
designated by HBI, (b) HBI will deliver to HUBCO a stock certificate or
certificates representing the number of Option Shares so purchased, free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever created by or through HBI, registered in the name of HUBCO or its
designee, in such denominations as were specified by HUBCO in its notice of
exercise and bearing a legend as set forth below, and (c) HUBCO shall pay any
transfer or other taxes required by reason of the issuance of the Option
Shares so purchased.
Unless a registration statement is filed and declared effective under
Section 4 hereof, a legend will be placed on each stock certificate
evidencing Option Shares issued pursuant to this Agreement, which legend
will read substantially as follows:
The shares of stock evidenced by this certificate
have not been registered for sale under the Securities Act
of 1933 (the "1933 Act"). These shares may not be sold,
transferred or otherwise disposed of unless a registration
statement with respect to the sale of such shares has been
filed under the 1933 Act and declared effective or, in the
opinion of counsel reasonably acceptable to Hometown
Bancorporation, Inc., said transfer would be exempt from
registration under the provisions of the 1933 Act and the
regulations promulgated thereunder.
4. REGISTRATION RIGHTS. Upon or after the occurrence of a Triggering
Event and upon receipt of a written request from HUBCO, HBI shall prepare and
file a registration statement with the Securities and Exchange Commission,
covering the Option and such number of Option Shares as HUBCO shall specify
in its request, and HBI shall use its best efforts to cause such registration
statement to be declared effective in order to permit the sale or other
disposition of the Option and the Option Shares, provided that HUBCO shall
in no event have the right to have more than one such registration statement
become effective.
In connection with such filing, HBI shall use its best efforts to cause
to be delivered to HUBCO such certificates, opinions, accountant's letters and
other documents as HUBCO shall reasonably request and as are customarily
provided in connection with registrations of securities under the Securities
Act of 1933, as amended. All expenses incurred by HBI in complying with the
provisions of this Section 4, including without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel for HBI
and blue sky fees and expenses shall be paid by HUBCO. Underwriting discounts
and commissions to brokers and dealers relating to the Option Shares, fees and
disbursements of counsel to HUBCO and any other expenses incurred by HUBCO in
connection with such registration shall be borne by HUBCO. In connection with
such filing, HBI shall indemnify and hold harmless HUBCO against any losses,
claims, damages or liabilities, joint or several, to which HUBCO may become
subject, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement with
respect to HBI or alleged untrue statement with respect to HBI of any material
fact contained in any preliminary or final registration statement or any
amendment or supplement thereto, or arise out of a material fact with respect
to HBI required to be stated therein or necessary to make the statements
therein with respect to
E-2
<PAGE>
HBI not misleading; and HBI will reimburse HUBCO for any legal or other
expense reasonably incurred by HUBCO in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, that
HBI will not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement of omission or alleged omission made in such
preliminary or final registration statement or such amendment or supplement
thereto in reliance upon and in conformity with written information furnished
by or on behalf of HUBCO specifically for use in the preparation thereof.
HUBCO will indemnify and hold harmless HBI to the same extent as set forth
in the immediately preceding sentence but only with reference to written
information specifically furnished by or on behalf of HUBCO for use in the
preparation of such preliminary or final registration statement or such
amendment or supplement thereto; and HUBCO will reimburse HBI for any legal
or other expense reasonably incurred by HBI in connection with investigating
or defending any such loss, claim, damage, liability or action.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any
change in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
then the number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
Subject to the last sentence of this paragraph, in the event (i) any
capital reorganization or reclassification of the Common Stock, or (ii) any
consolidation, merger or similar transaction of HBI with another entity, or
(iii) any sale of all or substantially all of the assets of HBI, shall be
effected in such a way that the holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions (in form
reasonably satisfactory to the holder hereof) shall be made whereby the
holder hereof shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified herein and in lieu of
the Common Stock immediately theretofore purchasable and receivable upon
exercise of the rights represented by this Option, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon exercise of the rights represented by this
Option had such reorganization, reclassification, consolidation, merger or
sale not taken place; provided, that if such transaction results in the
holders of Common Stock receiving only cash, the holder hereof shall be paid
the difference between the Option Price and such cash consideration without
the need to exercise the Option. Notwithstanding the foregoing, if the holder
hereof is given reasonable notice and opportunity to exercise this Option and
receive the Option Shares prior to any merger of HBI, then the holder's rights
with respect to this Option shall be limited to such right to exercise the
Option and receive the Option Shares prior to the merger and it shall not
required as a condition to the merger that provision be made to convert this
into an option to acquire the consideration payable or issuable in the merger.
6. FILINGS AND CONSENTS. Each of HUBCO and HBI will use its best
efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement.
Exercise of the Option herein provided shall be subject to compliance
with all applicable laws including, in the event HUBCO is the holder hereof,
approval of the Board of Governors of the Federal Reserve System, and HBI
agrees to cooperate with and furnish to the holder hereof such information
and documents as may be reasonably required to secure such approvals.
7. REPRESENTATIONS AND WARRANTIES OF HBI. HBI hereby represents and
warrants to HUBCO as follows:
a. DUE AUTHORIZATION. HBI has full corporate power and authority
to execute, deliver and perform this Agreement and all corporate action
necessary for execution, delivery and performance of this Agreement has been
duly taken by HBI.
b. AUTHORIZED SHARES. HBI has taken and, as long as the Option is
outstanding, will take all necessary corporate action to authorize and reserve
for issuance the Option Shares.
c. NO CONFLICTS. Neither the execution and delivery of this
Agreement nor consummation of the transactions contemplated hereby (assuming
all appropriate regulatory approvals) will violate or result in any violation
or default of or be in conflict with or constitute a default under any term
of the certificate of incorporation or by-laws of HBI or, to its knowledge,
any agreement, instrument, judgment, decree, statute, rule or order applicable
to HBI.
8. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement and that the
obligations of the parties hereto shall be specifically enforceable.
Notwithstanding the foregoing, HUBCO shall have the right to seek money
damages against HBI for a breach of this Agreement.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter hereof.
10. ASSIGNMENT OR TRANSFER. HUBCO may not sell, assign or otherwise
transfer its rights and obligations hereunder, in whole or in part, to any
person or group of persons other than to an affiliate of HUBCO. HUBCO
represents that it is
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<PAGE>
acquiring the Option for HUBCO's own account and not with a view to or for
sale in connection with any distribution of the Option. HUBCO is aware that
presently neither the Option nor the Option Shares are being offered by a
registration statement filed with, and declared effective by, the Securities
and Exchange Commission, but instead are being offered in reliance upon the
exemption from the registration requirements pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
11. AMENDMENT OF AGREEMENT. By mutual consent of the parties hereto,
this Agreement may be amended in writing at any time, for the purpose of
facilitating performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any court or for any
other purpose.
12. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given when delivered personally, by express service, cable,
telegram or telex, or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
If to HUBCO, to:
HUBCO, Inc.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: Kenneth T. Neilson, President
and Chief Executive Officer
Copy to:
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
Attn.: D. Lynn Van Borkulo-Nuzzo, Esq.
And copy to:
Pitney, Hardin, Kipp & Szuch
(Delivery) 200 Campus Drive
Florham Park, New Jersey
(Mail) P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Michael W. Zelenty, Esq.
If to HBI, to:
Hometown Bancorporation, Inc.
20 West Avenue
Darien, Connecticut 06820-0513
Attn.: Kevin E. Gage, President
and Chief Executive Officer
Copy to:
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza
New York, New York 10112
Attn.: Peter G. Smith, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey.
15. CAPTIONS. The captions in the Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect
any of the terms or provisions hereof.
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<PAGE>
16. WAIVERS AND EXTENSIONS. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (i) compliance with any of the covenants
of the other party contained in this Agreement and/or (ii) the other party's
performance of any of its obligations set forth in this Agreement.
17. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement, except
as provided in Section 10 permitting HUBCO to assign its rights and obligations
hereunder only to an affiliate of HUBCO.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
19. TERMINATION. This Agreement shall terminate upon either (i)
the termination of the Merger Agreement as provided therein or (ii) the
consummation of the transactions contemplated by the Merger Agreement;
provided, that if termination of the Merger Agreement occurs after the
occurrence of a Triggering Event, this Agreement shall not terminate until
18 months after the later of the date of the termination of the Merger
Agreement or the consummation of any proposed transactions which constitute
the Triggering Event.
20. EFFECTIVENESS AND TERMINATION FEE. Solely for the purposes of the
Connecticut Banking Laws, Section 36a-184, this Agreement shall not be
considered effective until and unless it is submitted to and approved by the
Commissioner of the Connecticut Department of Banking (the "Commissioner").
HBI shall pay Earth a termination fee of $3,000,000 (the "Termination Fee"),
forthwith on demand, in lieu of all its other rights hereunder, if each of
the following conditions are met: (a) the Option never becomes effective due
to a failure by the Commissioner to make a determination that the Option may
be exercised, after a request for approval by Earth to do so is submitted by
Earth to the Commissioner, and either the Commissioner makes a determination
that the Option may not be exercised or a period of five months elapses from
the date the request is submitted by Earth; (b) a Triggering Event has
occurred, which would allow Earth to exercise the Option; and (c) HBI is
merged or acquired by another financial institution within 18 months following
the Triggering Event. In the event that Earth is due the Termination Fee
hereunder and HBI fails to pay such Fee on demand by Earth, HBI shall in
addition reimburse Earth for the legal fees and expenses incurred by Earth
in seeking to enforce and in collecting the Termination Fee.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to resolutions
adopted by its Board of Directors, has caused this Agreement to be executed
by its duly authorized officer, all as of the day and year first above written.
HOMETOWN BANCORPORATION, INC.
By:/s/ Kevin E. Gage
---------------------------
HUBCO, INC.
By:/s/ Kenneth T. Neilson
---------------------------
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<PAGE>
ANNEX F
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
<section> 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
<section> 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by
a depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to <section> 251, 252, 254, 257, 258, 263 or 264 of
this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to vote
at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the holders of the surviving corporation as provided in
SUBSECTIONS (F) OR (G) OF <section> 251 OF THIS TITLE.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to <section><section> 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under <section> 253 of this
title is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its
certificate of incorporation that appraisal rights under this section shall
be available for the shares of any class or series of its stock as a result
of an amendment to its certificate of incorporation, any merger or
consolidation in which the corporation is a constituent corporation or the
sale of all or substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the procedures of
this section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
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(1) If a proposed merger or consolidation for
which appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall deliver to
the corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented
to the merger or consolidation of the date that the merger or consolidation
has become effective; or
(2) If the merger or consolidation was approved pursuant
to <section> 228 or 253 of this title, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that appraisal
rights are available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this section. The
notice shall be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the records of
the corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of
the merger or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement
is received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a
stockholder, service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such service file in
the office of the Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the surviving or resulting corporation.
If the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by one or
more publications at least one week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court
shall determine the stockholders who have complied with this section and
who have become entitled to appraisal rights. The Court may require the
stockholders who have demanded an appraisal for their shares and who hold
stock represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled
to an appraisal, the Court shall appraise the shares, determining their fair
value exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have
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<PAGE>
had to pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under
this section.
(i) The Court shall direct the payment of the
fair value of the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto. Interest may be
simple or compound, as the Court may direct. Payment shall be so made to each
such stockholder, in the case of holders of uncertificated stock forthwith,
and the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of Chancery
may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be
determined by the Court and taxed upon the parties as the Court deems
equitable in the circumstances. Upon application of a stockholder, the
Court may order all or a portion of the expenses incurred by any stockholder
in connection with the appraisal proceeding, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, to be
charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the
merger or consolidation, no stockholder who has demanded his appraisal rights
as provided in subsection (d) of this section shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other distributions
on the stock (except dividends or other distributions payable to stockholders
of record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal shall
be filed within the time provided in subsection (e) of this section, or if
such stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing,
no appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting
corporation to which the shares of such objecting stockholders would have
been converted had they assented to the merger or consolidation shall have
the status of authorized and unissued shares of the surviving or resulting
corporation.
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<PAGE>
HOMETOWN BANCORPORATION, INC.
20 West Avenue, Darien, Connecticut 06820-1265
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS FOR MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 20, 1996
The undersigned hereby appoints Douglas D. Milne, III, Kevin E. Gage and
Albert T. Jaroncyzk, and each of them, as proxies for the undersigned with
full powers of substitution to vote all shares of the Common Stock of
Hometown Bancorporation, Inc. which the undersigned may be entitled to vote
at the Special Meeting of Stockholders of Hometown Bancorporation, Inc. to
be held at the main office of The Bank of Darien, 20 West Avenue, Darien,
Connecticut at 4:00 p.m. on August 20, 1996 or any adjournment thereof as
follows:
(TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
1. Proposal to approve the Amended and Restated Agreement and Plan of
Merger, dated as of April 28, 1996 among Hometown Bancorporation, Inc., The
Bank of Darien, HUBCO, Inc., Hometown Acquisition Corporation and Hudson
United Bank pursuant to which Hometown Acquisition Corporation would merge
with and into Hometown Bancorporation, Inc. and, at HUBCO, Inc.'s option, The
Bank of Darien would merge with and into a subsidiary of HUBCO, Inc., and each
outstanding share of Common Stock of Hometown Bancorporation, Inc. (other
than shares the holders of which have exercised dissenters' rights under
the Delaware General Corporation Law) would be converted into the right to
receive $17.75 in cash.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion the proxies are authorized to vote upon such
other business as may properly come before the Special Meeting of
Stockholders or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL 1.
The undersigned acknowledges receipt of the Notice of Meeting and Proxy
Statement.
Signature
____________________________(L.S.)
Signature
____________________________(L.S.)
Dated______________________________, 1996
Please sign exactly as your name(s) appear(s) hereon. When signing as
attorney, executor, administrator, trustee, guardian or for a corporation,
please give your full title as such. If shares are owned jointly, both
owners should sign.
TO HELP OUR PREPARATIONS FOR THE MEETING, PLEASE CHECK HERE IF YOU PLAN TO
ATTEND. [ ]
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
