As filed with the Securities and Exchange Commission on January 3, 1997
Registration No. 333-___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
UNITED NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of Incorporation of Organization)
6711 22-2894827
(Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
1130 Route 22 East
Bridgewater, New Jersey 08807-0010
P.O. Box 6000
908-429-2200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Thomas C. Gregor, Chairman, President
and Chief Executive Officer
United National Bancorp
1130 Route 22 East
Bridgewater, New Jersey 08807-0010
P.O. Box 6000
908-429-2200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
RONALD H. JANIS, ESQ. PETER D. HUTCHEON, ESQ.
MICHAEL W. ZELENTY, ESQ. Norris, McLaughlin & Marcus, P.A.
Pitney, Hardin, Kipp & Szuch 721 Route 202-206
P.O. Box 1945 P.O. Box 1018
Morristown, New Jersey 07962-1945 Somerville, New Jersey 08876-1018
(201) 966-6300 (908) 722-0700
<PAGE>
Approximate date of commencement of proposed sale to the public: At the
Effective Date of the Merger, as defined in the Agreement and Plan of Merger
dated November 12, 1996 (the "Agreement"), among the Registrant, United National
Bank and Farrington Bank, attached as Appendix A to the Proxy
Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================== ====================== ====================== ====================== ======================
Proposed maximum Proposed Maximum
Title of each class of offering price per aggregate offering
securities to be Amount to be unit* price* Amount of
registered registered registration fee
======================== ====================== ====================== ====================== ======================
<S> <C> <C> <C> <C>
Common Stock, $2.50 554,753 $18.09 $10,035,481.77 $3,460.51
Par Value Shares**
======================== ====================== ====================== ====================== ======================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(f) under the Securities Act of 1933, as amended, based on the
exchange ratio of 0.7647 and the book value ($13.83) per share of Farrington
Common Stock as of November 30, 1996.
** The Registrant also registers hereby such additional shares of its common
stock as may be issuable in the Merger pursuant to the anti-dilution provisions
of the Merger Agreement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
FARRINGTON BANK
630 Georges Road
North Brunswick, New Jersey 08902
To Our Shareholders:
A Special Meeting of Shareholders (the "Meeting") of Farrington Bank
("Farrington") will be held on ___________________, 1997 at _____ a.m. at
[_________________________________________]. At the Meeting you will be asked to
approve an Agreement and Plan of Merger by and among Farrington, United National
Bancorp ("United") and United National Bank ("UNB"), pursuant to which
Farrington will be merged with and into UNB (the "Merger"). If the Merger is
approved and becomes effective, shareholders of Farrington will receive .7647
shares of Common Stock of United for each share of Farrington Common Stock held
by them, subject to adjustment, as more fully set forth in the Merger Agreement.
In the accompanying material you will find a Notice of Special Meeting
of Shareholders, a Proxy Card and a Proxy Statement-Prospectus which describes
the details of the proposed Merger, the conditions to consummation of the Merger
and information about United, UNB and Farrington.
The Board of Directors has unanimously approved the Merger Agreement
and recommends that you vote "FOR" the approval of Merger Agreement.
Whether or not you are planning to attend the Meeting, it is important
that your shares be represented. Please complete, sign and date the enclosed
Proxy Card and mail it at your earliest convenience in the return envelope
provided.
The enclosed also constitutes a Prospectus of United with respect to
the shares of United Common Stock to be issued to the shareholders of Farrington
if the Merger is consummated.
Sincerely,
JOHN E. PELLIZZARI
President and Chief Executive Officer
<PAGE>
FARRINGTON BANK
630 Georges Road
North Brunswick, New Jersey 08902
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [________________], 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Farrington Bank ("Farrington") will be held at
[____________________________________________] on [_________, ________ __], 1997
at [_________] a.m., for the purpose of considering and voting upon the
following matters:
1. A proposal to approve an Agreement and Plan of Merger,
dated as of November 12, 1996 (the "Merger Agreement"), by and among
United National Bancorp ("United"), United's national bank subsidiary,
United National Bank ("UNB"), and Farrington Bank ("Farrington"),
pursuant to which Farrington will merge into UNB (the "Merger"), and
each share of Farrington Common Stock outstanding on the effective date
of the Merger will be converted into .7647 shares of United Common
Stock, subject to adjustment, as more fully set forth in the Merger
Agreement.
2. Such other business as may properly come before the Meeting
or any adjournment thereof.
Only those shareholders of record as of the close of business on
[____________], 1997 will be entitled to notice of, and to vote at, the Meeting.
A list of such shareholders will be available at the Meeting.
Consummation of the Merger is subject to certain conditions, including
approval of the Merger Agreement by the affirmative vote at the Meeting of at
least two-thirds of the outstanding shares of Farrington Common Stock entitled
to vote, whether in person or by proxy. Your vote is important regardless of the
number of shares that you own. Whether or not you plan to attend the Meeting,
please mark, date and sign the enclosed proxy and return it as soon as possible
in the enclosed stamped envelope. You may revoke the proxy at any time prior to
its exercise.
By Order of the Board of Directors,
VINCENT J. DINO
Secretary
North Brunswick, New Jersey
[_______________], 1997
THE MERGER IS OF MAJOR IMPORTANCE TO THE SHAREHOLDERS OF FARRINGTON
BANK. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS.
<PAGE>
FARRINGTON BANK UNITED NATIONAL BANCORP
PROXY STATEMENT PROSPECTUS
for the Special Meeting of for the Common Stock of United National
Shareholders of Farrington Bancorp to be issued in connection with the
Bank to be held on Merger of Farrington Bank
[____________________], 1997 with and into United National Bank
----------------------------------------------
This Proxy Statement-Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Farrington Bank
("Farrington") to be used at a special meeting of its shareholders (the
"Meeting") to be held on [_______________], 1997 and any adjournments or
postponements thereof. The purpose of the Meeting is to consider and vote upon
an Agreement and Plan of Merger dated as of November 12, 1996 (the "Merger
Agreement"), by and among Farrington, United National Bancorp ("United"), and
United's national bank subsidiary, United National Bank ("UNB"). A copy of the
Merger Agreement is attached as Appendix A to this Proxy Statement-Prospectus.
In accordance with the terms of the Merger Agreement, upon approval of
the Merger Agreement by the shareholders of Farrington, receipt of all requisite
regulatory approvals and satisfaction or waiver of all conditions, Farrington
will merge with and into UNB (the "Merger"). Upon consummation of the Merger,
each share of common stock of Farrington, $5.00 par value per share ("Farrington
Common Stock"), issued and outstanding immediately prior to the effective time
of the Merger (except for fractional shares), will be converted into .7647
shares (the "Exchange Ratio") of common stock of United, $2.50 par value per
share ("United Common Stock"), subject to certain adjustments more fully
described in this Proxy Statement-Prospectus.
United has filed a Registration Statement pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering the shares of United
Common Stock which will be issued in connection with the Merger. In addition to
constituting the Farrington Proxy Statement for the Meeting, this document
constitutes a Prospectus of United with respect to the United Common Stock to be
issued if the Merger is consummated.
Farrington stock certificates should not be returned to Farrington with
the enclosed proxy and should not be forwarded until after receipt of a letter
of transmittal which will be provided to Farrington shareholders upon
consummation of the Merger.
THE SHARES OF UNITED COMMON STOCK DESCRIBED IN THE ATTACHED PROXY
STATEMENT-PROSPECTUS ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO SELL, TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS AT ANY TIME, NOR ANY
DISTRIBUTION OF SHARES OF UNITED COMMON STOCK, SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
The date of this Proxy Statement-Prospectus is [_______________], 1997.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION.......................................................4
INFORMATION INCORPORATED BY REFERENCE.......................................5
SUMMARY.....................................................................6
THE MEETING.................................................................6
THE COMPANIES...............................................................7
THE MERGER..................................................................7
SELECTED FINANCIAL DATA OF UNITED..........................................12
SELECTED FINANCIAL DATA OF FARRINGTON......................................14
COMPARATIVE PER SHARE DATA.................................................15
SUMMARY PRO FORMA FINANCIAL INFORMATION....................................17
INTRODUCTORY STATEMENT.....................................................18
CERTAIN INFORMATION REGARDING UNITED.......................................18
GENERAL....................................................................18
UNITED NATIONAL BANK.......................................................18
CERTAIN INFORMATION REGARDING FARRINGTON...................................19
GENERAL....................................................................19
THE MEETING................................................................19
GENERAL....................................................................19
PURPOSE OF THE MEETING.....................................................19
VOTE REQUIRED; SHARES ENTITLED TO VOTE.....................................20
SOLICITATION, VOTING AND REVOCATION OF PROXIES.............................20
THE PROPOSED MERGER........................................................20
GENERAL DESCRIPTION........................................................21
CONSIDERATION..............................................................21
EXCHANGE OF CERTIFICATES...................................................21
CONVERSION OF STOCK OPTIONS................................................22
BACKGROUND AND REASONS FOR THE MERGER......................................22
OPINION OF FARRINGTON'S FINANCIAL ADVISOR..................................23
EFFECTIVE TIME; CONDITIONS TO CONSUMMATION OF THE MERGER...................27
REGULATORY APPROVALS.......................................................27
TERMINATION OF THE MERGER AGREEMENT........................................28
AMENDMENT OF THE MERGER AGREEMENT..........................................28
ACCOUNTING TREATMENT OF THE MERGER.........................................28
FEDERAL INCOME TAX CONSEQUENCES............................................28
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................................29
RESALE CONSIDERATIONS WITH RESPECT TO THE UNITED COMMON STOCK..............29
BUSINESS PENDING CONSUMMATION OF THE MERGER................................30
MANAGEMENT AND OPERATIONS AFTER THE MERGER.................................31
STOCK OPTION FOR SHARES OF FARRINGTON COMMON STOCK.........................31
PRO FORMA COMBINED FINANCIAL INFORMATION...................................33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF FARRINGTON........................................41
<PAGE>
BUSINESS OF FARRINGTON.....................................................42
SUPERVISION AND REGULATION OF FARRINGTON...................................42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............................44
CERTAIN TRANSACTIONS OF FARRINGTON.........................................45
DESCRIPTION OF UNITED COMMON STOCK.........................................46
GENERAL....................................................................46
DIVIDEND RIGHTS............................................................46
VOTING RIGHTS..............................................................46
LIQUIDATION RIGHTS.........................................................47
ASSESSMENT AND REDEMPTION..................................................47
OTHER MATTERS..............................................................47
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF UNITED AND FARRINGTON..........48
VOTING REQUIREMENTS........................................................43
CLASSIFIED BOARD OF DIRECTORS..............................................48
RIGHTS OF DISSENTING SHAREHOLDERS..........................................48
SHAREHOLDER CONSENT TO CORPORATE ACTION....................................44
DIVIDENDS..................................................................45
BY-LAWS....................................................................45
PREEMPTIVE RIGHTS..........................................................43
SHAREHOLDER PROTECTION LEGISLATION.........................................48
PREFERRED STOCK............................................................48
LEGAL OPINION..............................................................50
EXPERTS....................................................................51
APPENDIX A - MERGER AGREEMENT..............................................A-1
APPENDIX B - STOCK OPTION AGREEMENT........................................B-1
APPENDIX C - FAIRNESS OPINION OF FINPRO, INC...............................C-1
APPENDIX D - SUBSECTIONS (b), (c) AND (d) OF SECTION 215a OF TITLE 12
OF THE U.S. CODE, "MERGER OF NATIONAL BANKS OR STATE BANKS
INTO NATIONAL BANKS"..........................................D-1
<PAGE>
AVAILABLE INFORMATION
United is subject to the information requirements of the Securities
Exchange Act of 1934, as amended and the rules and regulations thereunder (the
"Exchange Act") and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission (such as
United). The address of the Commission's web site is http://www.sec.gov. In
addition, United Common Stock is listed on The Nasdaq Stock Market, and reports,
proxy statements and other information relating to United may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
United has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act (together with all amendments and supplements
thereto, the "Registration Statement"), with respect to the shares of United
Common Stock to be issued upon consummation of the Merger. This Proxy
Statement-Prospectus does not contain all of the information set forth in the
Registration Statement and exhibits thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Copies of
the Registration Statement are available for inspection and copying as set forth
above. Statements contained in this Proxy Statement-Prospectus or in any
document incorporated by reference in this Proxy Statement-Prospectus relating
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF SUCH DOCUMENTS
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) IS AVAILABLE WITHOUT CHARGE TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT-PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: RALPH L.
STRAW, JR., CORPORATE SECRETARY, UNITED NATIONAL BANCORP, 1130 ROUTE 22 EAST,
P.O. BOX 6000, BRIDGEWATER, NEW JERSEY 08807; TELEPHONE NUMBER (908) 429-2200.
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE
MADE BY ______________, 1997.
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by United with the Commission (Company
File No. 000-16931) are hereby incorporated by reference in this Proxy
Statement-Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1995.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1996.
3. Current Report on Form 8-K filed with the Commission on November 22,
1996.
4. The description of United Common Stock set forth in United's
Registration Statement on Form 8-A filed by United pursuant to Section
12 of the Exchange Act, and any amendment or report filed for the
purpose of updating such description.
All documents filed by United pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement-Prospectus and prior to the Meeting shall be deemed incorporated by
reference into this Proxy Statement-Prospectus and a part hereof from the date
of filing of such documents.
All information contained or incorporated by reference in this Proxy
Statement-Prospectus with respect to United and UNB was supplied by United and
all information contained in this Proxy Statement-Prospectus with respect to
Farrington was supplied by Farrington. Although neither United nor Farrington
have any knowledge that would indicate that any statements or information
relating to the other party contained or incorporated herein are inaccurate or
incomplete, neither United nor Farrington can warrant the accuracy or
completeness of such information or statements as they relate to the other
entity or its subsidiaries.
Any statement contained herein, in any supplement hereto or in a
document incorporated by reference or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement-Prospectus to the extent that a statement contained herein, in any
supplement hereto or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement-Prospectus or any supplement hereto.
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement-Prospectus. This summary is necessarily
incomplete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement-Prospectus, including the Appendixes
hereto and the documents incorporated by reference herein. A copy of the Merger
Agreement is set forth as Appendix A to this Proxy Statement-Prospectus.
Farrington shareholders are urged to read carefully the entire Proxy
Statement-Prospectus, including the Appendixes.
The Meeting
Date, Time and Place of
Meeting..................... The special meeting of shareholders (the
"Meeting") of Farrington Bank ("Farrington") will
be held on [_____________], [_____________], 1997,
[______] a.m. at
[_____________________________________________].
Record Date................. [____________________], 1997
Shares Entitled to Vote..... [________] shares of common stock, $5.00 par value
per share, of Farrington ("Farrington Common
Stock") were outstanding on the Record Date and
are entitled to vote at the Meeting.
Purpose of Meeting.......... To consider and vote upon an Agreement and Plan of
Merger dated as of November 12, 1996 (the "Merger
Agreement"), by and among United National Bancorp
("United"), United's national bank subsidiary,
United National Bank ("UNB") and Farrington.
Vote Required............... The affirmative vote, in person or by proxy, of at
least two-thirds of the outstanding shares of
Farrington Common Stock is required to approve the
Merger Agreement. In connection with the execution
of the Merger Agreement, all the directors of
Farrington agreed to vote in favor of the Merger
Agreement all shares of Farrington Common Stock
which they hold, or over which they exercise
voting control. As of November 30, 1996, such
persons held or had voting control (excluding
options) of approximately 44% of the issued and
outstanding shares of Farrington Common Stock.
Recommendation of the
Farrington Board of
Directors................... The Farrington Board of Directors has unanimously
approved the Merger Agreement and unanimously
recommends that holders of Farrington Common Stock
vote "FOR" approval of the Merger Agreement.
<PAGE>
The Companies
United.................... United is a bank holding company organized under
the laws of the State of New Jersey and registered
under the Bank Holding Company Act of 1956, as
amended (the "Bank Holding Company Act"). United
has one banking subsidiary, UNB, which operates 18
branches located in central New Jersey. UNB is a
member of the Federal Reserve System and its
deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). At September
30, 1996, United had consolidated assets of
approximately $1 billion. United's principal
executive offices are located at 1130 Route 22
East, Bridgewater, New Jersey 08807, and its
telephone number is (908) 429-2200. See "Certain
Information Regarding United," "Available
Information" and "Information Incorporated by
Reference."
Farrington.................. Farrington is a bank organized under the laws of
the State of New Jersey. Farrington presently
operates from a single banking facility in North
Brunswick, New Jersey. At September 30, 1996,
Farrington had total assets of $63.6 million.
Farrington's principal executive offices are
located at 630 Georges Road, North Brunswick, New
Jersey 08902 and its telephone number is (908)
247-8200. See "Certain Information Regarding
Farrington" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations of Farrington;" "Business of
Farrington;" Supervision and Regulation of
Farrington;" "Security Ownership of Certain
Beneficial Owners and Management of Farrington;"
and "Certain Transactions of Farrington."
The Merger
General Description of the
Merger; Effective Time.... In accordance with the terms of the Merger
Agreement, upon approval of the Merger Agreement
by the shareholders of Farrington, receipt of all
requisite regulatory approvals and satisfaction or
waiver of all other conditions, Farrington will
merge with and into UNB (the "Merger"), with UNB
as the surviving entity. The Merger will become
effective on the date and at the time (the
"Effective Time") specified in a notice to the
Office of the Comptroller of the Currency (the
"OCC") filed by UNB, with the approval of
Farrington. A closing under the Merger Agreement
(the "Closing") will occur on a day mutually
agreed to by United and Farrington within thirty
(30) days following the receipt of all necessary
regulatory and governmental approvals and consents
and satisfaction or waiver of all other conditions
to closing (other than the delivery of documents
to be delivered at the Closing), or on such other
date as UNB and Farrington agree upon. See "The
Proposed Merger -- General Description" and the
full text of the Merger Agreement, which is
attached as Appendix A to this Proxy
Statement-Prospectus.
Consideration............... Upon consummation of the Merger, each share of
Farrington Common Stock issued and outstanding
immediately prior to the Effective Time (except
for fractional shares) will be converted into
.7647 shares (the "Exchange Ratio") of common
stock of United, $2.50 par value per share
("United Common Stock"). The Exchange Ratio is
subject to adjustment to take into account any
stock split, stock dividend, stock combination,
reclassification, or similar transaction by United
with respect to the United Common Stock and the
Exchange Ratio may also be adjusted, at United's
option, if the Average Closing Price (as
hereinafter defined) is less than $28.50. In lieu
of receiving fractional shares of United Common
Stock, Farrington shareholders will be entitled to
receive, without interest, a cash payment equal to
the value of any fractional share interest to
which they would otherwise be entitled. The value
of such fractional share interest will be
determined by the "Average Closing Price" of
United Common Stock, defined as the average of the
closing prices of United Common Stock as supplied
by the National Association of Securities Dealers
Automated Quotation National Market System
("NASDAQ/NMS") and published in the Wall Street
Journal during the first 20 of the 25 consecutive
trading days immediately preceding the Effective
Time. The Average Closing Price is subject to
adjustment to take into account any stock split,
stock dividend, stock combination,
reclassification, or similar transaction by United
with respect to United Common Stock. See "The
Proposed Merger -- Consideration; -- Termination
of the Merger Agreement."
Conversion of Stock
Options................... At the Effective Time, each outstanding option to
purchase Farrington Common Stock (a "Farrington
Option") granted under the stock option plans of
Farrington and held by non-employee directors of
Farrington, automatically will be converted into a
number of whole shares of United Common Stock
equal to (A) the excess of (x) the product
obtained by multiplying (i) the number of shares
of Farrington Common Stock covered by the
Farrington Option, times (ii) the Exchange Ratio,
times (iii) the Average Closing Price of United
Common Stock, less (y) the aggregate exercise
price for the Farrington Option divided by (B) the
Average Closing Price. Under the terms of the
Merger Agreement, John E. Pellizzari, President
and Chief Executive Officer of Farrington, can
elect to have his Farrington Options that are
outstanding at the Effective Time converted into
either United Common Stock or an option to
purchase United Common Stock. However, Farrington
has been advised that Mr. Pellizzari expects to
exercise his Farrington Options prior to the
Effective Time. See "The Proposed Merger --
Conversion of Stock Options."
Certain Federal Income
Tax Consequences.......... Consummation of the Merger is conditioned upon the
receipt of an opinion of Pitney, Hardin, Kipp &
Szuch, counsel to United, to the effect that the
Merger will constitute a tax-free reorganization
as defined in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). For
information regarding certain federal income tax
matters, see "The Proposed Merger -- Federal
Income Tax Consequences."
Farrington shareholders are urged to consult their
own tax advisors as to the specific tax
consequences to them of the Merger under
applicable tax laws.
Dissenters Rights........... Pursuant to the provisions of Section 215a of
Title 12 of the United States Code ("Section
215a") and Section 148 of the New Jersey Banking
Act of 1948, as amended (the "Banking Act"), any
shareholder of Farrington has the right to dissent
from the Merger by voting against the Merger at
the Meeting or by giving notice in writing at or
prior to the Meeting to the presiding officer of
Farrington that he dissents from the Merger and
does not thereafter vote in favor of the Merger.
If the Merger is consummated, each dissenting
Farrington shareholder who fully complies with the
requirements of Section 215a will be entitled to
receive from United a cash payment equal to the
value of his Farrington shares as of the Effective
Time. Section 215a provides that the value of the
shares of any dissenting shareholder shall be
ascertained, as of the Effective Time, by an
appraisal made by a three person committee. Any
dissenting shareholder may appeal this appraisal
to the OCC. The value of the shares ascertained is
required to be paid by United promptly to
dissenting shareholders. Shares represented by
Farrington proxies that are returned signed but
unmarked as to voting instructions will be voted
in favor of the Merger, and therefore shareholders
of such shares will have waived their rights to
dissent. See "Rights Of Dissenting Farrington
Shareholders" and Appendix D to this Proxy
Statement, which set forth the steps to be taken
by a Farrington shareholder who wishes to exercise
the right to dissent.
Opinion of Farrington's
Financial Advisor........... The Board of Directors of Farrington retained
Finpro Financial Services ("Finpro") to evaluate
the terms of the Merger. Finpro has delivered
written opinions dated November 12, 1996 and
[_________] 1997 to the Board of Directors of
Farrington to the effect that the consideration to
be received by the Farrington shareholders
pursuant to the Merger Agreement is, as of the
date of such opinions, fair to such shareholders
from a financial point of view. For information
concerning the matters reviewed, assumptions made
and factors considered by Finpro, see "The
Proposed Merger -- Opinion of Farrington's
Financial Advisor" and Appendix C to this Proxy
Statement-Prospectus, which sets forth Finpro's
fairness opinion in its entirety.
Conditions to the Merger.... Consummation of the Merger is contingent upon a
number of conditions, including receiving all
necessary regulatory approvals; the approval of
the Merger by the requisite vote of the
shareholders of Farrington Common Stock; an
opinion of Pitney, Hardin, Kipp & Szuch, counsel
to United, to the effect that the Merger will
result in a tax free reorganization; the Merger
qualifying for pooling-of-interests accounting
treatment; and an opinion of Finpro, advisor to
Farrington, that the Merger is fair to the
shareholders of Farrington from a financial point
of view. Finpro's opinion is included in its
entirety as Appendix C. See "The Proposed Merger
-- Opinion of Farrington's Financial Advisor; --
Conditions to the Merger."
Regulatory Approvals........ Consummation of the Merger requires the approval
of the OCC. OCC approval does not constitute an
endorsement of the Merger or a determination by
the OCC that the terms of the Merger are fair to
the shareholders of Farrington. An application for
OCC approval was filed on December 24, 1996. Also
on December 24, 1996, United submitted a request
to the Federal Reserve Board seeking a waiver of
the requirement for approval of the Merger under
Regulation Y promulgated under the Bank Holding
Company Act. While United and Farrington
anticipate receiving such approval and waiver,
there can be no assurance that they will be
granted, or that they will be granted on a timely
basis without conditions unacceptable to United or
Farrington. See "The Proposed Merger -- Regulatory
Approvals."
Termination Rights.......... The Merger Agreement may be terminated by
Farrington if the Average Closing Price of United
Common Stock is less than $28.50, unless United
unilaterally agrees to increase the Exchange Ratio
so that the value (measured by the Average Closing
Price) of the shares of United Common Stock into
which one share of Farrington Common Stock is to
be converted in the Merger, based on the new
Exchange Ratio, is at least as high as the value
would have been if the Exchange Ratio were
unchanged and the Average Closing Price were
$28.50. The Merger Agreement may be terminated by
either Farrington or United if the Effective Time
has not occurred by August 1, 1997. For a more
complete description of these and other
termination rights available to Farrington and
United, see "The Proposed Merger -- Termination of
the Merger Agreement."
Amendment of the Merger
Agreement................... The terms of the Merger Agreement may be amended,
modified or supplemented by the written consent of
United and Farrington at any time prior to the
Effective Time. However, following Farrington
shareholder approval of the Merger Agreement,
Farrington shareholders must approve any amendment
reducing or changing the amount or form of
consideration to be received by them in the
Merger. See "The Proposed Merger -- Amendment of
the Merger Agreement."
Accounting Treatment of the
Merger...................... The Merger is expected to be accounted for as a
pooling of interests for financial reporting
purposes. Under the pooling-of-interests method of
accounting, Farrington's historical basis of
assets, liabilities and shareholders' equity will
be retained by United as the surviving entity. See
"Pro Forma Combined Financial Information" and
"The Proposed Merger -- Accounting Treatment of
the Merger."
Stock Option to United for
Farrington Shares........... In connection with the negotiation by United and
Farrington of the Merger Agreement, United and
Farrington entered into a Stock Option Agreement
(the "Stock Option Agreement") dated November 12,
1996. Pursuant to the Stock Option Agreement,
Farrington granted United an option (the
"Option"), exercisable only under certain limited
and specifically defined circumstances, to
purchase up to 133,000 authorized but unissued
shares of Farrington Common Stock, representing
approximately 16.7% of the shares of Farrington
Common Stock which would be outstanding
immediately following the exercise of the Option,
for an exercise price of $14.00 per share. United
does not have any voting rights with respect to
the shares of Farrington Common Stock subject to
the Option prior to exercise of the Option. A copy
of the Stock Option Agreement is attached as
Appendix B to this Proxy Statement-Prospectus.
In the event that certain Triggering Events
specifically enumerated in the Stock Option
Agreement occur and the Merger is not consummated,
United would recognize a gain on the sale of the
shares of Farrington Common Stock received
pursuant to the exercise of the Option if such
shares of Farrington Common Stock were sold at
prices exceeding $14.00 per share. The ability of
United to exercise the Option and to cause up to
an additional 133,000 shares of Farrington Common
Stock to be issued may be considered a deterrent
to other potential acquirors of control of
Farrington, as it is likely to increase the cost
of an acquisition of all of the shares of
Farrington Common Stock which would then be
outstanding. The exercise of the Option by United
may also make pooling-of-interests accounting
treatment unavailable to a subsequent acquiror.
See "The Proposed Merger -- Stock Option for
Shares of Farrington Common Stock."
Interests of Certain
Persons in the Merger....... The Merger Agreement provides that, in
cancellation of John E. Pellizzari's employment
agreement with Farrington and as a full release of
all other severance payments due him from
Farrington, within 30 days of the Effective Time,
United will pay Mr. Pellizzari, the President and
Chief Executive Officer of Farrington, an amount
equal to 2.99 times his annual average cash
compensation for the past five calendar years.
As of November 30, 1996, the directors and
executive officers of Farrington and their
affiliates beneficially owned in the aggregate
(excluding options) approximately 44% of the
issued and outstanding shares of Farrington Common
Stock. The directors of Farrington have indicated
their intention to vote in favor of the Merger
Agreement. See "Security Ownership of Certain
Beneficial Owners and Management of Farrington."
Resale Considerations with
Respect to United Common
Stock....................... The shares of United Common Stock to be issued in
the Merger will be registered under the Securities
Act of 1933, as amended (the "Securities Act"),
and will be freely transferable, except for shares
received by persons, including directors and
executive officers of Farrington, who may be
deemed to be "affiliates" of Farrington under Rule
145 promulgated under the Securities Act. See "The
Proposed Merger -- Resale Considerations with
Respect to the United Common Stock."
Differences in
Shareholders' Rights....... Farrington is a New Jersey bank incorporated under
the Banking Act and United is a business
corporation incorporated under the New Jersey
Business Corporation Act ("NJBCA"). The rights of
Farrington shareholders are currently governed by
the Banking Act. At the Effective Time, each
Farrington shareholder will become a shareholder
of United and the rights of United shareholders
are governed by the NJBCA. The Banking Act and the
NJBCA, and the rights of shareholders thereunder,
differ with respect to voting requirements and
various other matters. In addition, the New Jersey
Shareholders Protection Act, which is part of the
NJBCA and has no counterpart in the Banking Act,
prohibits certain transactions involving an
"interested shareholder" and a "resident domestic
corporation." See "Comparison of the Rights of
Shareholders of United and Farrington."
<PAGE>
SELECTED FINANCIAL DATA OF UNITED
The following table sets forth certain selected historical consolidated
financial data for United. This data is derived from, and should be read in
conjunction with, the consolidated financial statements of United, including the
notes thereto, incorporated by reference herein. See "Information Incorporated
by Reference." The data for the years ended December 31, 1995 through December
31, 1991 are derived from United's consolidated financial statements, which have
been audited. Interim unaudited data for the nine months ended September 30,
1996 and 1995 reflect, in the opinion of the management of United, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the nine months ended September 30, 1996
are not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole.
<PAGE>
<TABLE>
<CAPTION>
For Nine Months Ended September 30, For Years Ended December 31,
---------------------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in thousands, except for per share amounts)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 54,530 $ 53,550 $ 71,994 $ 59,754 $ 59,539 $ 61,333 $ 62,656
Interest expense 21,402 21,285 29,128 17,979 18,959 24,791 32,791
---------- ---------- ----------- ---------- ---------- ---------- -----------
Net interest income 33,128 32,265 42,866 41,775 40,580 36,542 29,865
Provision for possible loan losses 1,625 450 450 1,590 4,287 4,138 7,548
---------- ---------- ----------- ---------- ---------- ---------- -----------
Net interest income after provision
for possible loan losses 31,503 31,815 42,416 40,185 36,293 32,404 22,317
Non-interest income 10,545 9,169 12,329 11,863 12,845 10,689 14,740
Non-interest expense 29,418 31,695 42,748 37,621 37,482 33,590 31,880
---------- ---------- ----------- ---------- ---------- ---------- -----------
Income before taxes, effect of
accounting change and
extraordinary item 12,630 9,289 11,997 14,427 11,656 9,503 5,177
Provision for income taxes 4,313 2,813 3,623 4,607 3,975 3,123 1,289
---------- ---------- ----------- ---------- ---------- ---------- -----------
Income before effect of accounting
change and extraordinary item 8,317 6,476 8,374 9,820 7,681 6,380 3,888
Cumulative effect of change in
accounting for income taxes - - - - 973 - -
Extraordinary item - utilization of net
operating loss carry forward - - - - - 275 40
---------- ---------- ----------- ---------- ---------- ---------- -----------
Net income $ 8,317 $ 6,476 $ 8,374 $ 9,820 $ 8,654 $ 6,655 $ 3,928
========== ========= =========== ========== ========== ========== ===========
Income before merger and
restructuring charges, effect of
accounting change and
extraordinary item $ 8,317 $ 7,572 $ 10,463 $ 9,820 $ 7,681 $ 6,380 $ 3,888
========== ========== =========== ========== ========== ========== ===========
PER COMMON SHARE DATA: (1)
Net income $ 2.19 $ 1.69 $ 2.19 $ 2.62 $ 2.33 $ 1.80 $ 1.06
Income before merger and 2.19 1.98 2.74 2.62 2.07 1.73 1.05
restructuring charges, effect of
accounting change and
extraordinary item
Book value 22.00 20.75 21.42 17.69 18.00 16.46 15.24
Cash dividends declared(2) 0.76 0.72 0.97 0.89 0.78 0.71 0.70
ADJUSTED FINANCIAL RATIOS:(3)
Return on average assets 1.11 % 1.05 % 1.08 % 1.15 % 0.93 % 0.81 % 0.53 %
Return on average stockholders'
equity 13.28 % 13.80 % 13.93 % 14.20 % 11.94 % 10.95 % 7.04 %
FINANCIAL RATIOS:
Return on average assets 1.11 % 0.90 % 0.86 % 1.15 % 1.04 % 0.85 % 0.54 %
Return on average stockholders'
equity 13.28 % 11.80 % 11.15 % 14.20 % 13.46 % 11.42 % 7.12 %
STATEMENT OF CONDITION DATA:
Total assets $ 1,012,391 $1,001,684 $ 1,010,545 $ 884,541 $859,368 $822,959 $ 768,986
Securities held to maturity 62,441 119,406 24,838 96,354 194,528 394,045 328,711
Securities available for sale 285,022 264,230 334,156 223,976 210,131 - -
Trading account securities 423 551 417 321 296 - -
Federal funds sold 2,500 1,000 7,000 11,545 8,270 17,775 24,135
Loans (net of unearned income) 567,403 527,981 551,222 481,439 376,792 341,014 345,052
Allowance for possible loan losses 7,464 7,929 7,412 9,597 10,812 9,239 8,379
Deposits 846,433 856,817 854,628 757,884 758,508 740,123 678,810
Short-term borrowings(4) 61,184 46,491 53,347 52,301 26,681 12,629 23,233
Other borrowings(5) 9,689 9,677 9,680 1,269 1,266 1,263 1,260
Stockholders' equity 83,823 79,525 81,399 65,802 66,727 60,742 56,256
</TABLE>
- -------------------
(1) The per share data has been restated to give retroactive effect to stock
dividends.
(2) Does not include the effect of dividends paid by New Era Bank in 1993.
(3) Before merger and restructuring charges, effect of accounting change and
extraordinary item.
(4) Includes Federal funds purchased, securities sold under agreements to
repurchase, Federal Home Loan Bank advances and demand notes - U.S.
Treasury.
(5) Includes obligation under capital lease and long-term debt.
<PAGE>
SELECTED FINANCIAL DATA OF FARRINGTON
The following table sets forth certain selected historical consolidated
financial data for Farrington. This data is derived from, and should be read in
conjunction with, the consolidated financial statements of Farrington, including
the notes thereto, included elsewhere herein. The data for the years ended
December 31, 1995 through December 31, 1992 are derived from Farrington's
consolidated financial statements, which have been audited by KPMG Peat Marwick,
LLP. The data for the year ended December 31, 1991 is derived from Farrington's
consolidated financial statements, which have been audited by Arthur Andersen
LLP. Interim unaudited data for the nine months ended September 30, 1996 and
1995 reflect, in the opinion of the management of Farrington, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of such data. Results for the nine months ended September 30, 1996 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
<TABLE>
<CAPTION>
For Nine Months Ended September 30, For Years Ended December 31,
----------------------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in thousands, except for per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 4,235 $ 4,174 $ 5,559 $ 5,630 $ 4,847 $ 4,136 $ 2,997
Interest expense 957 711 976 934 1,103 1,488 1,810
------------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 3,278 3,463 4,583 4,696 3,744 2,648 1,187
Provision for loan losses 228 338 422 533 952 1,798 355
------------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 3,050 3,125 4,161 4,163 2,792 850 832
Other income 1,725 1,782 2,324 2,558 3,467 2,140 886
Other expense 3,189 3,767 4,681 5,012 4,629 3,102 1,399
------------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income tax
expense (benefit), extraordinary
items and cumulative effect of
accounting change 1,586 1,140 1,804 1,709 1,630 (112) 319
Income tax expense (benefit) 619 388 672 657 678 (13) 155
------------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary items
and cumulative effect of
accounting change 967 752 1,132 1,052 952 (99) 164
Extraordinary item - - - - - - 80
Cumulative effect of
accounting change - - - - 86 - -
------------ ----------- ---------- ---------- ---------- ---------- -----------
Net income (loss) $ 967 $ 752 $ 1,132 $ 1,052 $ 1,038 $ (99) $ 244
============= ========== ========== ========== ========== ========== ==========
PER COMMON SHARE (1):
Income (loss) before
extraordinary item
and cumulative effect of
accounting change $ 1.45 $ 1.13 $ 1.70 $ 1.58 $ 1.43 $(0.15) $ 0.24
Extraordinary item - - - - - - 0.12
Cumulative effect of
accounting change - - - - 0.13 - -
Net income (loss) 1.45 1.13 1.70 1.58 1.56 (0.15) 0.36
Book value 13.50 11.59 12.23 10.36 8.88 7.31 7.46
Dividends - - - - - - -
RATIOS:
Return on Average Assets 2.04 % 1.67 % 1.89 % 1.64 % 1.73 % (0.17) % 0.53 %
Return on Average Equity 15.04 % 13.87 % 15.26 % 16.36 % 18.63 % (1.92) % 4.79 %
FINANCIAL CONDITION DATA:
Securities held
to maturity $ 7,144 $ 10,111 $ 5,146 $ 9,968 $ 23,368 $ 13,762 $ 12,609
Securities
available for sale 16,897 10,064 19,173 13,303 - - -
Loans (net of unearned
income) 30,428 31,291 31,332 38,212 38,259 32,584 26,900
Allowance for loan losses 803 855 885 1,171 1,138 656 286
Deposits 53,625 49,029 51,336 57,984 57,619 46,774 40,728
Shareholders' equity 8,980 7,712 8,138 6,892 5,906 4,867 4,966
- -------------------
(1) Per share data has been restated to give retroactive effect to stock dividends.
</TABLE>
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth the earnings per share, period-end book
value per share and cash dividends per share of United Common Stock and
Farrington Common Stock for the nine months ended September 30, 1996 and for
each of the years in the three-year period ended December 31, 1995, on an
historical and pro forma basis, as well as pro forma equivalent per share data
for Farrington. The historical per share data have been derived from the
financial statements of United and Farrington which are contained herein or
incorporated by reference herein. The pro forma combined share data have been
derived after giving effect to the Merger as if it occurred at the beginning of
the period presented using the pooling-of-interest method of accounting.
The historical per share data for United and Farrington has been
restated to retroactively reflect the effect of stock dividends. See "Pro Forma
Combined Financial Information;" "Selected Financial Data of United" and
"Selected Financial Data of Farrington."
<TABLE>
<CAPTION>
Pro Forma
Equivalent per
Historical Historical Pro Forma Farrington
United Farrington Combined Share(1)
Nine Months Ended
September 30, 1996
<S> <C> <C> <C> <C>
Earnings Per Share $ 2.19 $ 1.45 $ 2.14 $ 1.64
Book Value Per Share 22.00 13.50 21.33 16.31
Cash Dividends Per Share (2) .76 -- .76 .58
Year Ended December 31, 1995
Earnings Per Share $ 2.19 $ 1.70 $ 2.20 $ 1.68
Book Value Per Share 21.42 12.23 20.78 15.89
Cash Dividends Per Share (2) .97 -- .97 .74
Year Ended December 31, 1994
Earnings Per Share $ 2.62 $ 1.58 $ 2.56 $ 1.96
Book Value Per Share 17.69 10.36 17.19 13.14
Cash Dividends Per Share (2) .89 -- .89 .68
Year Ended December 31, 1993
Earnings Per Share $ 2.33 $ 1.56 $ 2.30 $ 1.76
Book Value Per Share 18.00 8.88 17.23 13.18
Cash Dividends Per Share (2) .78 -- .78 .60
- -------------------------------
</TABLE>
(1) Farrington pro forma equivalent per share data is computed by
multiplying the pro forma combined per share data (giving effect to the
Merger) by the Exchange Ratio of .7647.
(2) The amount of future dividends payable by United, if any, is subject to
the discretion of United's Board of Directors. The Directors normally
consider United's and UNB's cash needs, general business conditions,
dividends from subsidiaries and applicable governmental regulations and
policies. Pro forma amounts assume that United would have declared cash
dividends per share on United Common Stock equal to its historical cash
dividends per share on United Common Stock declared.
The first table below presents, for the periods indicated, the high and
low closing prices per share of United Common Stock and the high and low bid
price per share of Farrington Common Stock. The second table below presents
information concerning the last sale price of United Common Stock and the last
bid price of Farrington Common Stock on November 12, 1996 (the last business day
preceding the announcement of the Merger Agreement), and the last sale price of
United Common Stock and the last bid price of Farrington Common Stock on January
___, 1997, a date shortly prior to the date of this Proxy Statement-Prospectus.
The tables also present the equivalent value of United Common Stock per
Farrington share which has been calculated by multiplying the closing sale price
of United Common Stock for the periods or on the dates indicated by the Exchange
Ratio of .7647. United Common Stock is traded on the NASDAQ/NMS. Farrington
Common Stock is not listed for trading on any securities exchange or any
automated dealer quotation system. There is no established public trading market
for Farrington Common Stock and its trading has been extremely limited. The bid
quotations for Farrington Common Stock listed below have been obtained from Ryan
Beck & Co. These bid prices represent interdealer quotations, without mark-up,
mark-down or commission and, to Farrington's knowledge, do not reflect actual
transactions. Farrington shareholders are urged to obtain current market
quotations for United Common Stock. Because the Exchange Ratio is fixed,
Farrington shareholders are not assured of receiving any specific market value
of United Common Stock. The price of United Common Stock at the Effective Time
may be higher or lower than the sale price at the time of entering into the
Merger Agreement, the time of mailing this Proxy Statement-Prospectus or at the
time of the Meeting.
The historical per share price for United and Farrington has been
restated to retroactively reflect the effect of stock dividends.
<TABLE>
<CAPTION>
Equivalent
Closing Sale Closing Bid Value of United
Price Per Share Price Per Share Common Stock Per
of United of Farrington Share of Farrington
Common Stock Common Stock Common Stock
High Low High Low High Low
1994:
<S> <C> <C> <C> <C> <C> <C>
First Quarter................ $ 27.50 $ 25.82 $ 10.00 $ 9.00 $ 21.02 $ 19.74
Second Quarter............... 29.59 25.82 10.00 9.00 22.62 19.74
Third Quarter................ 30.64 27.71 10.00 9.00 23.43 21.18
Fourth Quarter............... 32.71 29.15 10.00 9.00 25.01 22.29
1995:
First Quarter................ 30.04 28.48 10.75 10.00 22.97 21.77
Second Quarter............... 29.37 27.81 10.75 10.00 22.45 21.26
Third Quarter................ 34.49 28.25 10.75 10.00 26.37 21.60
Fourth Quarter............... 33.38 30.66 10.00 10.00 25.52 23.44
1996:
First Quarter................ 32.08 30.19 10.00 9.50 24.53 23.08
Second Quarter............... 31.60 28.54 10.00 9.50 24.16 21.82
Third Quarter................ 35.44 29.48 13.00 12.00 27.10 22.54
Fourth Quarter (through
December 23, 1996).......... 36.00 32.43 17.00 12.00 27.53 24.80
</TABLE>
<TABLE>
<CAPTION>
Equivalent Value Of
United Common Stock Per
Closing Bid Price Per Share Share Of Farrington
Closing Sale Price Per Of Farrington Common Stock Common Stock
Date Share Of United Common
Stock
----------------------- --------------------------- ------------------------
<S> <C> <C> <C>
November 12, 1996 $35.75 $12.00 $27.34
January ___, 1997 $[ _____] $[ ]
</TABLE>
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following tables present certain unaudited combined condensed
financial information from the Pro Forma Unaudited Combined Condensed Statements
of Income for the nine month period ended September 30, 1996 and for the years
ended December 31, 1995, 1994 and 1993, and the Pro Forma Unaudited Combined
Condensed Balance Sheet at September 30, 1996. The Pro Forma combined financial
information gives effect to the proposed Merger accounted for as a pooling of
interests, as if such transaction had been consummated for statement of income
purposes on the first day of the applicable periods and for balance sheet
purposes on September 30, 1996. See "PRO FORMA FINANCIAL INFORMATION". The
Summary Pro Forma financial information is based on the historical financial
statements of United and Farrington included or incorporated by reference
herein. See "INFORMATION INCORPORATED BY REFERENCE". The Pro Forma financial
information assumes an Exchange Ratio of .7647 shares of United Common Stock for
each share of Farrington Common Stock outstanding.
The summary unaudited Pro Forma financial information should be read in
conjunction with the Pro Forma Financial Information and the related notes
thereto presented elsewhere in this Proxy Statement-Prospectus and the
consolidated financial statements and related notes included or incorporated by
reference in this Proxy Statement-Prospectus. The Pro Forma financial
information is not necessarily indicative of the results of operations which
would have been achieved had the Merger been consummated as of the beginning of
the periods for which such data are presented and should not be construed as
being representative of future periods.
<TABLE>
<CAPTION>
Pro Forma Unaudited Combined Financial Information
(In thousands, except for per share data)
For the Nine
Months Ended
September 30, For the Years Ended December 31,
-------------- ------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Results of Operations:
<S> <C> <C> <C> <C>
Net interest income before provision for possible
loan losses $36,406 $47,449 $46,471 $44,324
Provision for possible loan losses......................... 1,853 872 2,123 5,239
Net interest income after provision for possible
loan losses 34,553 46,577 44,348 39,085
Income before income taxes................................ 14,216 13,801 16,136 13,286
Net income................................................ 9,284 9,506 10,872 9,692
Earnings per common share.................................. 2.14 2.20 2.56 2.30
As of September 30, 1996
Balance Sheet:
Total assets.......................................... $1,076,010
Total deposits........................................ 900,058
Total stockholders' equity............................ 92,803
Book value per common share........................... 21.33
</TABLE>
<PAGE>
INTRODUCTORY STATEMENT
This Proxy Statement-Prospectus solicits, on behalf of the Board of
Directors of Farrington Bank ("Farrington"), approval by the holders of shares
of common stock of Farrington, $5.00 par value per share ("Farrington Common
Stock"), of the Agreement and Plan of Merger dated as of November 12, 1996 (the
"Merger Agreement"), by and among United National Bancorp ("United"), United's
national bank subsidiary, United National Bank ("UNB") and Farrington. Pursuant
to the Merger Agreement, Farrington will be merged with and into UNB (the
"Merger"). If the Merger Agreement is approved and becomes effective, each
outstanding share of Farrington Common Stock will be converted into .7647 shares
(the "Exchange Ratio") of common stock of United, $2.50 par value per share
("United Common Stock"), subject to adjustment, as more fully set forth in the
Merger Agreement. A copy of the Merger Agreement is attached as Appendix A to
this Proxy Statement-Prospectus and is incorporated herein by reference.
In connection with the negotiation by United and Farrington of the
Merger Agreement, United and Farrington entered into a Stock Option Agreement
(the "Stock Option Agreement") dated November 12, 1996. Pursuant to the Stock
Option Agreement, Farrington granted United an option (the "Option"),
exercisable only under certain limited and specifically defined circumstances,
to purchase up to 133,000 authorized but unissued shares of Farrington Common
Stock, representing approximately 16.7% of the shares of Farrington Common Stock
which would be outstanding immediately following the exercise of the Option, for
an exercise price of $14.00 per share. United does not have any voting rights
with respect to the shares of Farrington Common Stock subject to the Option
prior to exercise of the Option. A copy of the Stock Option Agreement is
attached as Appendix B to this Proxy Statement-Prospectus.
All information contained in this Proxy Statement-Prospectus with
respect to Farrington was supplied by Farrington for inclusion herein. All
information contained herein or incorporated by reference herein with respect to
United and UNB was supplied by United. The first date on which this Proxy
Statement-Prospectus and the enclosed form of proxy are being sent to the
shareholders of Farrington is on or about [_______________], 1997.
This Proxy Statement-Prospectus does not cover any resales of shares of
United Common Stock to be received by shareholders of Farrington upon
consummation of the Merger. Affiliates of Farrington will be subject to
restrictions on their ability to resell the United Common Stock received by them
in the Merger. See "The Proposed Merger -- Resale Considerations with Respect to
the United Common Stock."
CERTAIN INFORMATION REGARDING UNITED
General
United is a bank holding company registered with the Board of Governors
of the Federal Reserve System (the "Board of Governors") under the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). United was
organized under the laws of New Jersey on August 13, 1987 and commenced
operations on August 1, 1988, as a bank holding company for UNB, its only
wholly-owned subsidiary.
As of September 30, 1996, United had consolidated assets of
approximately $1 billion, deposits of $846.4 million and shareholders' equity of
$83.8 million.
United's principal executive offices are located at 1130 Route 22 East,
Bridgewater, New Jersey 08807, and its telephone number is (908) 429-2200. See
"Available Information" and "Information Incorporated by Reference."
United National Bank
UNB, a wholly owned subsidiary of United, is a commercial bank
established in 1902 under the laws of the United States of America. UNB is a
member of the Federal Reserve System and its deposits are insured by the FDIC.
UNB maintains its principal office in Bridgewater, New Jersey and operates 18
branches throughout Hunterdon, Middlesex, Somerset, Union and Warren counties,
New Jersey. UNB also operates 22 automatic teller machines ("ATMs") affiliated
with the MAC System, an eight-state network with membership in the Plus
Nationwide network and Honor, a Florida network.
UNB provides a full range of commercial and retail bank services,
including the acceptance of demand, savings and time deposits. Commercial and
retail lending, primarily residential mortgages, automobile loans, small
business loans and credit card loans, constitute a substantial part of UNB's
business. UNB also offers full personal, corporate and pension trust and other
fiduciary services.
CERTAIN INFORMATION REGARDING FARRINGTON
General
Farrington is a bank established in 1989 under the laws of the State of
New Jersey. Farrington commenced operations in 1990 and presently operates from
a single banking facility in North Brunswick, New Jersey. Farrington offers a
wide range of banking services to businesses and other organizations in its
trade area of Central New Jersey Since 1990, Farrington has offered secured
credit cards nationwide, which require the cardholder to maintain offsetting
deposit balances with Farrington in restricted accounts. Farrington also offers
SBA loans throughout the east coast region. Farrington has one investment
subsidiary.
In addition, Farrington offers a wide range of consumer banking
services including checking, NOW accounts, money market accounts, statement
savings accounts, certificates of deposit, individual retirement accounts,
residential mortgages, home equity lines of credit and automobile loans.
At September 30, 1996, Farrington had consolidated assets of $63.6
million, deposits of $53.6 million and shareholders' equity of $9.0 million.
Farrington's principal executive offices are located at 630 Georges Road, North
Brunswick, New Jersey 08902 and its telephone number is (908) 247-8200. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Farrington" and "Business of Farrington."
THE MEETING
General
This Proxy Statement-Prospectus solicits, on behalf of the Farrington
Board of Directors, proxies to be voted at a Special Meeting of Shareholders
(the "Meeting") of Farrington which is to be held at , , New Jersey on
[_________, ________ __], 1997 at [_________] a.m., and at any adjournments or
postponements thereof.
Purpose of the Meeting
At the Meeting, the Farrington shareholders will (i) consider and vote
upon a proposal to approve the Merger Agreement; and (ii) act on such other
matters as may be properly brought before the Meeting. The Merger will become
effective at the time (the "Effective Time") specified in a notice to the OCC
filed by UNB, with the approval of Farrington. A closing under the Merger
Agreement (the "Closing") will occur prior to the Effective Time on a day
mutually agreed to by United and Farrington within thirty (30) days following
the receipt of all necessary regulatory and governmental approvals and consents
and satisfaction or waiver of all other conditions to closing (other than the
delivery of documents to be delivered at the Closing), or on such other date as
UNB and Farrington agree upon. At the Effective Time, each outstanding share of
Farrington Common Stock will be converted into .7647 shares of United Common
Stock, subject to adjustment, as more fully set forth in the Merger Agreement.
See "The Proposed Merger --- General Description."
THE BOARD OF DIRECTORS OF FARRINGTON RECOMMENDS THAT THE SHAREHOLDERS
OF FARRINGTON VOTE IN FAVOR OF THE MERGER AGREEMENT.
Vote Required; Shares Entitled to Vote
Only holders of record of Farrington Common Stock at the close of
business on [______________], 1997 (the "Record Date") are entitled to notice
of and to vote at the Meeting. The number of shares of Farrington Common Stock
issued, outstanding and entitled to vote at the close of business on the Record
Date was [_______]. Holders of Farrington Common Stock of record on the Record
Date are entitled to one vote per share on any matter that may properly come
before the Meeting.
The affirmative vote, in person or by proxy, of at least two-thirds of
the outstanding shares of Farrington Common Stock is required to approve the
Merger Agreement. In connection with the execution of the Merger Agreement, the
directors of Farrington have agreed to vote in favor of the Merger Agreement the
shares of Farrington Common Stock which they beneficially own (approximately 44%
of the issued and outstanding shares of Farrington Common Stock, excluding
options, as of November 30, 1996). See "Security Ownership of Certain Beneficial
Owners and Management of Farrington."
Solicitation, Voting and Revocation of Proxies
The enclosed proxy is designed to permit each shareholder of record on
the Record Date to vote on all matters to come before the Meeting. This proxy is
solicited by the Board of Directors of Farrington. Any proxy may be revoked at
any time before its exercise by giving written notice of revocation to Vincent
J. Dino, Secretary of Farrington, at the main office of Farrington at 630
Georges Road, North Brunswick, New Jersey 08902. A subsequently dated and duly
executed proxy, if properly presented, will revoke a prior proxy. Any
shareholder entitled to vote who has previously executed a proxy may attend the
Meeting and vote in person, provided the shareholder has filed a written notice
of revocation of such proxy with the Secretary of the Meeting prior to the
voting of such proxy. Where a shareholder specifies a choice in the form of
proxy with respect to a matter being voted upon, the shares represented by the
proxy will be voted in accordance with such specification. If no such
specification is made, the shares represented by proxies will be voted in favor
of the Merger Agreement.
The Board of Directors of Farrington knows of no matters, other than
the proposed Merger described in this Proxy Statement-Prospectus, that will be
presented for consideration at the Meeting. However, if other matters properly
come before the Meeting, it is intended that the persons designated as proxies
will vote upon such additional matter(s) in accordance with their best judgment.
The cost of soliciting proxies for the Meeting will be borne by
Farrington. In addition to the use of the mails, proxies may be solicited
personally, by telephone or telegram, and by directors, officers and employees
of Farrington acting without additional compensation. Arrangements may also be
made with brokers, dealers, nominees and other custodians for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and such persons may be reimbursed by Farrington for reasonable
out-of-pocket expenses.
THE PROPOSED MERGER
Descriptions of the Merger and the Merger Agreement (which is attached
as Appendix A to this Proxy Statement-Prospectus) are qualified in their
entirety by reference to the Merger Agreement which is hereby incorporated in
this Proxy Statement-Prospectus by reference. Farrington shareholders are urged
to carefully review the Merger Agreement.
General Description
The Merger Agreement provides that, at the Effective Time, Farrington
will merge with and into UNB, with UNB as the surviving entity (the "Surviving
Bank"). The separate identity and existence of Farrington will cease upon
consummation of the Merger. All property, rights, powers and franchises of each
of Farrington and United will vest in the Surviving Bank. The Surviving Bank
will be governed by the Certificate of Incorporation and bylaws of UNB in effect
immediately prior to the Effective Time. The Effective Time will be specified in
a notice to be filed with the OCC.
Consideration
Upon consummation of the Merger, each share of Farrington Common Stock
issued and outstanding immediately prior to the Effective Time will be converted
into .7647 shares of United Common Stock. The Exchange Ratio is subject to
adjustment to take into account any stock split, stock dividend, stock
combination, reclassification, or similar transaction by United with respect to
the United Common Stock. The Exchange Ratio is also subject to adjustment in
connection with provisions relating to the termination of the Merger Agreement.
See "-- Effective Time; Amendments; Termination."
No shareholder of Farrington Common Stock will be entitled to receive
fractional shares of United Common Stock, but instead will be entitled to
receive, without interest, a cash payment equal to the value of any fractional
share interest to which they would otherwise be entitled, based on the Average
Closing Price of United Common Stock.
Under federal banking law, the Farrington shareholders are entitled to
dissenter's rights of appraisal in connection with the Merger. See "Rights of
Dissenting Farrington Shareholders."
Exchange of Certificates
At the Effective Time, holders of certificates formerly representing
shares of Farrington Common Stock will cease to have any rights as Farrington
shareholders and their certificates automatically will represent the shares of
United Common Stock into which their shares of Farrington Common Stock will have
been converted by the Merger. As soon as practicable after the Effective Time,
United will send written notice to each holder of record of Farrington Common
Stock, indicating the number of shares of United Common Stock into which such
holder's shares of Farrington Common Stock have been converted.
Each holder of outstanding certificates for Farrington Common Stock,
promptly upon proper surrender of such certificates to United, will receive a
certificate representing the full number of shares of United Common Stock into
which the shares of Farrington Common Stock previously represented by the
surrendered certificates have been converted. At the time of issuance of a new
stock certificate, each shareholder will receive a check for the amount of any
fractional share interest to which he may be entitled.
Each share of United Common Stock into which shares of Farrington
Common Stock are converted will be deemed to have been issued at the Effective
Time. Accordingly, Farrington shareholders who receive United Common Stock in
the Merger will be entitled to receive any dividend or other distribution which
may be payable to holders of record of United Common Stock on or after the
Effective Time. However, no dividend or other distribution will actually be paid
until the certificate or certificates formerly representing shares of Farrington
Common Stock have been surrendered, at which time any accrued dividends and
other distributions on such shares of United Common Stock will be paid without
interest.
HOLDERS OF FARRINGTON COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Conversion of Stock Options
The Merger Agreement provides that each outstanding option to purchase
Farrington Common Stock (a "Farrington Option") granted under the Farrington
stock option plan for non-employee directors of Farrington will be converted at
the Effective Time into the right to receive a number of whole shares of United
Common Stock equal to (A) the excess of (x) the product obtained by multiplying
(i) the number of shares of Farrington Common Stock covered by the Farrington
Option, times (ii) the Exchange Ratio, times (iii) the Average Closing Price (as
defined below), less (y) the aggregate exercise price for the Farrington Option
divided by (B) the Average Closing Price. Under the terms of the Merger
Agreement, John E. Pellizzari, President & Chief Executive Officer of
Farrington, can elect to have his Farrington Options that are outstanding at the
Effective Time converted into either (i) the right to receive whole shares of
United Common Stock as described above or (ii) an option to purchase United
Common Stock on the same terms and conditions existing for the current
Farrington Option, except that the number of shares of United Common Stock
purchasable under the new option and the new option exercise price will both be
adjusted to reflect the Exchange Ratio. However, Farrington has been advised
that Mr. Pellizzari expects to exercise his Farrington Options prior to the
Effective Time. The "Average Closing Price" of United Common Stock is defined in
the Merger Agreement as the average of the closing prices of United Common Stock
as reported on the NASDAQ/NMS and published in the Wall Street Journal during
the first 20 of the 25 consecutive trading days immediately preceding the
Effective Time. Both the Exchange Ratio and the Average Closing Price are
subject to adjustment to take into account any stock split, stock dividend,
stock combination, reclassification, or similar transaction by United with
respect to United Common Stock. Any holder of Farrington Options (an "Optionee")
whose options are converted into shares of United Common Stock will receive an
aggregate whole number of shares of United Common Stock for all Farrington
Options so converted and, if applicable, an amount in cash equal to the
fractional interest in United Common Stock such Optionee would otherwise be
entitled to receive, multiplied by the Average Closing Price of United Common
Stock. As of the Record Date, there were Farrington Options outstanding for
______ shares of Farrington Common Stock.
Background and Reasons for the Merger
Background. In September 1996, the Board of Directors of Farrington
determined that it was in the best interests of Farrington to create a special
committee to explore the possibilities of enhancing shareholder value including
an exploration of merging with and into another bank because of, among other
factors, the increased competition in credit card and SBA lending and the
necessity of maintaining substantial capital to acquire advanced technology to
compete with other banks. This led to a review of prior informal discussions
between Farrington and several financial institutions concerning a possible
business combination and, as a result of that review, Farrington initiated
discussions with United concerning the possibility of a merger. The special
committee decided to pursue further discussions of a possible merger of
Farrington with and into UNB based, in part, upon United's geographic location
and its congruent product line mix. Thereafter, Farrington engaged in
negotiating a definitive Merger Agreement with United. Based upon the
recommendation of the special committee, during the first week of November,
1996, Farrington engaged Finpro to analyze the fairness of the transaction to
Farrington's shareholders from a financial point of view.
Reasons of the Farrington Board. The terms of the Merger and the Merger
Agreement, including the Exchange Ratio, were the result of the arms-length
negotiations between representatives of United and Farrington discussed above.
In the course of reaching the decision to approve the Merger and Merger
Agreement (including the Option), the Farrington Board in consultation with its
legal advisors and Finpro, its financial advisor, and without assigning any
relative or specific weight, considered numerous factors, including but not
limited to the following: the increased competition in credit card and SBA
lending; the capital reserves necessary to acquire advanced technology to
compete in the future with other banks, the belief that ownership of stock in
United will provide Farrington shareholders with a more liquid investment, given
that United Common Stock is traded on NASDAQ/NMS and the belief that United's
operations and business philosophy are consistent with that of Farrington's.
The Farrington Board of Directors unanimously approved the Merger
Agreement and unanimously recommends that the Merger Agreement be approved by
the holders of Farrington Common Stock.
United's Reasons for the Merger. United entered into the Merger
Agreement with Farrington as part of United's ongoing strategy of growth through
acquisitions in contiguous market areas. The United Board of Directors also
believes the merged institution will be a more efficient and capable competitor
in view of the evolution of the financial services industry.
Opinion of Farrington's Financial Advisor
Pursuant to an engagement letter dated as of November 12, 1996,
Farrington formally confirmed its engagement of FinPro, a financial consulting
firm, on the basis of its experience, to render a written fairness opinion to
the Board of Directors and shareholders of Farrington. FinPro has been in the
business of consulting for the banking industry for eight years, including the
appraisal and valuation of banking institutions and their securities in
connection with mergers, acquisitions and other securities transactions. FinPro
has knowledge of and experience with the New Jersey banking and thrift market
and financial organizations operating in that market. FinPro reviewed the
negotiated terms of the Merger Agreement including governance matters. Except as
described herein, FinPro in not affiliated in any way with Farrington or UNB or
their respective affiliates.
On November 12, 1996, in connection with its consideration of the
Merger Agreement, FinPro issued an oral opinion to the Board of Directors of
Farrington that, in its opinion as financial consultants, the terms of the
Merger as provided in the Merger Agreement are fair and equitable, from a
financial perspective, to Farrington and its shareholders. On December 20, 1996,
a written opinion, dated November 12, 1996, of FinPro confirming its oral
opinion was submitted to Farrington. This opinion is based upon conditions as
they existed on September 30, 1996.
The full text of the written opinion is attached as Appendix C to this
Proxy Statement-Prospectus and should be read in its entirety by Farrington
shareholders. FinPro's written opinion does not constitute an endorsement of the
Merger or a recommendation to any shareholder as to how such shareholder should
vote at the Farrington Meeting.
In rendering its opinion, FinPro reviewed certain publicly available
information concerning Farrington and UNB, including each party's audited
financial statements and annual reports. FinPro considered many factors in
making its evaluation. In arriving at its Opinion regarding the fairness of the
transaction, FinPro reviewed: (i) the Merger Agreement; (ii) the most recent
external auditor's reports to the Boards of Directors of each organization;
(iii) the September 30, 1996 Report of Condition and Income for each
organization; (iv) the Rate Sensitivity Analysis reports for each organization;
(v) each organization's listing of marketable securities showing rate, maturity,
and market value as compared to book value; (vi) each organization's internal
loan classification list; (vii) a listing of other real estate owned for each
organization; (viii) the budget and long range operating plan of each
organization; (ix) the Minutes of the Board of Directors meeting for Farrington;
(x) the most recent Board report for Farrington; (xi) the listing and
description of significant real properties for each organization; and (xii) the
directors and officers liability and blanket bond insurance policies for each
organization. FinPro conducted an on-site review of each organization's
historical performance and current financial condition and performed a market
area analysis.
In addition, FinPro discussed with the management of Farrington and UNB
the relative operating performance and future prospects of each organization,
primarily with respect to the current level of their earnings and future
expected operating results, giving weight to FinPro's assessment of the future
of the banking industry and each organization's performance within the industry.
FinPro compared the results of operation of Farrington with the results of
operation of all New Jersey banks.
<PAGE>
Farrington New Jersey
Banks
Return on Average Assets 2.03% 1.04%
Return on Average Equity 13.20% 10.50%
Net Interest Margin/Average Assets 7.51% 4.30%
Noninterest Income/Average Earning Assets 3.53% 1.02%
Total Overhead Expense/Average Earning Assets 7.13% 3.26%
Non-earning Assets/Total Assets 8.00% 8.00%
Total Loans/Earning Assets 49.00% 61.00%
Total Nonperforming Loans/Gross Loans 5.60% 1.70%
Efficiency Ratio 65.00% 59.00%
Tier I Capital/Assets 13.50% 8.10%
Tier I & II Capital/Risk Based Assets 26.70% 16.90%
Source: IDC Financial Publishing, Inc. Second Quarter 1996 Report
Many variables affect the value of banks, not the least of which is the
uncertainty of future events, so that the relative importance of the valuation
variable differs in different situations, with the result that appraisal
theorists argue about which variables are the most appropriate ones on which to
focus. However, most appraisers agree that the primary financial variables to be
considered are earnings, equity, dividends or dividend-paying capacity, asset
quality and cash flow. In addition, in most instances, if not all, value is
further tempered by non-financial factors such as marketability, voting rights
or block size, history of past sales of the banking company's stock, nature and
relationship of the other shareholdings in the bank, and special ownership or
management considerations.
FinPro analyzed the total purchase price on a cash equivalent fair
market value basis using the standard evaluation techniques (as discussed below)
including comparable sales multiples, net present value, return on investment
and the price equity index based on certain assumptions of projected growth,
earnings and dividends and a range of discount rates from 10% to 15%.
Net Asset Value
Net asset value is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes liquidation on
the date of appraisal with the recognition of securities gains or losses, real
estate appreciation or depreciation, adjustments to the loan loss reserve,
discount to the loan portfolio and changes in the net value of other assets. As
such, it is not the best approach to use when valuing a going concern, because
it is based on historical costs and varying accounting methods. Even if the
assets and liabilities are adjusted to reflect prevailing prices and yields
(which is often of limited accuracy because readily available data is often
lacking), it still results in a liquidation value for the concern. Furthermore,
since this method does not take into account the values attributable to the
going concern such as the interrelationship among the company's assets and
liabilities, customer relations, market presence, image and reputation, and
staff expertise and depth, little weight is given by FinPro to the net asset
value method of valuation.
Market Value
Market value is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The market value is frequently used to determine the price of a minority
block of stock when both the quantity and the quality of the "comparable" data
are deemed sufficient. However, the relative thinness of the specific market for
the stock of the banking company being appraised may result in the need to
review alternative markets for comparative pricing purposes. The "hypothetical"
market value for a small bank with a thin market for its stock is normally
determined by comparison to the average price to earnings, price to equity and
dividend yield of local or regional publicly-traded bank issues, adjusting for
significant differences in financial performance criteria and for any lack of
marketability or liquidity. The market value in connection with the evaluation
of control of a bank is determined by the previous sales of banks in the state
or region. In valuing a business enterprise, when sufficient comparable trade
data is available, the market value deserves greater weight than the net asset
value and similar emphasis as the investment value as discussed below.
FinPro maintains substantial files concerning the prices paid for
banking institutions nationwide. The database includes transactions involving
New Jersey banking organizations and banking organizations in the Eastern region
of the United States over the last five years. The database provides comparable
pricing and financial performance data for banking organizations sold or
acquired. Organized by different peer groups, the data present averages of
financial performance and purchase price levels, thereby facilitating a valid
comparative purchase price analysis. In analyzing the transaction value of
Farrington, FinPro has considered the market approach and has evaluated price to
equity and price to earnings multiples of all New Jersey banking organizations
and Regional banking organizations with assets less than $100 million.
Comparable Sales Multiples
FinPro calculated an "Adjusted Book Value" of $26.12 per share, based
on Farrington's September 30, 1996 equity and the average price to equity
multiple of 2.11 for New Jersey banking organizations sold between January 1,
1996 and November 12, 1996. FinPro calculated an "Adjusted Earnings Value" of
$30.15 per share, based on Farrington's 1996 earnings and the average price to
earnings multiple of 16.21 for New Jersey banking organizations sold between
January 1, 1996 and November 12, 1996. FinPro calculated and an "Adjusted Book
Value" of $25.50 per share, based on Farrington's September 30, 1996 equity and
the average price to equity multiple of 2.06 for New Jersey, New York,
Pennsylvania, and Delaware banking organizations less than $100 million in
assets sold between January 1, 1996 and November 12, 1996. FinPro calculated an
"Adjusted Earnings Value" of $30.00 per share, based on Farrington's 1996
earnings and the average price to earnings multiple of 16.13 for New Jersey, New
York, Pennsylvania, and Delaware banking organizations less than $100 million in
assets sold between January 1, 1996 and November 12, 1996. The financial
performance characteristics of the regional banking organizations vary,
sometimes substantially, from those of Farrington. When the variance is
significant for relevant performance factors, adjustments to the price multiples
are appropriate when comparing them to the transaction value.
Investment Value
The investment value is sometimes referred to as the income value or
earnings value. One investment value method frequently used estimates the
present value of an enterprise's future earnings or cash flow. Another popular
investment value method is to determine the level of current annual benefits
(earnings, cash flow, dividends, etc.), and then capitalize one or more of the
benefit types using an appropriate capitalization rate such as an earnings or
dividend yield. Yet another method of calculating investment value is a cash
flow analysis of the ability of a banking company to service acquisition debt
obligations (at a certain price level) while providing sufficient earnings for
reasonable dividends and capital adequacy requirements. In connection with the
cash flow analysis, the return on investment that would accrue to a prospective
buyer at the transaction value is calculated. The investment value methods which
were analyzed in connection with this transaction were the net present value
analysis, and the return on investment analysis, which are discussed below.
Net Present Value Analysis
The investment of earnings value of any banking organization's stock is
an estimate of present value of the future benefits, usually earnings, cash flow
or dividends, which will accrue to the stock. An earnings value is calculated
using an annual future earnings stream over a period of time of no less than ten
years and the residual value of the earnings stream after ten years, assuming no
earnings growth, and an appropriate capitalization rate (the net present value
discount rate). FinPro's computations were based on an analysis of the banking
industry, the economic and competitive situations in Farrington's market area,
its current financial condition and historical levels of growth and earnings.
Using a net present value discount rate of 12%, an acceptable discount rate
considering the risk-return relationship most investors would demand for an
investment of this type as of the valuation date, the "Net Present Value of
Future Earnings," equaled $25.17 per share.
Return on Investment Analysis
Return on investment (ROI) analysis assumes the formation of a bank
holding company and analyzes the ten year ROI of an equity investment equal to
Farrington's book value at September 30, 1996, (i) assuming a constant return on
equity of 12%, with a liquidation at book value in the year 2006, as opposed to
a sale at ten times projected earnings for the year 2006; and (ii) assuming a
gradual reduction in return on equity from 15% to 10%, with a liquidation at
book value in the year 2006, as opposed to a sale at ten times projected
earnings for the year 2006. This ROI analysis provides a benchmark for assessing
the validity of the fair market value of a majority block of stock. The ROI
analysis is one approach to valuing a going concern, and is directly impacted by
the earnings stream, dividend payout levels and levels of debt, if any. Other
financial and non-financial factors indirectly affect the ROI; however, these
factors more directly influence the level of ROI an investor would demand from
an investment in a majority block of stock of a specific bank at a certain point
in time. The ROI, assuming a constant return on equity with liquidation at book
value in 2006, is 10.36%, and sale at ten times projected earnings in 2006, is
11.89%. The ROI, assuming a gradual reduction in return on equity with
liquidation at book value in 2006, is 11.26%, and sale at ten times projected
earnings in 2006, is 11.66%.
Price Equity Index Analysis
Furthermore, a price level indicator, the equity index, may be used to
confirm the validity of the transaction value. The equity index adjusts the
price to equity multiple in order to facilitate a truer price level comparison
with comparable banking organizations, regardless of differing levels of equity
capital. The equity index is derived by multiplying the price to equity multiple
by the equity-to-assets ratio. The following table sets forth the average price
equity indexes for all New Jersey transactions, for transactions in New Jersey,
New York, Pennsylvania, and Delaware for organizations less than $100 million,
and for Farrington for the years 1996, 1995, 1994, and 1993. For Farrington, the
transaction value was calculated at the conversion ratio of 0.7647 shares of
United Common Stock for a share of Farrington Common Stock outstanding times a
market price of $35.00 per share for United Common Stock.
Year New Jersey Region Farrington
Average Price Equity Index 1996 21.43 21.15 30.52
Average Price Equity Index 1995 17.08 17.09 --
Average Price Equity Index 1994 14.32 12.39 --
Average Price Equity Index 1993 12.82 12.54 --
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to-transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net present
value analysis. In FinPro's experience with majority block community bank stock
valuations, it has determined that a relationship does exist between the net
present value of an "average" community banking organization and the transaction
value of a majority block of the banking organization's stock. The net present
value-to-transaction value ratio equals 94.06% for Farrington, which falls
within FinPro's expected range. There are many other factors to consider, when
valuing a going concern, which do not directly impact the earnings stream and
the net present value but which do exert a degree of influence over the fair
market value of a going concern. These factors include, but are not limited to,
the general condition of the industry, the economic and competitive situations
in the market area and the expertise of the management of the organization being
valued.
When the net asset value, market value and investment value methods are
subjectively weighed, using the appraiser's experience and judgment, it is
FinPro's opinion that the proposed transaction is fair.
FinPro considered this transaction as a merger rather than a purchase.
Consideration was given to the levels of earnings per share, equity per share
and dividends per share appreciation or dilution percentages between the merger
partners over the next three to five years after consummation. A merger is
usually completed with the hopes of realizing economies of scale and earnings
enhancement opportunities, thereby providing a benefit to Farrington
shareholders that otherwise might not be attainable. To justify the fairness of
the transaction for Farrington shareholders, it is important to project, based
upon realistic projections of future performance, a positive impact for
Farrington shareholders. FinPro projected that Farrington shareholders will have
a higher level of earnings per share, equity per share and dividends per share
after the Merger with United than they would on a stand-alone basis. The primary
focus has been on short-term and long-term earnings per share, equity per share
and dividends per share appreciation potential for Farrington shareholders.
Neither Farrington nor United imposed any limitations upon the scope of
the investigation to be performed by FinPro in formulating its opinion. In
rendering its opinion, FinPro did not independently verify the asset quality and
financial condition of Farrington or United, but instead relied upon the data
provided by or on behalf of Farrington and United to be true and accurate in all
material respects.
For its services as independent financial analyst of the Merger,
including the rendering of its Opinion referred to above, Farrington has paid
FinPro aggregate fees of $15,000. Farrington also agreed to reimburse FinPro for
reasonable out-of-pocket expenses. Farrington agreed to indemnify FinPro against
all losses, including those resulting from claims under the Federal securities
laws, arising out of FinPro's services as financial advisor, other than losses
caused by FinPro's negligence or willful misconduct.
Effective Time; Conditions to Consummation of the Merger
The Merger will become effective at the Effective Time, which will be
specified in a notice which will be filed with the OCC. The Closing under the
Merger Agreement will occur prior to the Effective Time on a day mutually agreed
to by United and Farrington within thirty (30) days following the receipt of all
necessary regulatory and governmental approvals and consents and satisfaction or
waiver of all other conditions to closing (other than the delivery of documents
to be delivered at the Closing), or on such other date as UNB and Farrington
agree upon. At the Closing, documents required to satisfy the conditions to the
Merger of the respective parties will be exchanged.
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including (i) approval by the requisite vote of the holders
of Farrington Common Stock; (ii) the receipt of all consents, approvals and
authorizations of all necessary federal government authorities (without any term
or condition which would materially impair the value of Farrington to United)
and expiration of all required waiting periods necessary for the consummation of
the Merger (see "-- Regulatory Approvals"); (iii) the effectiveness of the
registration statement covering the shares of United Common Stock to be issued
to Farrington shareholders, which shares shall also have been approved for
listing on the NASDAQ/NMS; and (iv) that the Merger will qualify for
pooling-of-interests accounting treatment (see "-- Accounting Treatment of the
Merger"). In addition, consummation of the Merger is conditioned upon receipt by
the parties of an opinion of Pitney, Hardin, Kipp & Szuch to the effect that the
conversion of Farrington Common Stock for United Common Stock is a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
(the "Code") (see "-- Federal Income Tax Consequences").
Consummation of the Merger is also conditioned on, among other things,
(i) the continued accuracy in all material respects of the representations and
warranties of Farrington and United contained in the Merger Agreement; (ii) the
performance by Farrington and United, in all material respects, of their
respective obligations under the Merger Agreement; (iii) the absence of any
litigation that would restrain or prohibit the consummation of the Merger; and
(iv) receipt by the Board of Directors of Farrington of an opinion from Finpro
as of the date of the Merger Agreement and the date of this Proxy
Statement-Prospectus to the effect that, in its opinion, the consideration to be
paid to Farrington shareholders under the Merger Agreement is fair to such
shareholders from a financial point of view. This opinion has been issued and is
attached as Appendix C to this Proxy Statement-Prospectus. See "-- Opinion of
Farrington's Financial Advisor."
Regulatory Approvals
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. Consummation of the Merger and
the Bank Merger requires the approval of the OCC. OCC approval does not
constitute an endorsement of the Merger or a determination by the OCC that the
terms of the Merger are fair to the shareholders of Farrington. An application
for OCC approval was filed on December 24, 1996. Also on December 24, 1996,
United submitted a request to the Federal Reserve Board seeking a waiver of the
requirement for approval of the Merger under Regulation Y promulgated under the
Bank Holding Company Act. While United and Farrington anticipate receiving such
approval and waiver, there can be no assurance that they will be granted, or
that they will be granted on a timely basis without conditions unacceptable to
United or Farrington.
Termination of the Merger Agreement
Farrington has the right to terminate the Merger Agreement if the
Average Closing Price of United Common Stock is less than $28.50, unless United
unilaterally agrees to increase the Exchange Ratio so that the value (measured
by the Average Closing Price) of the shares of United Common Stock into which
one share of Farrington Common Stock is to be converted in the Merger, based on
the new Exchange Ratio, is at least as high as the value would have been if the
Exchange Ratio were unchanged and the Average Closing Price were $28.50.
United has the right to terminate the Merger Agreement if any necessary
regulatory or governmental approval contains conditions which materially impair
the value of Farrington, taken as a whole, to United.
Either United or Farrington may terminate the Merger Agreement if (i)
the Effective Time has not occurred by August 1, 1997; (ii) the stockholders of
Farrington fail to approve the Merger Agreement at the Meeting; (iii) any
application for any necessary regulatory or governmental approval is denied or
withdrawn at the recommendation of the applicable regulatory agency or
governmental authority, unless any such occurrence was caused by the failure of
the terminating party to perform or observe its agreements set forth in the
Merger Agreement; (iv) there has occurred a material adverse change in the
business, operations, assets or financial condition of the other party; (v) the
other party materially breaches any of its representations, warranties,
covenants, agreements or obligations under the Merger Agreement; or (vi) any
closing condition cannot reasonably be met by the other party after the other
party has had a reasonable opportunity to cure such condition. The Merger
Agreement may also be terminated with the written consent of all parties
thereto.
Upon the termination of the Merger Agreement, the transactions
contemplated thereby (other than the confidentiality provisions contained
therein) will be abandoned without further action by any party. In the event of
a termination, each party will bear its own expenses, and each party will retain
all rights and remedies it may have at law or equity under the Merger Agreement.
Amendment of the Merger Agreement
The terms of the Merger Agreement may be amended, modified or
supplemented by the written consent of United and Farrington at any time prior
to the Effective Time. However, following Farrington shareholder approval of the
Merger Agreement, Farrington shareholders must approve any amendment reducing or
changing the amount or form of consideration to be received by them in the
Merger.
Accounting Treatment of the Merger
The Merger will be accounted for by United under the
pooling-of-interests method of accounting in accordance with generally accepted
accounting principles. See "Pro Forma Combined Financial Information."
Federal Income Tax Consequences
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT MAY NOT BE APPLICABLE TO CERTAIN CLASSES OF
TAXPAYERS, INCLUDING INSURANCE COMPANIES, SECURITIES DEALERS, FINANCIAL
INSTITUTIONS, FOREIGN PERSONS AND PERSONS WHO ACQUIRED SHARES OF FARRINGTON
COMMON STOCK AS COMPENSATION. FARRINGTON SHAREHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS.
General. It is intended that the Merger will be treated as a
reorganization as defined in Section 368(a) of the Code, and that, accordingly,
no gain or loss will be recognized by United or Farrington or by the
shareholders of Farrington upon the conversion of their shares of Farrington
Common Stock solely into shares of United Common Stock pursuant to the Merger.
Counsel to United is required, as a condition of Closing, to provide an opinion
to United and to Farrington, with respect to the matter covered by the foregoing
sentence. With respect to this Proxy Statement-Prospectus, Pitney, Hardin, Kipp
& Szuch, counsel to United, has provided an opinion that based upon the
circumstances as they presently exist, it expects to be able to render the
required opinion.
Consequences of Receipt of Cash in Lieu of Fractional Shares. In
general, cash paid in lieu of fractional share interests in corporate
reorganizations is treated as having been received in part or full payment in
exchange for the fractional share interest (and therefore subject to capital
gains treatment if the related shares are held as capital assets) if the cash
distribution is undertaken solely for purposes of saving the corporation the
expense and inconvenience of issuing and transferring fractional shares and is
not separately bargained for consideration.
Basis of United Common Stock. The basis of United Common Stock received
by a Farrington shareholder who receives solely United Common Stock will be the
same as the basis of such shareholder's Farrington Common Stock converted
therefrom. Where a Farrington shareholder receives both United Common Stock and
cash, the basis of the United Common Stock received will equal (a) the basis of
the Farrington Common Stock exchanged therefor, (b) decreased by the amount of
cash received and (c) increased by the amount of gain recognized, if any, on the
exchange.
Holding Period. The holding period of shares of United Common Stock
received in the Merger by holders of Farrington Common Stock will include the
holding period during which such shares of Farrington Common Stock surrendered
in conversion therefor were held by the holder thereof, provided such shares of
Farrington Common Stock were held as capital assets.
Interests of Certain Persons in the Merger
The Merger Agreement provides that, in cancellation of John E.
Pellizzari's employment agreement with Farrington and as a full release of all
other severance payments due him from Farrington, within 30 days of the
Effective Time, United will pay Mr. Pellizzari, President and Chief Executive
Officer of Farrington, an amount equal to 2.99 times his annual average cash
compensation for the past five calendar years.
The Merger Agreement further provides that for a six year period
following the Effective Time, United will indemnify the directors and officers
of Farrington against certain liabilities to the extent such persons were
indemnified under Farrington's Certificate of Incorporation and Bylaws.
As of the Record Date, the directors and executive officers of
Farrington beneficially owned in the aggregate [__%] of the issued and
outstanding shares of Farrington Common Stock. The directors of Farrington have
indicated their intention to vote in favor of the Merger Agreement.
Resale Considerations With Respect to the United Common Stock
The shares of United Common Stock that will be issued if the Merger is
consummated have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and will be freely transferable, except for shares
received by persons, including directors and executive officers of Farrington,
who may be deemed to be "affiliates" of Farrington under Rule 145 promulgated
under the Securities Act. An "affiliate" of an issuer is defined generally as a
person who "controls" the issuer. Directors, executive officers and 10%
shareholders are generally presumed by the Commission to control the issuer.
Affiliates may not sell their shares of United Common Stock acquired pursuant to
the Merger, except pursuant to an effective registration statement under the
Securities Act covering the United Common Stock or in compliance with Rule 145
or another applicable exemption from the registration requirements of the
Securities Act.
Persons who may be deemed to be "affiliates" of Farrington have
delivered letters to United in which they have agreed to certain restrictions on
their ability to sell, transfer or otherwise dispose of ("transfer") any
Farrington Common Stock owned by them and any United Common Stock acquired by
them in the Merger. Pursuant to the accounting rules governing a pooling of
interests, the affiliates of Farrington have agreed not to transfer the shares
during a period commencing with the period beginning 30 days prior to the
Effective Time and ending on the date on which financial results covering at
least 30 days of post-merger combined operations of United and Farrington have
been published by United or filed by United on a Form 8-K, 10-Q or 10-K. Also,
in connection with the pooling-of-interests rules, the affiliates have agreed
not to transfer their Farrington Common Stock in the period prior to 30 days
before the Effective Time without giving United advance notice and an
opportunity to object if the transfer would interfere with pooling-of-interests
accounting for the Merger. Pursuant to Rule 145, the affiliates have also agreed
to refrain from transferring United Common Stock acquired by them in the Merger,
except in compliance with certain restrictions imposed by Rule 145. Certificates
representing the shares of United Common Stock acquired by each such person
pursuant to the Merger will bear a legend reflecting that the shares are
restricted in accordance with the letter signed by such person and may not be
transferred except in compliance with such restrictions.
Persons who may be deemed "affiliates" of United have also delivered
letters in which they have agreed not to transfer United Common Stock
beneficially owned by them in violation of the pooling-of-interests restrictions
set forth above with respect to Farrington.
Business Pending Consummation of the Merger
Farrington has agreed that prior to the Effective Time, except as
otherwise approved by United in writing or as permitted or required by the
Merger Agreement, it will not, nor will it permit its subsidiary to: (i) change
any provision of its Certificate of Incorporation or Bylaws or any similar
governing documents; (ii) except for the issuance of Farrington Common Stock
pursuant to the terms of outstanding Farrington Options, change the number of
shares of, or issue any more shares of or grant any option or right with respect
to, Farrington Common Stock, or split, combine or reclassify any shares of
Farrington Common Stock, or redeem or otherwise acquire any shares of Farrington
Common Stock (iii) declare, set aside or pay any dividend, or other distribution
in respect of, Farrington Common Stock; (iv) grant any severance or termination
pay (other than pursuant to policies of Farrington in effect on the date of the
Merger Agreement and disclosed to United or as agreed to by United in writing)
to, or enter into or amend any employment agreement with, any of its directors,
officers or employees; adopt any new employee benefit plan or arrangement of any
type or amend any such existing benefit plan or arrangement; or award any
increase in compensation or benefits to its directors, officers or employees
other than regular and customary pay increases to its non-officer employees; (v)
sell or dispose of any substantial amount of assets or incur any significant
liabilities other than in the ordinary course of business consistent with past
practices and policies; (vi) make any capital expenditures other than in the
ordinary course of business, other than pursuant to binding commitments existing
on the date of the Merger Agreement, and expenditures necessary to maintain
existing assets in good repair; (vii) file any application or make any contract
with respect to branching or site location or relocation; (viii) agree to
acquire any business or entity in any manner whatsoever (other than to foreclose
on collateral for a defaulted loan); (ix) make any material change in its
accounting methods or practices, other than changes required in accordance with
GAAP; or (x) agree to do any of the foregoing.
Farrington has further agreed that it will not, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than United) 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 Farrington (an "Acquisition Transaction"). Farrington has agreed to
promptly communicate to United the terms of any proposal, whether written or
oral, which it may receive in respect of any Acquisition Transaction.
Management and Operations After the Merger
At the Effective Time, as a result of the Merger, Farrington will be
merged into UNB which will be the Surviving Bank. UNB will continue to operate
as a subsidiary of United. The location of the principal office of United will
remain unchanged: 1130 Route 22 East, Bridgewater, New Jersey. Following the
Merger, the banking office of Farrington Bank will serve as a branch office of
UNB.
Stock Option for Shares of Farrington Common Stock
In connection with the negotiation by United and Farrington of the
Merger Agreement, United and Farrington entered into the Stock Option Agreement
on November 12, 1996. A copy of the Stock Option Agreement is attached as
Appendix B to this Proxy Statement-Prospectus. Descriptions of the Stock Option
Agreement in this Proxy Statement-Prospectus are qualified in their entirety by
reference to the Stock Option Agreement.
Pursuant to the Stock Option Agreement, Farrington granted United the
Option, exercisable only under certain limited and specifically defined
circumstances, to purchase up to 133,000 authorized but unissued shares of
Farrington Common Stock, representing approximately 16.7% of the shares of
Farrington Common Stock which would be outstanding immediately following the
exercise of the Option, for an exercise price of $14.00 per share. United does
not have any voting rights with respect to the shares of Farrington Common Stock
subject to the Option prior to exercise of the Option.
In the event that certain Triggering Events (as hereinafter described)
specifically enumerated in the Stock Option Agreement occur, United may exercise
the Option in whole or in part. In the event that a Triggering Event occurs and
the Merger is not consummated, United would recognize a gain on the sale of the
shares of Farrington Common Stock received pursuant to the exercise of the
Option if such shares of Farrington Common Stock were sold at prices exceeding
$14.00 per share.
The term "Triggering Event" is defined in the Stock Option Agreement to
mean the occurrence of any of the following events: a person or group, as such
terms are defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"), other than United or an
affiliate of United, and provided that the Board of Directors of Farrington
shall not be considered a "group" merely because of their service on the Board
of Directors of Farrington and their ownership of Farrington Common Stock, (i)
acquires beneficial ownership (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act) of at least 10% of the then outstanding shares of
Farrington Common Stock; (ii) enters into a letter of intent or an agreement
with Farrington pursuant to which such person or any affiliate of such person
would (a) merge or consolidate, or enter into any similar transaction, with
Farrington, (b) acquire all or a significant portion of the assets or
liabilities of Farrington, or (c) acquire beneficial ownership of securities
representing, or the right to acquire the beneficial ownership or to vote
securities representing, 10% or more of the then outstanding shares of
Farrington Common Stock; (iii) makes a filing with bank or thrift regulatory
authorities or publicly announces a bona fide proposal (a "Proposal") for (a)
any merger, consolidation or acquisition of all or a significant portion of all
the assets or liabilities of Farrington or any other business combination
involving Farrington, or (b) a transaction involving the transfer of beneficial
ownership of securities representing, or the right to acquire beneficial
ownership or to vote securities representing, 10% or more of the outstanding
shares of Farrington Common Stock, and thereafter, if such Proposal has not been
publicly withdrawn (as defined below) at least 15 days prior to the Meeting and
Farrington's shareholders fail to approve the Merger by the vote required by
applicable law at the Meeting; (iv) makes a bona fide proposal and thereafter,
but before such Proposal has been publicly withdrawn, Farrington willfully takes
any action in any manner that would materially interfere with its ability to
consummate the Merger or materially reduce the value of the Merger to United; or
(v) which is the holder of more than 5% of the outstanding shares of Farrington
Common Stock solicits proxies in opposition to approval of the Merger. The
definition of "Triggering Event" also includes the taking of any direct or
indirect action by Farrington or any of its directors, officers or agents, to
invite, encourage or solicit any proposal which has as its purpose a tender
offer for the shares of Farrington Common Stock, a merger, consolidation, plan
of exchange, plan of acquisition or reorganization of Farrington, or a sale of
shares of Farrington Common Stock or any significant portion of the assets or
liabilities of Farrington. Under the Stock Option Agreement, a significant
portion means 10% of the assets or liabilities of Farrington. "Publicly
withdrawn" for purposes of the Stock Option Agreement means an unconditional
bona fide withdrawal of a Proposal coupled with a public announcement of no
further interest in pursuing such Proposal or acquiring any controlling
influence over Farrington or in soliciting or inducing any other person (other
than United or any affiliate) to do so.
United may not sell, assign or otherwise transfer its rights and
obligations under the Stock Option Agreement in whole or in part to any person
or any group of persons other than to an affiliate of United. The Option may not
be exercised (i) in the absence of any required governmental or regulatory
approval or consent necessary for Farrington to issue the Farrington Common
Stock subject to the Option or United 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 Farrington Common Stock subject to the Option.
The Stock Option Agreement further provides that after the occurrence
of a Triggering Event and upon receipt of a written request from United,
Farrington shall prepare and file a registration statement with the Commission
covering the Option and such number of shares of Farrington Common Stock subject
thereto as United shall specify in its request, and shall use its best efforts
to cause such registration statement to become effective in order to permit the
sale or other disposition of the Option and the shares of Farrington Common
Stock covered thereby; provided, however, that in no event will United have the
right to have more than one such registration statement become effective.
The Stock Option Agreement terminates upon either the termination of
the Merger Agreement or the consummation of the transactions contemplated
thereby; provided that if the Merger Agreement terminates after the occurrence
of a Triggering Event, the Stock Option Agreement will not terminate until the
later of 18 months following the date of termination of the Merger Agreement or
the consummation of any proposed transactions which constitute the Triggering
Event.
The ability of United to exercise the Option and to cause up to an
additional 133,000 shares of Farrington Common Stock to be issued may be
considered a deterrent to other potential acquirors of control of Farrington, as
it is likely to increase the cost of an acquisition of all of the shares of
Farrington Common Stock which would then be outstanding. The exercise of the
Option by United may also make pooling-of-interests accounting treatment
unavailable to a subsequent acquiror.
PROFORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information
presents the Pro Forma Combined Condensed Statements of Condition of United and
Farrington at September 30, 1996, December 31, 1995 and 1994 giving effect to
the Merger as if it had been consummated at such date. Also presented are the
Pro Forma Combined Condensed Statements of Income for the nine months ended
September 30, 1996 and the years ended December 31, 1995, 1994 and 1993 giving
effect to the Merger as if it was consummated on January 1 of each year. The
unaudited pro forma financial information is based on the historical financial
statements of United and Farrington after giving effect to the Merger under the
pooling-of-interests method of accounting and based upon the assumptions and
adjustments contained in the accompanying Notes to Pro Forma Combined Condensed
Financial Statements.
The unaudited pro forma financial information has been prepared by
United's management based upon the historical financial statements and related
notes thereto of United and Farrington contained herein or incorporated herein
by reference. The unaudited pro forma financial information should be read in
conjunction with such historical financial statements and notes. The Pro Forma
Combined Condensed Statements of Income are not necessarily indicative of
operating results which would have been achieved had the Merger been consummated
as of the beginning of the periods for which such data are presented and should
not be construed as being representative of future periods.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF CONDITION
September 30, 1996
(Unaudited)
United and
Pro Forma Farrington
United Farrington Adjustment(1) Combined
------------- --------------- ----------------- ----------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 50,956 $ 1,923 $ --- $ 52,879
Federal Funds Sold 2,500 6,425 --- 8,925
Securities Held to Maturity 62,441 7,144 --- 69,585
Securities Available for Sale 285,022 16,897 --- 301,919
Trading Account Securities 423 --- --- 423
Loans (Net of Unearned Income) 567,403 30,428 --- 597,831
Less: Allowance for Possible Loan Losses 7,464 803 --- 8,267
Other Assets 51,110 1,605 --- 52,715
------------ ------------- -------------- -----------------
Total Assets $1,012,391 $63,619 $ --- $1,076,010
============ ============= ============== =================
LIABILITIES
Deposits $ 846,433 $ 53,625 $ --- $ 900,058
Other Borrowed Funds 70,873 --- --- 70,873
Other Liabilities 11,262 1,014 --- 12,276
------------ ------------- -------------- -----------------
Total Liabilities 928,568 54,639 --- 983,207
------------ ------------- -------------- -----------------
SHAREHOLDERS' EQUITY
Common Stock 9,637 3,327 (1,975) 10,989
Additional Paid-In Capital 59,541 3,285 2,475 65,301
Retained Earnings 17,328 2,444 (500) 19,272
Treasury Stock (1,337) --- --- (1,337)
Restricted Stock (180) --- --- (180)
Net Unrealized Loss on Securities Available
for Sale, Net of Tax (1,166) (76) --- (1,242)
------------ ------------- -------------- -----------------
Total Equity Capital 83,823 8,980 --- 92,803
------------ ------------- -------------- -----------------
Total Liabilities and Equity Capital $1,012,391 $ 63,619 $ --- $1,076,010
============ ============= ============== =================
</TABLE>
(1) The pro forma adjustments represent (a) the difference between the stated
value of United and Farrington stock and (b) the exercise of Farrington stock
options as per the Merger Agreement.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF CONDITION
December 31, 1995
(Unaudited)
United and
Pro-Forma Farrington
United Farrington Adjustment(1) Combined
------------- ----------- ------------------ --------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 45,572 $ 1,625 $ --- $ 47,197
Federal Funds Sold 7,000 3,004 --- 10,004
Securities Held to Maturity 24,838 5,146 --- 29,984
Securities Available for Sale 334,156 19,173 --- 353,329
Trading Account Securities 417 --- --- 417
Loans (Net of Unearned Income) 551,222 31,332 --- 582,554
Less: Allowance for Possible Loan Losses 7,412 885 --- 8,297
Other Assets 54,752 1,322 --- 56,074
------------- ---------- --------- ---------------
Total Assets $ 1,010,545 $ 60,717 $ --- $ 1,071,262
============== =========== ========= ===============
LIABILITIES
Deposits $ 854,628 $ 51,336 $ --- $ 905,964
Other Borrowed Funds 63,027 --- --- 63,027
Other Liabilities 11,491 1,243 --- 12,734
-------------- ----------- --------- ---------------
Total Liabilities 929,146 52,579 981,725
-------------- ----------- --------- ---------------
SHAREHOLDERS' EQUITY
Common Stock 9,085 3,025 (1,868) 10,242
Additional Paid-In Capital 52,411 2,982 1,868 57,261
Retained Earnings 19,563 2,082 --- 21,645
Treasury Stock (1,578) --- --- (1,578)
Restricted Stock (317) --- --- (317)
Net Unrealized Gain on Securities Available
for Sale, Net of Tax 2,235 49 --- 2,284
-------------- ----------- --------- ---------------
Total Equity Capital 81,399 8,138 --- 89,537
-------------- ----------- --------- ---------------
Total Liabilities and Equity Capital $ 1,010,545 $ 60,717 $ --- $ 1,071,262
============== =========== ========= ===============
</TABLE>
(1) The pro forma adjustments represent the difference between the stated value
of United and Farrington stock.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF CONDITION
December 31, 1994
(Unaudited)
United and
Pro Forma Farrington
United Farrington Adjustment(1) Combined
------------- ------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 49,496 $ 1,366 $ --- $ 50,862
Federal Funds Sold 11,545 2,540 --- 14,085
Securities Held to Maturity 96,354 9,968 --- 106,322
Securities Available for Sale 223,976 13,303 --- 237,279
Trading Account Securities 321 --- --- 321
Loans (Net of Unearned Income) 481,439 38,212 --- 519,651
Less: Allowance for Possible Loan Losses 9,597 1,171 --- 10,768
Other Assets 31,007 1,399 --- 32,406
------------- ------------ ----------- --------------
Total Assets $ 884,541 $ 65,617 $ --- $ 950,158
============== ============ =========== ===============
LIABILITIES
Deposits $ 757,884 $ 57,984 $ --- $ 815,868
Other Borrowed Funds 53,570 --- --- 53,570
Other Liabilities 7,285 741 --- 8,026
-------------- ------------ ----------- ---------------
Total Liabilities 818,739 58,725 --- 877,464
-------------- ------------ ----------- ---------------
SHAREHOLDERS' EQUITY
Common Stock 8,279 2,750 (1,699) 9,330
Additional Paid-In Capital 44,100 2,673 1,699 48,472
Retained Earnings 21,961 1,535 --- 23,496
Treasury Stock (9) --- --- (9)
Restricted Stock (280) --- --- (280)
Net Unrealized Loss on Securities Available
for Sale, Net of Tax (8,249) (66) --- (8,315)
------------- ----------- ----------- ---------------
Total Equity Capital 65,802 6,892 --- 72,694
-------------- ------------ ----------- ---------------
Total Liabilities and Equity Capital $ 884,541 $ 65,617 $ --- $ 950,158
============== ============ =========== ===============
</TABLE>
(1) The pro forma adjustments represent the difference between the stated value
of United and Farrington stock.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Nine Months Ended September 30, 1996
(Unaudited)
United and
Pro Forma Farrington
United Farrington Adjustment Combined
------------------- --------------- ----------------- ------------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income $ 54,530 $ 4,235 $ --- $ 58,765
Total Interest Expense 21,402 957 --- 22,359
-------------------- -------------- --------------- ----------------
Net Interest Income 33,128 3,278 --- 36,406
Provision for Possible Loan Losses 1,625 228 --- 1,853
-------------------- -------------- --------------- ----------------
Net Interest Income After Provision
Possible Loan Losses 31,503 3,050 --- 34,553
Total Non-Interest Income 10,545 1,725 --- 12,270
Total Non-Interest Expense 29,418 3,189 --- 32,607
-------------------- -------------- --------------- ----------------
Income Before Income Taxes 12,630 1,586 --- 14,216
Provision for Income Taxes 4,313 619 --- 4,932
------------------- ------------- --------------- ---------------
NET INCOME $ 8,317 $ 967 $ --- $ 9,284
==================== ============== =============== ================
EARNINGS PER COMMON SHARE(1)
$ 2.19 $ 1.45 $ 2.14
==================== ============== ================
Weighted Average Number of Shares
Outstanding 3,806,247 665,392 4,347,098
==================== ============== ================
</TABLE>
(1) The historical earnings per share of United and Farrington have been
restated to give retroactive effect to stock dividends. Pro forma combined
includes the exercise of Farrington stock options as per the Merger Agreement.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31, 1995
(Unaudited)
United and
Pro Forma Farrington
United Farrington Adjustment Combined
------------------ ------------------- ------------------- ----------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income $ 71,994 $ 5,559 $ --- $ 77,553
Total Interest Expense 29,128 976 --- 30,104
-------------- ----------- ------------ -----------------
Net Interest Income 42,866 4,583 --- 47,449
Provision for Possible Loan Losses 450 422 --- 872
-------------- ----------- ------------ -----------------
Net Interest Income After Provision for ---
Possible Loan Losses 42,416 4,161 46,577
Total Non-Interest Income 12,329 2,324 --- 14,653
Total Non-Interest Expense 42,748 4,681 --- 47,429
-------------- ----------- ------------ -----------------
Income Before Income Taxes 11,997 1,804 --- 13,801
Provision for Income Taxes 3,623 672 --- 4,295
-
============== =========== ============ =================
NET INCOME $ 8,374 $ 1,132 $ --- $ 9,506
============== =========== ============ =================
EARNINGS PER COMMON SHARE (1) $ 2.19 $ 1.70 $ 2.20
============== =========== =================
Weighted Average Number of Shares
Outstanding 3,815,947 665,392 4,324,772
============== =========== =================
</TABLE>
(1) The historical earnings per share of United and Farrington have been
restated to give retroactive effect to stock dividends.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31, 1994
(Unaudited)
United and
Pro Forma Farrington
United Farrington Adjustment Combined
-------------------- ---------------------------------- ----------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income $ 59,754 $ 5,630 $ --- $ 65,384
Total Interest Expense 17,979 934 --- 18,913
-------------- ----------- ------ -------------
Net Interest Income 41,775 4,696 --- 46,471
Provision for Possible Loan Losses 1,590 533 --- 2,123
-------------- ----------- ------ -------------
Net Interest Income After Provision for
Possible Loan Losses 40,185 4,163 --- 44,348
Total Non-Interest Income 11,863 2,558 --- 14,421
Total Non-Interest Expense 37,621 5,012 --- 42,633
-------------- ----------- ------ -------------
Income Before Income Taxes 14,427 1,709 --- 16,136
Provision for Income Taxes 4,607 657 --- 5,264
-------------- ----------- ------ -------------
NET INCOME $ 9,820 $ 1,052 $ --- $ 10,872
============== =========== ====== =============
EARNINGS PER COMMON SHARE (1) $ 2.62 $ 1.58 $ 2.56
============== =========== =============
Weighted Average Number of Shares
Outstanding 3,743,748 665,392 4,252,573
============== =========== =============
</TABLE>
(1) The historical earnings per share of United and Farrington have been
restated to give retroactive effect to stock dividends.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31, 1993
(Unaudited)
United and
Pro Forma Farrington
United Farrington Adjustment Combined
-------------------- ---------------------------------- ----------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C>
Total Interest Income $ 59,539 $ 4,847 --- $ 64,386
Total Interest Expense 18,959 1,103 --- 20,062
---------------- ------------ --------- ---------------
Net Interest Income 40,580 3,744 --- 44,324
Provision for Possible Loan Losses 4,287 952 --- 5,239
---------------- ------------ --------- ---------------
Net Interest Income After Provision for
Possible Loan Losses 36,293 2,792 --- 39,085
Total Non-Interest Income 12,845 3,467 --- 16,312
Total Non-Interest Expense 37,482 4,629 --- 42,111
---------------- ------------ --------- ---------------
Income Before Income Taxes 11,656 1,630 --- 13,286
Provision for Income Taxes 3,975 678 --- 4,653
---------------- ------------ --------- ---------------
Income Before Extraordinary Item 7,681 952 --- 8,633
Extraordinary Item 973 86 --- 1,059
--------------- ------------ --------- ---------------
NET INCOME $ 8,654 $ 1,038 $ --- $ 9,692
================ ============ ========= ===============
EARNINGS PER COMMON SHARE (1)
Income Before Extraordinary Item $ 2.07 $ 1.43 $ 2.05
Extraordinary Item 0.26 0.13 0.25
--------------- ----------- ---------------
$ 2.33 $ 1.56 $ 2.30
================ ============ ===============
Weighted Average Number of Shares
Outstanding 3,711,452 665,392 4,220,277
================ ============ ===============
</TABLE>
(1) The historical earnings per share of United and Farrington have been
restated to give retroactive effect to stock dividends.
<PAGE>
Farrington Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion is an analysis of the financial condition at
September 30, 1996, and the results of operations of Farrington for each of the
two year periods ending December 31, 1995 and 1994 and the two nine month
periods ending September 30, 1996 and 1995, and should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and the Summary
Consolidated Financial Data included elsewhere in this Proxy
Statement-Prospectus.
Results of Operations
Net Income
Farrington's net income for the nine month period ending September 30, 1996, was
$967 thousand compared to $752 thousand for the same period in 1995, an increase
of $215 thousand or 28.6%. There was a decline in the volume of credit card
balances due to a significant reduction in marketing efforts. This decline which
was more than offset by increases in other areas of Farrington, namely SBA loan
originations and the investment portfolio. The increase in net income is
attributable to an increase in interest income on securities available-for-sale,
a decrease in provision for loan losses, an increase on gain on sale of loans,
and a decrease in operating expenses related to credit card operations, all of
which is partially offset by an increase in interest expense on deposits, a
decrease in fee income on loans, and an increase in income tax expense.
Comparing net income for the full years ending December 31, 1995, and 1994, net
income increased by $.08 million from $1.05 million to $1.13 million, due to an
increase in interest income on investment securities, a decrease in provision
for loan losses, an increase in gain on sale of loans, and a decrease in
operating expenses related to credit card operations, all of which is partially
offset by a decrease in interest income on loans, an increase in interest
expense on deposits, and a decrease in fee income on loans.
Net Interest Income
Farrington's primary revenue source is net interest income. Net interest income
represents the difference between interest earned on its interest-earning
assets, such as loans and investments, and the interest paid on its
interest-bearing liabilities, primarily deposits. Changes in net interest income
from period to period result from increases or decreases in the average balances
of interest-earning assets and interest-bearing liabilities and the increases or
decreases in the net interest margin, or spread, between the average yields
earned on such assets and average rates paid on such liabilities.
A small portion of Farrington's interest income is derived from investments that
are exempt from Federal income taxes. In order to make the pre-tax comparison of
income and yields consistent, the interest earned on these interest earning
assets has been adjusted to reflect a fully tax-equivalent basis.
To provide a more in depth analysis of net interest income, the tables on the
following pages present for the nine-month and twelve-month periods indicated:
(i) average principal balances, interest earned/paid, average rates, and net
interest spread and margin; and (ii) a rate/volume analysis, detailing the
variance in interest income due to changes in average principal balances and
changes in average yield. Yields are calculated using the tax equivalent
interest income.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ending Nine Months Ending
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995
Interest Interest
Average Income/ Average Income/
Balance Expense Yield/Cost Balance Expense Yield/Cost
(1) (1)
---------------------------------------- ----------------------------------------
(Dollars in thousands)
ASSETS:
Interest-earning assets:
Loans:
<S> <C> <C> <C> <C> <C> <C>
Credit Cards $13,210 $1,656 16.71% $15,420 $1,808 15.63%
SBA 4,246 349 10.96% 3,537 263 9.91%
Commercial and industrial 7,631 551 9.63% 8,753 631 9.61%
Real estate mortgages residential 1,605 108 8.97% 1,450 121 11.13%
Leases 1,284 74 7.68% 3,140 173 7.35%
Other 3,036 219 9.62% 3,253 236 9.67%
Taxable securities 25,304 1,098 5.79% 19,543 815 5.56%
Tax exempt securities 163 8 6.39% 28 2 7.44%
Fed funds sold 4,544 177 5.19% 2,859 126 5.88%
--------- ----- ----- --------- ----- -----
Total interest-earning assets $ 61,023 $ 4,240 9.26% $ 57,983 $ 4,175 9.60%
Non-interest earning assets:
Cash and due from banks 1,766 1,865
Other 1,013 712
Allowance for loan and lease losses (796) (999)
------ -----
TOTAL ASSETS $ 63,006 $ 59,561
========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits 2,110 38 2.40% 2,162 32 1.97%
Savings deposits 29,265 346 1.58% 36,471 492 1.80%
Time deposits 14,848 573 5.15% 6,040 187 4.13%
-------- ----- ----- ------ ----- -----
Total interest-bearing liabilities 46,223 957 2.76% 44,673 711 2.12%
Non-interest bearing liabilities:
Demand deposits 7,105 6,713
Other liabilities 1,099 947
Shareholders' equity 8,579 7,228
----- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY: $63,006 $59,383
======== =======
Net interest income/ Net interest spread (1) $3,283 6.50% $3,464 7.48%
====== ===== ====== =====
Net yield on interest-earning assets (1) 7.17% 7.96%
===== =====
(1) Yield, cost, spread and margin for the two nine-month periods are all on an annualized basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ending Twelve Months Ending
---------------------------------------- ----------------------------------------
December 31, 1995 December 31, 1994
Interest Interest
Average Income/ Average Income/
Balance Expense Yield/Cost Balance Expense Yield/Cost
---------------------------------------- ----------------------------------------
(Dollars in thousands)
ASSETS:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans:
Credit Cards $14,981 $2,367 15.80% $17,889 $2,795 15.62%
SBA 3,511 359 10.23% 2,900 268 9.24%
Commercial and industrial 8,560 833 9.73% 7,884 719 9.12%
Real estate mortgages residential 1,411 151 10.70% 4,326 416 9.62%
Leases 2,875 212 7.37% 3,638 265 7.28%
Other 3,167 307 9.69% 3,106 269 8.66%
Taxable securities 20,224 1,143 5.65% 19,922 807 4.05%
Tax exempt securities 55 3 5.68% - - -
Fed funds sold 3,193 185 5.79% 2,161 93 4.30%
-------- ----- ------ ------- ------ -----
Total interest-earning assets 57,977 5,560 9.59% 61,826 5,632 9.11%
Non-interest earning assets:
Cash and due from banks 1,784 2,159
Other 737 884
Allowance for loan and lease losses (957) (1,157)
------- -------
TOTAL ASSETS $59,541 $63,712
========= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits 2,160 43 1.99% 2,244 44 1.96%
Savings deposits 34,937 609 1.74% 42,408 725 1.71%
Time deposits 7,216 324 4.49% 5,751 165 2.87%
------- ----- ----- ------- ----- -----
Total interest-bearing liabilities 44,313 976 2.20% 50,403 934 1.85%
Non-interest bearing liabilities:
Demand deposits 6,815 6,075
Other liabilities 997 829
Shareholders' equity 7,416 6,405
----- -----
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $59,541 $63,712
========= =======
Net interest income/ Net interest spread $4,584 7.39% 4,698 7.26%
====== ===== ======= =====
Net yield on interest-earning assets 7.91% 7.60%
===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Nine Month Period Ending For the Twelve Month Period Ending
September 30, 1996 compared to December 31, 1995 compared to
September 30, 1995 December 31, 1994
---------------------------------------- ----------------------------------------
Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in
---------------------------------------- ----------------------------------------
Average Average Average Average
Volume Rate Net Volume Rate Net
---------------------------------------- ----------------------------------------
(in thousands, tax equivalent basis)
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans:
Credit Cards $(259) $107 $(152) $(454) $26 $(428)
SBA 53 33 86 56 35 91
Commercial and industrial (81) 1 (80) 62 52 114
Real estate mortgages residential 13 (26) (13) (280) 15 (265)
Leases (102) 3 (99) (56) 3 (53)
Other (16) (1) (17) 5 33 38
Taxable securities 240 43 283 12 324 336
Tax exempt securities 7 (1) 6 3 - 3
Fed funds sold 74 (23) 51 44 48 92
----- ------ ------ ------- ------ -----
Total interest income assets (71) 136 65 (608) 536 (72)
------ ------- ------ ------ ------ ------
Interest Expense
Interest-bearing demand deposits (1) 7 6 (2) 1 (1)
Savings deposits (97) (49) (146) (128) 12 (116)
Time deposits 273 113 386 42 117 159
----- ------ ------- ------- ------- ------
Total interest expense 175 71 246 (88) 130 42
------ ------ ------- ------ ------- ------
Net change in net interest income $(246) $65 $(181) $(520) $406 $(114)
====== ====== ====== ====== ======= =======
</TABLE>
Net interest income on a tax equivalent basis decreased by $0.2 million from
$3.5 million to $3.3 million for the nine month periods ending September 30,
1995 and 1996 respectively. This decrease is due to, on the income side, lower
average loan balances for most loan types coupled with lower yields on taxable
securities and, on the expense side, higher average time deposit balances
coupled with an increase in the cost of funds on those same balances. The net
effect of the above changes caused the net interest spread to decrease from
7.48% for the nine months ending September 30, 1995 to 6.50% for the nine months
ending September 30, 1996, a drop of 98 basis points. Credit card originations
declined in 1996, shifting the asset mix to investments, which were invested in
more conservative, and lower yielding, U.S. Treasury and U.S. Agency securities.
Net interest income on a tax equivalent basis decreased by $0.1 million from
$4.7 million to $4.6 million for the twelve month periods ending December 31,
1994 and 1995 respectively. Concurrently, the net interest spread and margin
increased, due to a dramatic increase in yield on the taxable security portfolio
which was partially offset by a lower volume of credit card lending.
Other Income
Farrington has historically relied on fee income to generate additional
earnings. At September 30, 1996 Farrington's non-interest income to asset ratio
on an annualized basis was 3.6%. Despite that fact, other income declined
marginally for the nine month period ending September 30, 1996 to $1.7 million
from $1.8 million for the nine month period ending September 30, 1995. The
increase in the gain on sale of SBA loans was offset by a reduction in credit
card origination fee income. The same explanation holds true for the comparison
of the twelve month periods ending December 31, 1995 and 1994 where other income
declined $0.3 million from $2.6 million to $2.3 million.
Other Expense
Other expense declined $0.6 million from $3.8 million for the nine months ending
September 30, 1995, to $3.2 million for the same period in 1996. Expenses
related to credit card operations, which are volume sensitive, declined
significantly while salaries and employee benefits increased by a very small
margin, as did occupancy expenses.
For the full years ending December 31, 1995, and 1994 other expenses decreased
$0.3 million from $5.0 million to $4.7 million. For those same time periods
credit card operations expense declined $0.5 million from $2.6 million to $2.1
million. This decrease was offset by a small increase in salaries and employee
benefits.
Effects of Inflation and Changing Prices
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than do
general levels of inflation. Interest rates do not necessarily move in the same
direction and magnitude as the prices of goods and services.
Some of Farrington's loan portfolio is secured by residential or non-residential
real estate. Any decline in the market for real estate could adversely affect
the value of Farrington's collateral, and thus the quality of the loan
portfolio.
Financial Condition
Farrington has experienced asset growth in 1996, increasing $2.9 million from
$60.7 million at December 31, 1995 to $63.6 million at September 30, 1996. On
the asset side, all of the growth was in cash and cash equivalents, and on the
liability side, the growth was $2.0 million in deposits and $0.9 million in
equity.
Loan Portfolio
The following table presents an analysis of outstanding loans as of the dates
indicated:
<TABLE>
<CAPTION>
As of September 30, As of December 31,
------------------------------------------ ----------------------------------------
1996 1995 1995 1994
------------------- --------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Credit Cards $12,697 41.31% $13,960 43.92% $14,450 45.38% $17,779 45.86%
SBA 5,205 16.93% 3,468 10.91% 3,263 10.25% 3,521 9.08%
Commercial and industrial 7,166 23.31% 7,836 24.65% 8,144 25.58% 9,683 24.97%
Real estate mortgages residential 1,933 6.29% 1,090 3.43% 1,379 4.33% 1,695 4.37%
Leases 855 2.78% 2,392 7.52% 1,755 5.51% 2,769 7.14%
Other 2,882 9.38% 3,043 9.57% 2,850 8.95% 3,327 8.58%
--------- ------- --------- ------- ------- ------- ------- -------
Total loans 30,738 100.00% 31,789 100.00% 31,841 100.00% 38,774 100.00%
--------- ------- --------- ------- ------- ------- ------- -------
Less:
Deferred loan fees and discounts (310) (498) (509) (562)
Allowance for loan and lease losses (803) (855) (885) (1,171)
------- ------- ------- ---------
Net loans $29,625 $30,436 $30,447 $37,041
======== ======== ======= =======
</TABLE>
Farrington's gross loan portfolio has decreased as a percentage of total assets
from 52% at December 31, 1995 to 48% at September 30, 1996. Of the total
decrease of $1.1 million over that time, $1.8 million is attributable to credit
card lending, which is partially offset by increases in other loan categories.
Credit card originations have declined from their peak in 1993; average card
balances have decreased as well. The change in the loan portfolio mix indicates
a decreased reliance on leasing and credit cards and an increased reliance on
SBA lending.
Farrington originates loans under the U.S. Small Business Administration
guaranteed loan program, under which the SBA guarantees a portion of the loan,
between 75% and 80% of the principal balance depending on the transaction for a
maximum guaranteed portion of $750 thousand. Typically, Farrington resells the
guaranteed portion of such loans upon origination, retaining the servicing
rights on most transactions. The non-guaranteed portion (which is generally
secured by real estate and personal property collateral) is retained in
Farrington's portfolio. The SBA has the right to require Farrington to
repurchase the sold loans if the loans were not closed or administered by
Farrington in compliance with terms and conditions required by the SBA.
Loan Quality
The lending activities of Farrington are guided by the basic lending policy
established by the Board of Directors. Loans must meet criteria which include
consideration of the character, capacity and capital of the borrower, collateral
provided for the loan, and prevailing economic conditions.
Regardless of credit standards, there is risk of loss inherent in every loan
portfolio. The allowance for loan losses is a reserve established for possible
future loan losses based on management's continuing evaluation of the loan
portfolio. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, industry
experience, collateral value and current economic conditions that may affect the
borrower's ability to pay. Management believes that the allowance for loan
losses is adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments of information available to
them at the time of their examination.
The allowance for loan losses is increased by periodic charges against earnings
called provisions for loan losses, and decreased periodically by charge-offs of
loans (or parts of loans) management has determined to be uncollectible, net of
actual recoveries on loans previously charged-off.
Non Performing Assets
Non performing assets consist of non-accrual loans, loans past due 90 days or
more and still accruing interest, and other real estate owned.
The following table sets forth information regarding non performing assets as of
September 30, 1996:
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------------------- --------------------------------
(in thousands)
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-accrual loans:
Loans secured by real estate $1,043 $1,065 $1,209 $813
Commercial and industrial - - - 265
Loans to individuals 18 - - 32
------- -------- -------- ------
Total non-accrual loans 1,061 1,065 1,209 1,110
Loans past due 90 days or more and accruing:
Loans secured by real estate 204 294 88 -
Commercial and industrial 28 - - -
Loans to individuals 50 44 238 626
------- -------- ------ -----
Total loans past due 90 days or more and still accruing 282 338 326 626
------- -------- ------ -----
Total nonperforming loans $1,343 $1,403 $1,535 $1,736
====== ====== ====== ======
Total nonperforming assets $1,343 $1,403 $1,535 $1,736
====== ====== ====== ======
Non-accrual loans to total loans, net 3.58% 3.50% 3.97% 3.00%
Nonperforming loans to total loans, gross 4.37% 4.41% 4.82% 4.48%
Nonperforming loans to total loans, net 4.53% 4.61% 5.04% 4.69%
Nonperforming loans to total assets 2.11% 2.43% 2.53% 2.65%
Nonperforming assets to total assets 2.11% 2.43% 2.53% 2.65%
</TABLE>
Non-performing loans at September 30, 1996 have declined in absolute dollars, as
a percent of total assets, and as a percent of total loans (net), reflecting
general improvement in the economy.
Provision for Loan Losses and Loan Loss Experience
The provision for loan losses represents management's determination of the
amount necessary to bring the allowance for loan losses to a level that
management considers adequate to reflect the risk of future losses inherent in
Farrington's loan portfolio. The process of determining the adequacy of the
allowance is necessarily judgmental and subject to changes in external
conditions. Accordingly, there can be no assurance that existing levels of the
allowance will ultimately prove adequate to cover actual loan losses.
The following table presents Farrington's loan loss experience during the
periods indicated:
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------------ ------------------------------
1996 1995 1995 1994
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Balance at the beginning of the year $885 $1,171 $1,171 $1,138
------ ------- -------- ------
Loans charged-off:
Loans secured by real estate 91 143 143 28
Commercial and industrial - 188 188 -
Loans to individuals 268 382 454 518
----- ----- ----- -------
Total charge-offs 359 713 785 546
Recoveries of loans previously charged-off:
Loans secured by real estate 1 20 20 -
Commercial and industrial - - - 10
Loans to individuals 48 39 57 36
---- ------ ------ -----
Total recoveries 49 59 77 46
---- ------ ------ -----
Net loans charged-off 310 654 708 500
Provisions charged to expense 228 338 422 533
----- ----- ----- ------
Balance at end of year $803 $855 $885 $1,171
====== ====== ====== ======
Ratio of net charge-offs during the year to
average loans outstanding during the year 1.00% 1.84% 2.05% 1.26%
Allowance for loan losses at period end
to net loans outstanding at period end 2.71% 2.81% 2.91% 3.16%
Allowance for loan losses to nonperforming
loans outstanding at period end 59.79% 60.94% 57.65% 67.45%
</TABLE>
The provision for loan losses of $228 thousand in 1996 is less than the
provision in 1995 due to a reduced level of charge-offs both in credit cards and
in commercial and industrial loans due to improvement in asset quality.
Management periodically assesses the adequacy of the allowance and future
additions to the allowance may be necessary based on changes in economic
conditions.
Securities
The following tables present categories of investment securities and their
contractual maturities, without prepayments:
<PAGE>
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------ --------------------
1996 1995 1995 1994
(in thousands)
Available-For-Sale:
<S> <C> <C> <C> <C>
U.S. Treasury Securities $8,952 $3,020 $10,071 $13,303
U.S. Government Agencies 7,945 7,044 9,102 -
------- -------- ------- -------
Total Available-for-Sale 16,897 10,064 19,173 13,303
Held-To-Maturity:
U.S. Treasury Securities 2,986 4,996 4,000 1,958
U.S. Government Agencies 4,000 5,009 1,007 8,010
Obligation of states and political subdivisions 158 106 139 -
----- ----- ----- -------
Total Held-to-Maturity 7,144 10,111 5,146 9,968
-------- ------- ------- -------
Total $24,041 $20,175 $24,319 $23,271
======= ======= ======= =======
</TABLE>
<PAGE>
The book value at September 30, 1996, by contractual maturity is shown below:
<TABLE>
<CAPTION>
After 1 After 5
Year But Years But
Within Within Within
1 Year 5 Years 10 Years Total
------- -------- ---------- -----
(in thousands)
Available-For-Sale:
<S> <C> <C> <C> <C>
U.S. Treasury Securities $6,013 $2,939 $ - $8,952
U.S. Government Agencies 1,999 5,946 - 7,945
-------- ------- ------- -------
Total Available-for-Sale 8,012 8,885 - 16,897
Held-To-Maturity:
U.S. Treasury Securities 2,000 986 - 2,986
U.S. Government Agencies - 4,000 - 4,000
Obligation of states and political subdivisions - 50 108 158
--------- -------- ------ -------
Total Held-to-Maturity 2,000 5,036 108 7,144
--------- -------- ------ -------
Total $10,012 $13,921 $108 $24,041
========= ========= ====== ========
</TABLE>
The security portfolio balance at September 30, 1996 of $24.0 million, decreased
$0.3 million from the December 31, 1995 balance of $24.3 million. Farrington's
policy is to purchase fixed rate securities with short term maturities in order
to retain a high level of liquidity as well as to help manage Farrington's
interest rate risk. At September 30, 1996, Farrington had cash and cash
equivalents of $8.3 million, or 13% of total assets.
Deposits
Farrington relies on its deposit base to fund its lending needs. Farrington
requires deposits from its credit card customers to collateralize credit card
lending. The secured deposits provide a low costing means of funding the asset
side of the balance sheet. At September 30, 1996, non interest bearing deposits
accounted for 16% of total deposits. The decline in credit card related savings
deposits from December 31, 1995, to September 30, 1996, was more than offset by
an increase in time deposits.
Liquidity
Liquidity is the ability to provide, promptly and economically, the cash
necessary to meet customer credit needs and satisfy deposit withdrawal
requirements. The primary sources of funds are deposits, amortization payments
of loans, and investment security maturities. Loan repayments and investment
maturities are predictable sources of funds. Deposit in-flows are affected by
unpredictable influences of movements in interest rates, economic conditions,
and competition. Management invests excess cash in short term Available-for-Sale
U.S. Treasury and U. S. Government Agency securities which provide adequate
liquidity as needed.
Capital
Farrington had shareholders' equity of $9.0 million at September 30, 1996,
compared to $8.1 million at December 31, 1995. The increase is primarily due to
Farrington's net income.
The FDIC has issued guidelines to implement risk-based capital requirements for
state-chartered nonmember banks. The guidelines establish a risk-based capital
framework consisting of (1) a definition of capital consisting of Tier I
capital, which includes common shareholders' equity (less certain intangibles)
and certain type of perpetual preferred stock, and a supplementary component
called Tier II capital, which includes a portion of the allowance for loan and
lease losses, mandatory convertible debt, certain qualifying long-term debt and
preferred stock which does not qualify as Tier I capital, and (2) a system for
assigning assets and off-balance sheet items to one of several weighted risk
categories, with higher levels of capital being required for categories
perceived as representing a greater risk. An institutions' risk-based capital
ratio is determined by dividing its qualifying capital by its risk-weighted
assets. The guidelines make regulatory capital requirements more sensitive to
differences in risk profiles among banking institution's, take off-balance sheet
items into account in assessing capital adequacy, and minimize disincentives to
holding liquid low-risk assets. The minimum risk-based capital ratio is 8%, of
which at least 4% must be Tier I capital, and the minimum leverage ratio (Tier I
capital as a percent of quarterly average tangible assets) is 3%. Farrington had
capital ratios well in excess of the required levels
The following table presents Farrington's capital ratios as of September 30,
1996:
Tier I Total (Tier I + Tier II)
------ ------------------------
Capital $9,056 $9,494
Average Asset Base $61,955 --
Adjusted Asset Base -- $56,790
Actual Capital Ratios 14.62% 16.72%
Required Capital Ratios 4.00% 8.00%
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) was issued by the FASB in October 1995.
SFAS 123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employees stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issues to
Employees" (Opinion 25). Entities electing to remain with the accounting in
Opinion 25 must make pro forma disclosures of net income and earnings per share
as if the fair value based method of accounting defined in this statement had
been applied. SFAS 123 was effective for Farrington's fiscal years beginning
January 1, 1996. Management has elected to remain with the accounting in Opinion
25.
In June 1996, the Financial Accounting Standards Board Issued SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". This statement is effective for transfers and servicing of
financial and extinguishment of liabilities occurring after December 31, 1996
and application is prospective. Management has not yet determined the impact
that the adoption of this standard will have on Farrington's consolidated
financial position or results of operations.
<PAGE>
BUSINESS OF FARRINGTON
Farrington is a bank organized under the laws of New Jersey. Farrington
commenced operations in 1990 and presently operates from a single banking
facility in North Brunswick, New Jersey. Farrington offers a wide range of
banking services to businesses and other organizations in its trade area of
Central New Jersey. Since 1990, Farrington has offered secured credit cards,
which require the cardholder to maintain offsetting deposit balances with
Farrington in restricted accounts. Farrington also offers SBA loans throughout
the east coast region.
In addition, Farrington offers a wide range of consumer banking
services including checking, NOW accounts, money market accounts, statement
savings accounts, certificates of deposit, individual retirement accounts,
residential mortgages, home equity lines of credit and automobile loans.
Farrington also is engaged in the financing of local businesses and
industry, providing credit facilities, commercial money market and checking
accounts and other banking services for small businesses. Farrington actively
originates commercial loans which are partially guaranteed by the U.S. Small
Business Administration ("SBA"). Farrington's performance history with the SBA
earned it the status of "Certified Lender". Commercial loan customers of
Farrington, other than those obtaining SBA loans, are local retail stores,
professional firms, light manufacturing companies, and service providers.
Working capital lines of credit, term loans for fixed asset purchases,
commercial mortgages and letters of credit are among the services offered to
businesses.
Competition in the banking and financial services industry in
Farrington's market areas is intense. Farrington experiences competition from
commercial banks, savings and loan institutions, credit unions and other
financial institutions. In addition, Farrington faces competition for deposits
and/or lending activities from less heavily regulated entities such as brokerage
institutions, money management firms, consumer finance companies and mortgage
banking companies. Many of these institutions and entities have substantially
more capital, assets and other resources than Farrington, enabling them to make
larger loans, offer wider ranges of products and services, offer alternative
banking locations and devote more resources to marketing and advertising
activities.
As of September 30, 1996, Farrington had 22 employees. Deposits are
insured up to applicable limits by the Bank Insurance Fund of the FDIC.
SUPERVISION AND REGULATION OF FARRINGTON
Farrington
The operations of Farrington are subject to federal and state statutes
applicable to banks chartered under the State of New Jersey. The New Jersey
Banking Commissioner (the "Commissioner") regularly examines such areas as
reserves, loans, investments, management practices and other aspects of bank
operations. These examinations are for the protection of Farrington's depositors
and not for its shareholders. In addition to these regular examinations,
Farrington must furnish to the Commissioner quarterly reports containing a full
and accurate statement of its affairs. The Commissioner has the authority to
prohibit banks regulated by it from engaging in practices which in its opinion
are unsafe or unsound.
The operations of Farrington Bank are also subject to the regulations
of the FDIC, which insures the deposits of Farrington Bank up to applicable
limits. The FDIC issues regulations, conducts periodic examinations, requires
the filing of reports and generally supervises the operations of its insured
banks. This supervision and regulation is intended primarily for the protection
of depositors.
Dividend Restrictions
The ability of Farrington to pay dividends is subject to certain
statutory and regulatory restrictions. Under New Jersey banking law, Farrington
may not, without the approval of the Commissioner, declare dividends in any one
calendar year unless the capital stock of the bank will be unimpaired and its
surplus is not less than 50% of its capital stock or, if not, the payment of
such dividend will not reduce the surplus of the bank. In addition, the payment
of dividends may be inconsistent with capital adequacy guidelines of the FDIC.
Capital Requirements
Capital
Farrington had shareholders' equity of $8.98 million at September 30,
1996, compared with $8.14 million at December 31, 1995.
The FDIC has issued guidelines to implement risk-based capital
requirements for state-chartered nonmember banks. The guidelines establish a
risk-based capital framework consisting of (1) a definition of capital
consisting of Tier 1 capital, which includes common shareholders' equity (less
certain intangibles), and certain types of perpetual preferred stock, and a
supplementary component called Tier 2, which includes a portion of the allowance
for possible loan losses, mandatory convertible debt, certain qualifying
long-term debt and preferred stock which does not qualify as Tier 1 capital, and
(2) a system for assigning assets and off-balance-sheet items to one of the
several weighted risk categories, with higher levels of capital being required
for the categories perceived as representing the greater risks. An institution's
risk-based capital ratio is determined by dividing its qualifying capital by its
risk-weighted assets. The guidelines make regulatory capital requirements more
sensitive to differences in risk profiles among banking institutions, take
off-balance sheet items into account in assessing capital adequacy, and minimize
disincentives to holding liquid, low-risk assets. Banking organizations are
generally expected to operate with capital positions well above the minimum
ratios. Institutions with higher levels of risk, or which experience or
anticipate significant growth, are also expected to operate well above minimum
capital standards. The minimum risk-based ratio is 8%, of which at least 4% must
consist of Tier 1 capital. Farrington's ratios of Tier 1 and total capital to
risk-weighted assets were 14.62% and 16.72%, respectively, at September 30,
1996.
The federal regulatory agencies have also adopted a minimum leverage
ratio which is intended to supplement risk-based capital requirements and to
insure that all financial institutions continue to maintain a minimum level of
capital. Current regulations stipulate that banks maintain a minimum level of
Tier 1 capital to total assets. The most highly rated banks in terms of safe and
sound operation that are not experiencing or anticipating significant growth are
required to have Tier 1 capital equal to at least 3% of total assets. All other
banks are expected to maintain a minimum leverage capital ratio (i.e., Tier 1
capital divided by total assets) in excess of the 3% minimum level. The FDIC
regulations require a financial institution to maintain a minimum ratio of 4% to
5%, depending on the condition of the institution. Farrington's leverage ratio
was 14.62% at September 30, 1996.
Recent Legislation and Regulatory Action
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
was enacted by Congress in September of 1994. Under the Act, beginning on
September 29, 1995, bank holding companies could acquire banks in any state,
notwithstanding contrary state law, and all banks commonly owned by a bank
holding company could act as agents for one another. An agent bank can receive
deposits, renew time deposits, accept payments and close and service loans for
its principal bank, but will not be considered a branch of that principal bank.
A bank may also merge with a bank in another state and operate either
office as a branch, notwithstanding pre-existing contrary state law. This law
becomes automatically effective in all states on June 1, 1997, unless (1) the
law becomes effective in a given state at any earlier date selected by
legislation in that state; or (2) the law does not become effective at all in a
given state because by legislation enacted before June 1, 1997, that state opts
out of coverage by the interstate merger provision. Upon consummation of an
interstate merger, the resulting bank may acquire or establish branches on the
same basis that any participant in the merger could have if the merger had not
taken place.
Banks may also merge with branches of banks in other states without
merging with the banks themselves, or may establish de novo branches in other
states, if the laws of the other states expressly permit such mergers or such
interstate de novo branching.
Under the Community Reinvestment Act, as amended ("CRA"), as
implemented by FDIC regulations, a bank has a continuing and affirmative
obligation, consistent with its safe and sound operation, to help meet the
credit needs of its entire community, including low-income and moderate-income
neighborhoods. CRA does not establish specific lending requirements or programs
for financial institutions and it does not limit an institution's discretion to
develop the types of products and services that it believes are best suited to
its particular community, provided they are consistent with CRA. CRA requires
the FDIC to assess an institution's record and meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such institution. Effective July 1, 1990, CRA, as amended by
FIRREA, requires public disclosure of an institution's CRA rating and requires
that the FDIC provide a written evaluation of an institution's CRA performance
utilizing a four-tiered descriptive rating system. An institution's CRA rating
is taken into account in determining whether to grant charters, branches and
other deposit facilities, relocations, mergers, consolidations and acquisitions.
Poor performance may be the basis for denying an application. In addition, under
applicable regulations a bank having a less than satisfactory rating is not
entitled to participate on the bid list for Resolution Trust Corporation and
FDIC offerings. Farrington received a CRA rating of "satisfactory" in its last
compliance exam.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF FARRINGTON
On October 31, 1996, there were 665,392 shares of Farrington Common
Stock issued and outstanding and no shares held in the treasury. Only
shareholders of record as of __________, 1997, shall be entitled to vote at the
Special Meeting and each share is entitled to one vote. As of November 30, 1996,
Farrington's Board of Directors and affiliated entities owned or controlled
(excluding options) approximately 44% of the outstanding shares of Farrington
Common Stock. Each director has indicated his intention to vote in favor of the
Merger Agreement.
The following table sets forth information with respect to the
beneficial ownership of Farrington Common Stock as of November 30, 1996, and the
number and percentage of outstanding shares of United Common Stock into which
such shares would be converted in the Merger, by (i) each person known by
Farrington to own beneficially more than 5% of the outstanding Farrington Common
Stock, (ii) each current director of Farrington, and (iii) all executive
officers and directors of Farrington as a group. Except as otherwise indicated,
each of the persons named below has sole voting and investment power with
respect to the Farrington Common Stock owned by them.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Shares of United Percent of United
of Farrington Common Common Stock to be Common Stock to be
Name of Beneficial Owner Stock Percent of Class Received held Post Merger
<S> <C> <C> <C> <C>
S. Anthony Angelella (1) 199 * 152 *
Msgr. Francis J. Crupi (2) 5,337 * 4,081 *
Stephen M. Deixler (2) 45,376 6.8% 34,699 *
Vincent J. Dino (2) (3) 43,541 6.5% 33,295 *
Carmelo R. Iaria (2) 37,876 5.7% 28,963 *
Lorraine M. Kelley 35,271 5.3% 26,971 *
Estate of Sidney Kuchin (4) 43,553 6.5% 33,304 *
William A. Macaro (2) (5) 43,049 6.4% 32,919 *
John E. Pakenham, Jr. (2) (6) 53,362 8.0% 40,805 *
John E. Pellizzari (7) 29,943 4.3% 22,897 *
Henry Rosenzweig (2) 47,983 7.2% 36,692 *
Joseph C. Zullo, M.D. (2) 45,376 6.8% 34,699 *
All executive officers and 352,042 48.8% 269,202
directors of Farrington Bank
(12 persons) (8)
</TABLE>
* Less than 1%.
(1) These shares are held jointly by Mr. Angelella and his spouse.
(2) Includes 3,361 shares issuable pursuant to options.
(3) Includes 1,984 shares held by Mr. Dino's spouse.
(4) Includes 3,361 shares issuable pursuant to options which must be
exercised by January 20, 1997.
(5) Includes 2,100 shares held by Mr. Macaro's spouse and 665 shares held
jointly by Mr. Macaro and his spouse.
(6) Includes 5,324 shares held in a trust, for which Mr. Pakenham serves as
trustee, for the benefit of his children.
(7) Includes 29,810 shares issuable pursuant to options.
(8) Includes 56,698 shares issuable pursuant to options.
CERTAIN TRANSACTIONS OF FARRINGTON
Farrington has had banking transactions in the ordinary course of its
business with directors, officers, principal shareholders and their associates
on the same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with unaffiliated
parties. To the extent that such transactions consisted of extensions of credit,
they did not, in the opinion of management, involve more than a normal risk of
collectibility or present other unfavorable features. As of September 30, 1996,
Farrington's directors and executive officers were indebted to Farrington in the
aggregate amount of $951,000, none of which such loans were delinquent. This
indebtedness is secured by mortgages and/or security interests in real or
personal property owned by these persons.
Farrington Bank leases its branch office in North Brunswick, New Jersey
from a partnership consisting of affiliates of Farrington Bank. This partnership
owns the premises and the building. The partners of this partnership are Vincent
J. Dino, Msgr. Francis J. Crupi and William A. Macaro, each a director of
Farrington, and Joseph C. Zullo, the Chairman of the Board of Directors of
Farrington.
The law firm of Iaria & MacNiven acts as Farrington Bank's legal
counsel in connection with the closing of Farrington's SBA loans. Carmelo R.
Iaria, a director of Farrington, is the name partner in such law firm.
DESCRIPTION OF UNITED COMMON STOCK
The authorized capital stock of United consists of 5,000,000 shares of
United common stock and 300,000 shares of preferred stock ("Preferred Stock").
As of September 30, 1996, there were 3,854,964 shares of United Common Stock
issued and outstanding, including 43,994 treasury shares, and there were no
shares of Preferred Stock outstanding.
General
United is a New Jersey general business corporation governed by the New
Jersey Business Corporation Act and a registered bank holding company under the
Bank Holding Company Act. The following description of United Common Stock sets
forth certain general terms of United Common Stock. See "Comparison of the
Rights of Shareholders of United and Farrington" for additional information
relevant to an understanding of the capital stock of United, including a
description of the New Jersey Shareholders Protection Act, which restricts
certain transactions involving an "interested shareholder" and a "resident
domestic corporation".
Dividend Rights
Holders of United Common Stock are entitled to dividends when, as and
if declared by the Board of Directors of United out of funds legally available
for the payment of dividends. The only statutory limitation is that such
dividends may not be paid when United is insolvent. Because funds for the
payment of dividends by United must come primarily from the earnings of United's
bank subsidiary, as a practical matter, any restrictions on the ability of UNB
to pay dividends will act as restrictions on the amount of funds available for
payment of dividends by United.
As a national banking association, UNB is subject to limitations on the
amount of dividends it may pay to United, UNB's only shareholder. Prior approval
by the OCC is required to the extent the total of all dividends to be declared
by UNB in any calendar year exceeds net profits, as defined, for that year
combined with UNB's retained net profits from the preceding two calendar years,
less any transfers to capital surplus. Under this limitation, UNB could declare
dividends in 1996 without prior approval of the OCC of up to $8.357 million plus
an amount equal to UNB's net profits for 1996 to the date of such dividend
declaration.
United is also subject to the certain Federal Reserve Board policies
which may, in certain circumstances, limit its ability to pay dividends. These
policies require, among other things, that a bank holding company maintain a
minimum capital base. The Federal Reserve Board would most likely seek to
prohibit any dividend payment which would reduce a holding company's capital
below these minimum amounts.
Voting Rights
At meetings of shareholders, holders of United Common Stock are
entitled to one vote per share. The quorum for shareholders' meeting is a
majority of the outstanding shares. Except as indicated below, actions and
authorizations to be taken or given by shareholders generally require the
approval of a majority of the votes cast by holders of United Common Stock at a
meeting at which a quorum is present.
The Board of Directors is divided into three classes of directors, each
class being as nearly equal in number of directors as possible. Approximately
one-third of the entire Board of Directors is elected each year and the
directors serve for terms of up to three years and, in all cases, until their
respective successors are duly elected and qualified. The exact number of
directors and the number constituting each class is fixed from time to time by
resolution adopted by a majority of the entire Board of Directors.
United's Certificate of Incorporation contains a "minimum price"
provision. No "Transaction" (as defined in the Certificate of Incorporation)
between United and an "Interested Person" (defined in the Certificate of
Incorporation to include persons who, together with their affiliates, own 3% or
more of the voting power of United's capital stock) is valid or can be
consummated unless (i) the proposed Transaction is first approved by a majority
of "Disinterested Directors" (defined in the Certificate of Incorporation as
directors (other than the Interested Person) who became directors prior to the
time the Interested Person became an Interested Person, or who were subsequently
nominated for director by a majority of other Disinterested Directors) or (ii)
the proposed Transaction is first approved by the affirmative vote of two-thirds
of the votes cast by "Disinterested Shareholders" (as defined in the Certificate
of Incorporation) or (iii) the Disinterested Shareholders are offered
consideration in an amount equal to or in excess of an amount determined in
accordance with a formula contained in the Certificate of Incorporation.
Liquidation Rights
In the event of liquidation, dissolution or winding up of United,
holders of United Common Stock are entitled to share equally and ratably in
assets available for distribution after payment of debts and liabilities, except
that if shares of Preferred Stock of United are outstanding at the time of
liquidation, such shares of Preferred Stock may have prior rights upon
liquidation.
Assessment and Redemption
All outstanding shares of United Common Stock are fully paid and
nonassessable. The United Common Stock is not redeemable at the option of the
issuer or the holders thereof.
Other Matters
United can (except in connection with certain transactions with
"Interested Shareholders") issue new shares of authorized but unissued United
Common Stock or Preferred Stock without shareholder approval.
RIGHTS OF DISSENTING FARRINGTON SHAREHOLDERS
Pursuant to the provisions of Section 215a of Title 12 of the United
States Code ("Section 215a") and of the Banking Act (which provides that federal
law shall govern with respect to this issue), any shareholder of Farrington has
the right to dissent from the Merger and to obtain payment of the value
(determined as provided below) of his Farrington Common Stock if the Merger is
consummated.
Any shareholder of Farrington who contemplates exercising the right to
dissent is urged to read carefully the applicable provisions of Section 215a
which are attached as Appendix D to this Proxy Statement. The following is a
summary of the steps to be taken if the right to dissent is to be exercised.
This summary is qualified in its entirety by the full text of Appendix D to this
Proxy Statement.
Each step must be taken in the indicated order and in strict
compliance with the applicable provisions of Section 215a in order to perfect
dissenter's rights. Any deviations from such steps may result in the forfeiture
of dissenter's rights.
If the Merger is consummated, shareholders of Farrington who vote
against the proposed Merger at the Meeting or give notice of dissent in writing
(addressed to Edward W. Mahnken, Jr., Senior Vice President, Farrington Bank,
630 Georges Road, North Brunswick, New Jersey 08902) at or prior to the Meeting
(and do not thereafter vote in favor of the Merger) will be entitled to receive
from United the value of their shares of Farrington Common Stock as of the date
of the consummation of the Merger in cash upon written request made to United
before the 30th day after the consummation of the Merger, accompanied by the
surrender of their stock certificates. The value of the shares of any dissenting
shareholder shall be ascertained in accordance with the applicable provisions of
Section 215a, by an appraisal made by a committee composed of one person
selected by the majority vote of persons exercising such appraisal rights, one
person selected by the Board of Directors of United, and one person selected by
the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern.
If the valuation so fixed shall not be satisfactory to a dissenting
shareholder who has requested payment, that shareholder may, within five days
after receiving notification of the appraised value, appeal to the OCC, which
shall cause a reappraisal to be made which shall be final and binding with
respect to the shares of the person appealing the appraisal. If, within 90 days
from the consummation of the Merger, for any reason one or more of the
above-mentioned appraisers is not selected or such appraisers fail to determine
the value of such shares, the OCC shall, upon written request of any interested
party, cause an appraisal to be made which shall be final and binding on all
parties. The expenses of the OCC in making the reappraisal or the appraisal, as
the case may be, shall be paid by United. Any stockholder of Farrington who
votes against the proposed Merger, or who gives notice in writing at or prior to
the Meeting (addressed to Edward W. Mahnken, Jr., Senior Vice President,
Farrington Bank, 630 Georges Road, North Brunswick, New Jersey 08902) that he
dissents, will be notified in writing of the date of the consummation of the
Merger.
The failure of a dissenting stockholder to vote against the Merger
will not constitute a waiver of appraisal rights if the stockholder gives
written notice of dissent (addressed to Edward W. Mahnken, Jr., Senior Vice
President, Farrington Bank, 630 Georges Road, North Brunswick, New Jersey 08902)
at or prior to the Meeting. Regardless of whether a Farrington stockholder
records his or her dissent by voting against the Merger or giving written notice
of dissent, a dissenting stockholder must also make written request to United to
receive the value of his or her shares at any time before 30 days after the
consummation of the Merger. Farrington shareholders whose shares are represented
by proxies that are returned signed but unmarked as to voting instructions will
be voted in favor of the Merger and, unless revoked (as described in "The
Meeting -- Solicitation, Voting and Revocation of Proxies"), will have waived
their right to dissent.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF UNITED AND FARRINGTON
Farrington is a New Jersey bank incorporated under the New Jersey
Banking Act of 1948, as amended (the "Banking Act"), and United is a business
corporation incorporated in New Jersey under the New Jersey Business Corporation
Act (the "NJBCA"). The rights of Farrington shareholders are currently governed
by New Jersey banking law. At the Effective Time, each Farrington shareholder
will become a shareholder of United and the rights of shareholders of United are
governed by New Jersey corporate law. The following is a comparison of certain
provisions of New Jersey corporate law and New Jersey banking law and the
respective certificates of incorporation and by-laws of each of Farrington and
United. This summary does not purport to be complete and is qualified in its
entirety by reference to the Banking Act and the NJBCA, which statutes may
change from time to time, and the Certificate of Incorporation of United, which
also may be changed.
Voting Requirements
The Banking Act generally provides that an amendment to the certificate
of incorporation of a New Jersey state chartered bank requires the affirmative
vote of two-thirds of the outstanding stock entitled to vote thereon. The
Banking Act provides that a New Jersey state chartered bank conversion into,
merger into, or consolidation with, a national bank or another New Jersey state
chartered bank requires the affirmative vote of two-thirds of the bank's capital
stock entitled to vote. Farrington's Certificate of Incorporation does not
contain greater vote provisions than those required by the Banking Act.
Under the NJBCA, unless a greater vote is specified in the certificate
of incorporation, any amendment to a New Jersey corporation's certificate of
incorporation, the voluntary dissolution of the corporation, the sale or other
disposition of all or substantially all of a corporation's assets otherwise than
in the ordinary course of business or the merger or consolidation of the
corporation with another corporation, requires in each case the affirmative vote
of a majority of the votes cast by shareholders of the corporation entitled to
vote thereon. Neither United's nor Farrington's Certificate of Incorporation
presently contains provisions specifying a greater vote in certain
circumstances.
Under the NJBCA, the holders of a class or series of shares are
entitled to vote as a class upon a proposed amendment to the certificate of
incorporation, whether or not entitled to vote thereon by the provisions of the
certificate of incorporation, if the amendment would exclude or limit their
right to vote on any matter, limit or deny their preemptive rights, cancel or
otherwise adversely affect their dividends which have accrued but have not been
declared, create a new class or series having or convertible into shares having
rights or preferences superior to the class or increase the rights or preference
of any class or series. In addition, notwithstanding any provision of the
certificate of incorporation, the holders of a class or series of shares whose
rights or preferences would be subordinated or otherwise adversely affected by a
proposed amendment are entitled to vote as a class if the amendment would affect
their shares in the following manner: (i) decrease the par value; (ii) effect a
conversion, exchange or reclassification of their shares; (iii) effect a
conversion or exchange of any shares of another class or series into their class
or series; (iv) change the designation, preferences, limitations or relative
rights of their shares; (v) change the shares into a different number of shares,
or into the same number of another class or series; or (vi) divide their shares
into a series or determine the designation, preferences, limitation or relative
rights of any such series, or authorize the board to take any such action. The
Banking Act has no similar provisions regarding class voting on amendments to a
New Jersey state chartered bank's certificate of incorporation.
All shareholder voting rights of Farrington are vested in the holders
of Farrington Common Stock. All shareholder voting rights of United are vested
in the holders of the United Common Stock.
Classified Board of Directors
Under the Banking Act, there is no ability for a New Jersey state
chartered bank to provide for a classified board of directors; each director on
the Farrington Board must be elected by the stockholders annually. The NJBCA
permits a New Jersey corporation to provide for a classified board in its
certificate of incorporation and United currently has a classified Board of
Directors. The United Board is divided into three classes, with one class of
directors generally elected for three-year terms at each annual meeting.
Rights of Dissenting Shareholders
Generally, shareholders of a New Jersey state chartered bank who
dissent from a conversion, merger or consolidation of the bank are entitled to
appraisal rights. The shareholders of Farrington have statutory rights of
appraisal with respect to the Merger. See "Rights Of Dissenting Farrington
Shareholders."
Shareholders of a New Jersey corporation who dissent from a merger,
consolidation, sale of all or substantially all of the corporation's assets or
certain other corporate transactions are generally entitled to appraisal rights.
No statutory right of appraisal exists, however, where the stock of the New
Jersey corporation is (i) listed on a national securities exchange, (ii) is held
of record by not less than 1,000 holders, or (iii) where the consideration to be
received pursuant to the merger, consolidation or sale consists of cash or
securities or other obligations which, after the transaction, will be listed on
a national securities exchange or held of record by not less than 1,000 holders.
Shareholder Consent to Corporate Action
The Banking Act provides that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if the
shareholders unanimously consent in writing.
Except as otherwise provided by the certificate of incorporation (and
United's Certificate of Incorporation presently is silent on this issue), the
NJBCA permits any action required or permitted to be taken at any meeting of a
corporation's shareholders, other than the annual election of directors, to be
taken without a meeting upon the written consent of shareholders who would have
been entitled to cast the minimum number of votes necessary to authorize such
action at a meeting of shareholders at which all shareholders entitled to vote
were present and voting. The annual election of directors, if not conducted at a
shareholders' meeting, may only be effected by unanimous written consent. Under
the NJBCA, a shareholder vote on a plan of merger or consolidation, if not
conducted at a shareholders' meeting, may only be effected by either: (i)
unanimous written consent of all shareholders entitled to vote on the issue with
advance notice to any other shareholders, or (ii) written consent of
shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize such action at a meeting, together with advance notice to
all other shareholders.
Dividends
The Banking Act provides that a New Jersey state chartered bank may
declare and pay dividends on its outstanding stock so long as, following the
payment of such dividend, the capital stock of the bank will be unimpaired and
the bank will have a surplus of not less than 50% of its capital stock or, if
not, the payment of such dividend will not reduce the surplus of the bank.
Unless there are other restrictions contained in its certificate of
incorporation (and United's Certificate of Incorporation presently contains no
such restriction), the NJBCA generally provides that a New Jersey corporation
may declare and pay dividends on its outstanding stock so long as the
corporation is not insolvent and would not become insolvent as a consequence of
the dividend payment. Because funds for the payment of dividends by United must
come primarily from the earnings of United's bank subsidiary, as a practical
matter, any restrictions on the ability of UNB to pay dividends act as
restrictions on the amount of funds available for the payment of dividends by
United. At September 30, 1996, United had $13 million available for shareholder
dividends. For a description of the regulatory restrictions on dividend payments
by UNB, see "Description of United Capital Stock -- Dividend Rights."
By-laws
Under the Banking Act, the authority to adopt, amend, or repeal the
by-laws of a New Jersey state chartered bank is held exclusively by the bank's
board of directors.
Under the NJBCA, the board of directors of a New Jersey corporation has
the power to adopt, amend, or repeal the corporation's by-laws, unless such
powers are reserved in the certificate of incorporation to the shareholders
(which United's Certificate of Incorporation presently does not do).
Preemptive Rights
Under the Banking Act, shareholders of Farrington have preemptive
rights to purchase a pro rata portion of additional shares of Farrington stock
issued from time to time except for authorized but unissued shares, which may be
issued upon terms and conditions established by the Farrington Board of
Directors without preemptive rights. As of November 30, 1996, Farrington had
1,334,608 shares of authorized but unissued shares, as to which preemptive
rights would not apply. Under the NJBCA, shareholders of New Jersey corporations
have only such preemptive rights as may be provided in the certificate of
incorporation. United's Certificate of Incorporation does not provide
shareholders with preemptive rights.
Shareholder Protection Legislation
The New Jersey Shareholders Protection Act (the "NJSPA") prohibits
certain transactions involving an "interested shareholder" and a "resident
domestic corporation." An "interested shareholder" is one that is directly or
indirectly a beneficial owner of 10% or more of the voting power of the
outstanding voting stock of a resident domestic corporation. The NJSPA prohibits
certain business combinations between an interested shareholder and a resident
domestic corporation for a period of five years after the date the interested
shareholder acquired its stock, unless the business combination was approved by
the resident domestic corporation's board of directors prior to the stock
acquisition date. After the five-year period expires, the prohibition on certain
business combinations continues unless the combination is approved by the
affirmative vote of two-thirds of the voting stock not beneficially owned by the
interested shareholder, the combination is approved by the board prior to the
interested shareholder's stock acquisition date or certain fair price provisions
are satisfied. The Banking Act contains no provisions similar to those set forth
in the NJSPA. However, persons seeking to acquire control of Farrington through
the purchase of Farrington shares must receive the approval of the FDIC under
the federal Change in Bank Control Act.
Preferred Stock
United can (except in connection with certain transactions with
"Interested Shareholders") issue new shares of authorized but unissued United
Common Stock or preferred stock without shareholder approval. See "The Proposed
Merger -- Description of United Capital Stock."
LEGAL OPINION
Certain legal matters relating to the issuance of the shares of United
Common Stock offered hereby and certain tax consequences of the Merger will be
passed upon by Pitney, Hardin, Kipp & Szuch, counsel to United.
EXPERTS
The consolidated financial statements of Farrington as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995 have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of United as of December 31, 1995
and 1994 and for each of the years in the three-year period ended December 31,
1995, incorporated by reference herein, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein, in reliance upon the
authority of said firm as experts in giving said reports.
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF FARRINGTON
Independent Auditors' Report........................................... F - 1
Consolidated Statements of Financial Condition as of
December 31, 1995 and 1994............................................ F - 2
Consolidated Statements of Earnings for the years
ended December 31, 1995, 1994 and 1993 ............................... F - 3
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1994 and 1993........... F - 4
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993............................... F - 5
Notes to consolidated financial statements for the years
ended December 31, 1995, 1994, 1993................................... F - 6
Consolidated Statements of Financial Condition as of
September 30, 1996 (unaudited) and December 31, 1995.................. FF - 1
Consolidated Statements of Earnings for the three-month
periods ended September 30, 1996 and 1995 (unaudited).................. FF - 2
Consolidated Statements of Earnings for the nine-month
periods ended September 30, 1996 and 1995 (unaudited.................. FF - 3
Consolidated Statements of Changes in Shareholders' Equity for the
nine-month periods ended Septembe 30, 1996 and 1995 (unaudited)....... FF - 4
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1996 and 1995 (unaudited)....................... FF - 5
<PAGE>
Independent Auditors' Report
KPMG Peat Marwick LLP
The Shareholders and Board of Directors
Farrington Bank:
We have audited the accompanying consolidated statements of financial condition
of Farrington Bank and subsidiary as of December 31, 1995, and 1994, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farrington Bank and
subsidiary as of December 31, 1995, and 1994, and the results of their
operations and their cash flows for each of the years in the three year-period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 8 to the consolidated financial statements, on
January 1, 1993, the Bank adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." In addition, as explained in note 1 to the
consolidated financial statements on January 1, 1994, the Bank adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Short Hills, New Jersey
February 22, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
DECEMBER 31, 1995, AND 1994
1995 1994
- ----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,625 $ 1,366
Federal funds sold 3,004 2,540
------- -----
Total cash and cash equivalents 4,629 3,906
Investment securities, net (estimated market value of $5,159
and $9,832 in 1995 and 1994, respectively) (note 2) 5,146 9,968
Securities available for sale (note 3) 19,173 13,303
Loans, net (note 4) 30,447 37,041
Premises and equipment, net (note 5) 292 347
Accrued interest receivable 558 461
Other assets (note 8) 472 591
------ ------
Total assets $60,717 $ 65,617
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to depositors (note 6):
Non-interest bearing 7,137 5,819
Interest bearing 44,199 52,165
------ ------
Total due to depositors 51,336 57,984
Accrued interest payable 253 83
Accrued expenses and other liabilities 990 658
------- --------
Total liabilities 52,579 58,725
------- ------
SHAREHOLDERS' EQUITY (notes 9, 11 and 12):
Common stock, par value $5.00. Authorized 2,000,000
shares at December 31, 1995 and 1994, respectively;
issued and outstanding 604,972 and 549,990 shares at
December 31, 1995 and 1994, respectively 3,025 2,750
Paid-in capital 2,982 2,673
Retained earnings 2,082 1,535
Unrealized gain (loss) on securities available for sale, net
of income tax expense (benefit) of $32 and $(44)
at December 31, 1995 and 1994, respectively 49 (66)
--------- -------
Total shareholders' equity 8,138 6,892
Commitments and contingencies (note 10) --------- -------
Total liabilities and shareholders' equity $60,717 $ 65,617
========= =======
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
Years ended December 31, 1995, 1994 and 1993
(Dollars in Thousands, except per share)
1995 1994 1993
---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C>
Loans (note 4) $ 4,229 $ 4,732 $ 4,081
Investment securities 532 133 706
Securities available for sale 613 672 --
Federal funds sold 185 93 60
------ ------ ------
Total interest income 5,559 5,630 4,847
INTEREST EXPENSE ON DEPOSITS (note 6) 976 934 1,103
------ ------ -------
Net interest income 4,583 4,696 3,744
PROVISION FOR LOAN LOSSES (note 4) 422 533 952
------ ------ ------
Net interest income after provision for
loan losses 4,161 4,163 2,792
----- ----- -----
OTHER INCOME:
Fee income on loans 1,890 2,222 2,765
Service charges on deposit accounts 36 32 27
Gain on sales of loans 310 229 587
Other income 88 75 88
----- ------ ------
Total other income 2,324 2,558 3,467
----- ----- -----
OTHER EXPENSE:
Salaries and employee benefits 1,218 1,151 1,398
Net occupancy expense (note 10) 307 307 286
Other operating expenses 1,018 963 1,252
Credit card operations 2,138 2,591 1,693
----- ----- -----
Total other expense 4,681 5,012 4,629
----- ----- -----
Income before income tax expense and cumulative effect
of change in accounting for income taxes 1,804 1,709 1,630
672 657 678
--- --- ---
INCOME TAX EXPENSE (note 8)
Income before cumulative effect of change in accounting
for income taxes 1,132 1,052 952
Cumulative effect of change in accounting for income taxes -- -- 86
------- ------- -----
Net income $ 1,132 $ 1,052 $ 1,038
===== ===== =====
Net income per share:
Before cumulative effect of change in accounting
for income taxes $ 1.87 $ 1.74 $ 1.58
Cumulative effect of change in accounting for income taxes -- -- .14
------- ------- -----
$ 1.87 $ 1.74 $ 1.72
==== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING 604,972 604,972 604,972
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
Unre-
alized gain
(loss)
on secu-
rities
avail- Total
Common able for share
Stock Common Paid-in Retained sale holders'
Shares stock capital earnings equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 500,000 $2,500 $2,473 $ (105) $ - $ 4,868
Net income - - - 1,038 - 1,038
------------ -------- ----------- ------ --- -----
Balance, December 31, 1993 500,000 2,500 2,473 933 - 5,906
Dividend in stock 49,990 250 200 (450) - -
Unrealized loss on securities
available for sale, net of
income taxes - - - - (66) (66)
Net income - - 0 1,052 - 1,052
--------- ----- ------- ------- ----- -----
Balance, December 31, 1994 549,990 2,750 2,673 1,535 (66) 6,892
Distributions in lieu of
fractional shares - - - (1) - (1)
Dividend in stock 54,982 275 309 (584) - -
Change in unrealized gain on
securities available for
sale, net of income taxes - - - - 115 115
Net income - - - 1,132 - 1,132
------- -------- ------- ------ -------- -------
BALANCE, December 31, 1995 604,972 $ 3,025 $2,982 $2,082 $ 49 $ 8,138
======== ======= ======= ======= ======= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,132 $ 1,052 $ 1,038
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 422 533 952
Depreciation 64 73 65
Amortization of investment securities premiums and discounts,
net (33) 55 (170)
Amortization of organizational costs -- 22 20
(Gain) loss on sales of securities available for sale (7) 2 --
Cumulative effect of change in accounting for income taxes -- -- (86)
Gain on sales of loans (310) (229) (587)
Proceeds from sales of loans 3,503 2,701 4,794
Origination of loans held for sale (2,083) (3,030) (4,325)
(Increase) decrease in accrued interest receivable (97) 47 (263)
Decrease in income taxes receivables -- -- 202
Decrease (increase) in other assets 119 (45) (128)
Increase (decrease) in accrued interest payable 170 3 (77)
Increase (decrease) in accrued expenses and other liabilities 256 (882) 1,372
------------- --------- ----------
Net cash provided by operating activities 3,136 302 2,807
------------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 13,430 20,598 24,800
Proceeds from maturities of investment securities 8,000 -- --
Proceeds from sales of securities available for sale 1,032 3,036 --
Purchases of investment securities (3,145) (10,023) (34,237)
Purchases of securities available for sale (20,134) (13,681) --
Net decrease (increase) in loans 5,062 106 (6,178)
Capital expenditures, net (9) (16) (47)
----------- ---------- ---------
Net cash provided by (used in) investing activities 4,236 20 (15,662)
------------- --------- ----------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Dollars in Thousand)
1995 1994 1993
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Net (decrease) increase in deposits (6,648) 365 10,845
Distributions in lieu of fractional shares (1) -- --
------------ ---------- ----------
Net cash (used in) provided by financing
activities (6,649) 365 10,845
------------ ---------- -----------
Increase (decrease) in cash and equivalents 723 687 (2,010)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,906 3,219 5,229
------------ ---------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,629 $ 3,906 $ 3,219
============ ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION- cash paid during the year for:
Interest $ 806 $ 932 $ 1,180
============ ========== ============
Income taxes $ 436 $ 1,610 $ 9
============ ========== ============
Noncash activities - transfer of investment securities to
securities available for sale $ -- $ 23,368 $ --
============ ========== ============
Change in unrealized gain on securities available for sale,
net of income taxes $ 115 $ -- $ --
============ ========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
The consolidated financial statements of Farrington Bank (the Bank) are
prepared on the accrual basis and include the accounts of the Bank and
its wholly-owned subsidiary, Farrington Investment Company, Inc.
All significant intercompany balances and transactions have been
eliminated from the accompanying consolidated financial statements.
Organization and Business
The Bank is a commercial bank incorporated under the laws of the State
of New Jersey. The Bank commenced banking activities on February 20,
1990. The Bank provides community banking services to the greater North
Brunswick, New Jersey area, as well as a nationwide secured credit card
program, and a statewide Small Business Administration (SBA) program.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the statement of financial condition
and revenues and expenses for the year then ended. Actual results could
differ significantly from those estimates and assumptions.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance
for loan losses. In connection with the determination of the allowance
for loan losses, management generally obtains independent appraisals
for significant properties.
Cash and Cash Equivalents
Cash and cash equivalents, for purposes of the consolidated statements
of cash flows, consist of cash on hand and in banks, short-term liquid
investments and loans of Federal funds.
Investment Securities
Investment securities are comprised of debt securities that the Bank
has the positive intent and ability to hold to maturity. Such
securities are stated at cost, adjusted for amortization of premium and
accretion of discount using a method that approximates the level yield
method. Net gains or losses on the sale of investment securities are
determined by the specific identification method.
Securities Available for Sale
F-7
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
On January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). Accordingly, debt securities that cannot
be categorized as either investment securities or trading account
securities are classified as securities available for sale. Such
securities include debt securities to be held for indefinite periods of
time and not intended to be held to maturity, as well as marketable
equity securities. Securities held for indefinite periods of time
include securities that management intends to use as part of its
asset/liability management strategy and that may be sold in response to
changes in interest rates, resultant prepayment risk and other factors
related to interest rate and resultant prepayment risk changes.
Securities available for sale are carried at fair value and unrealized
holding gains and losses (net of related tax effects) on such
securities are excluded from earnings, but are included in
shareholders' equity. Upon realization, such gains or losses will be
included in earnings using the specific identification method.
Loans
Loans (other than loans held for sale) are stated at the principal
amount outstanding, net of deferred loan origination fees and costs and
unearned discounts and the allowance for loan losses. Interest on loans
is accrued and credited to income as earned. Loan origination fees and
certain direct loan origination costs are deferred and amortized into
interest income over the life of the loan as an adjustment to the
loan's yield.
The accrual of income on loans is generally discontinued when a loan
becomes more than 90 days delinquent or when certain factors indicate
reasonable doubt as to the timely collectibility of such income. Loans
on which the accrual of income has been discontinued are designated as
nonaccrual loans. All previously accrued interest is reversed, and
income is recognized subsequently only in the period collected. A
nonaccrual loan is not returned to an accrual status until factors
indicating doubtful collection no longer exist.
Impaired Loans
The Financial Accounting Standards Board (the FASB) issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan," in May 1993 and amended it with Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," issued in
October 1994 (collectively referred to hereafter as SFAS 114).
SFAS 114 requires that the value of an impaired loan be measured based
upon: (a) the present value of expected future cash flows discounted at
the loan's effective interest rate or, (b) at the fair value of the
collateral, if the loan is collateral dependent. Any shortfall between
this value and the recorded investment in the loan must be recognized
by establishing a reserve for credit losses. Management, considering
current information and events regarding the borrowers ability to repay
their obligations, considers a loan to be impaired when it is probable
that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. When a loan is considered
to be impaired, the amount of impairment is measured based on the fair
value of the collateral. Impairment losses are included in the
allowance for loan losses through provisions charged to operations.
Prior periods have not been restated.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that the collectibility of the
principal is unlikely. The
F-8
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans. The evaluations
take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, industry experience, collateral value and
current economic conditions that may affect the borrower's ability to
pay. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on
their judgments of information available to them at the time of their
examination.
Loan Sales
The Bank originates SBA guaranteed loans which have maturities of up to
25 years. The loans are guaranteed up to 90% by the Federal government.
From time to time, the Bank may sell the guaranteed portion of such
loans. Gains recorded on sales are calculated on the basis of a pro
rata allocation of the carrying value of the loan, which approximates a
fair value pro rata allocation. Loans held for sale are recorded at the
lower of cost or market.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets or leases. Repair and
maintenance items are expensed and improvements are capitalized.
Income Taxes
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS 109.
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. 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. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in taxe rates is recognized in income in the
period that includes the enactment date.
Effective January 1, 1993, the Bank adopted SFAS 109 and has reported
the cumulative effect of that change in the method of accounting for
income taxes in the 1993 statement of earnings.
Net Income Per Share
Net income per share is computed based on 604,972 weighted average
shares outstanding in 1995, 1994 and 1993. During 1995 and 1994 the
Bank declared a 10% stock dividend payable to all shareholders. This
increased the number of shares issued and outstanding from 500,000
shares at December 31, 1993 to 549,990 shares at December 31, 1994 and
604,972 shares at December 31, 1995. The 1993 and 1994 weighted average
shares have been restated to reflect the issuance of addi
F-9
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
tional stock in relation to the stock dividend. Shares issuable under
the Bank's stock option plan have not been included in the calculation
of net income per share since their effect is not significant.
Reclassifications
Certain reclassifications have been made in the 1993 and 1994 financial
statements in order to conform to the 1995 presentation.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) was issued by the FASB in October
1995. SFAS 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument 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 cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion
25). Entities electing to remain with the accounting in Opinion 25 must
make pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting defined in this statement had
been applied. SFAS 123 was effective for the Bank's fiscal years
beginning after January 1, 1996. Management has elected to remain with
the accounting in Opinion 25.
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement is effective for
transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996 and application is
prospective. Management has not yet determined the impact that the
adoption of this standard will have on the Bank's consolidated
financial position or results of operations.
(2) Investment Securities
The book value of investment securities included in the December 31,
1995 and 1994 consolidated statements of financial condition and the
approximate market value is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------ -------------
Book Market Book Market
value value value value
U.S. Treasury and Federal agency securities:
<S> <C> <C> <C> <C>
Maturing within 1 year $ 5,007 5,022 4,967 4,909
Maturing between 1-5 years -- -- 5,001 4,923
----- ------ ----- -----
5,007 5,022 9,968 9,832
------- ------- ----- -----
Municipal bonds:
Maturing within 1 year 46 45 - -
Maturing between 1-5 years 50 50 - -
Maturing between 6-10 years 43 42 - -
------ ------ ----- ------
139 137 - -
------ ------ ----- ------
$ 5,146 5,159 9,968 9,832
====== ===== ===== =======
</TABLE>
F-10
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
On January 1, 1994, all of the investment securities were segregated
from the investment securities portfolio and identified as securities
available for sale as part of the Bank's adoption of SFAS 115.
There were no sales of investment securities in 1995, 1994 and 1993
The gross unrealized gains and losses on investment securities for the
years ended December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------- ------------------
Gains Losses Gains Losses
U.S. Treasury and Federal agency
<S> <C> <C> <C> <C>
securities $ 14 - - 136
Municipal bonds - (1) -
--- -- ---- -----
$ 14 (1) - 136
=== === ===== =====
</TABLE>
<TABLE>
<CAPTION>
(3) Securities Available for Sale
A summary of securities available for sale at December 31, 1995 and 1994 is as follows (in thousands):
1995 1994
Amor- Amor-
Market tized Market tized
value cost value cost
U.S. Treasury and Federal agency securities:
<S> <C> <C> <C> <C>
Maturing within 1 year $ 6,074 6,061 13,303 13,413
Maturing between 1-5 years 13,099 13,031 - -
------ ------ --------- - ----------
$19,173 19,092 13,303 13,413
------ ------ ------ ------
</TABLE>
The following information pertains to sales of securities available for
sale for the years ended December 31, 1995, 1994 and 1993 (in
thousands):
1995 1994 1993
---- ---- ----
Sales
Gross Realized: $1,032 3,036 --
===== ======= ======
Gains 7 --
====== ======
Losses -- 2 --
====== ====== ======
F-11
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
The gross unrealized gains and losses on securities available for sale
for the years ended December 31, 1995 and 1994 are as follows (in
thousands):
1995 1994
---- ----
Gains Losses Gains Losses
U.S. Treasury and Federal
agency securities
81 - - 110
== ======= ======= ===
At December 31, 1995 and 1994, securities available for sale having a
market value of approximately $1,026,500 and $990,600, respectively,
were pledged to secure certain public fund deposits and for other
purposes required by law.
(4) Loans
A summary of loans at December 31, 1995 and 1994 is as follows (in
thousands):
1995 1994
---- ----
Loans held for sale $ 90 1,200
Real estate mortgages - residential 1,379 1,695
Commercial and industrial loans 11,317 12,004
Lease financing receivable 1,755 2,769
Consumer loans:
Credit cards 14,450 17,779
Other 2,850 3,327
------------ -----------
Less: 31,841 38,774
Allowance for loan losses 885 1,171
Deferred loan fees and discounts 509 562
------------ -----------
$ 30,447 37,041
============ ===========
At December 31, 1995 and 1994, loans in the amount of $1,208,659 and
$1,109,617, respectively, were on a nonaccrual status. If these loans
had continued to realize interest in accordance with their contractual
terms, approximately $119,967 and $102,728, respectively, of interest
income would have been realized.
At December 31, 1995 and 1994, loans to directors and executive
officers amounted to $985,559 and $1,956,897, respectively, which were
current as to principal and interest.
F-12
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
An analysis of the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993 is as follows (in thousands):
1995 1994 1993
---- ---- ----
Balance at beginning of year $ 1,171 1,138 656
Provision charged to operations 422 533 952
Loans charged off (708) (500) (470)
------ ------- -------
Balance at end of year $ 885 1,171 1,138
====== ======= =======
The Bank adopted the provisions of SFAS 114, effective January 1, 1995.
The Bank considers all nonaccrual status loans with an outstanding
balance individually greater than $100,000 which are not credit card or
residential mortgage loans as impaired loans. All applicable loans have
been evaluated for collectibility under the provisions of these
statements.
The recorded investment in loans for which an impairment has been
recognized and the related allowance for loan losses as of December 31,
1995 was $860,121 and $181,299, respectively.
The average monthly recorded investment in the impaired loans was
$596,257 for the year ended December 31, 1995. During the year ended
December 31, 1995, $12,188 of interest income was recognized on the
impaired loans after they were classified as impaired.
(5) Premises and Equipment
Premises and equipment at December 31, 1995 and 1994 consists of the
following (in thousands):
1995 1994
Leasehold improvements $ 158 158
Furniture and equipment 419 410
------- ------
Total 577 568
Accumulated depreciation (285) (221)
------- ------
$ 292 347
======= ======
F-13
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
(6) Deposits
A summary of deposit balances at December 31, 1995 and 1994 is as follows
(in thousands):
1995 1994
---- ----
Demand:
Non-interest bearing $ 7,137 5,819
Interest bearing 2,325 2,378
Money market 6,176 14,127
Savings 23,448 30,140
Time:
$100,000 or more 2,280 845
Other 9,970 4,675
-------- --------
Total deposits $ 51,336 57,984
====== ========
Interest expense on certificates of deposit in denominations of $100,000
or more amounted to approximately $56,332 $22,150 and $42,385 for the
years ended December 31, 1995, 1994 and 1993, respectively.
(7) Fair Value of Financial Instruments
The FASB issued Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments" (SFAS 107). The
Bank adopted SFAS 107 in the fiscal year ended December 31, 1995. SFAS
107 requires that the Bank disclose estimated fair values for its
financial instruments. Because no market exists for a significant portion
of the Bank's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities
For securities, fair values are based upon quoted market prices or
dealer quotes.
Loans
The fair value of loans is estimated by discounting the future cash
flows using the build-up approach consisting of four components: the
risk-free rate, credit quality, operating expense and prepayment option
price.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as demand
deposits, savings and money market accounts, is equal to the carrying
amount. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows.
F-14
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
The following table summarizes carrying amounts and fair value for
financial instruments at December 31, 1995 (in thousands):
Carrying Fair
amount value
------ -----
Financial assets:
Cash and cash equivalents $ 4,629 4,629
Investment securities 5,146 5,159
Securities available for sale 19,173 19,173
Loans, net of allowance for loan losses 30,447 30,589
Financial liabilities - deposits 51,336 51,385
====== ======
(8) Income Taxes
As discussed in note 1, the Bank adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of
$86,384 is determined as of January 1, 1993 and is reported separately in
the statement of earnings for the year ended December 31, 1993. Income
tax expense from operations for the years ended December 31, 1995, 1994
and 1993 consists of the following (in thousands):
Current Deferred Total
------ -------- -----
1995:
U.S. Federal $ 531 33 564
State 101 7 108
--- ------- ---
632 40 672
=== ======= ===
1994:
U.S. Federal 577 (72) 505
State 165 (13) 152
--- ------- ---
$ 742 (85) 657
=== ======= ===
1993:
U.S. Federal 741 (231) 510
State 228 (60) 168
--- ------- -------
$ 969 (291) 678
=== ======= ===
A reconciliation of "expected" income tax expense for the years ended
December 31, 1995, 1994 and 1993, computed at the Federal statutory rate
of 34%, to reported income tax expense is as follows (in thousands):
1995 1994 1993
---- ---- ----
Computed "expected" income tax expense $ 613 581 554
State and local taxes, net of Federal benefit 72 102 101
Other (13) (26) 23
--- ---- --
$ 672 657 678
===== ==== ====
F-15
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
Total income tax expense for the years ended December 31, 1995, 1994
and 1993 was allocated as follows (in thousands):
1995 1994 1993
---- ---- ----
Income tax expense from operations $ 672 657 678
Shareholders' equity - unrealized gain (loss)
on securities available for sale 76 (44) --
--- ----- ---
$ 748 613 678
===== === ===
The significant components of deferred income tax expense for the years
ended December 31, 1995, 1994 and 1993 were due to changes in temporary
differences between tax and financial reporting purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are as follows (in thousands):
1995 1994
---- ----
Deferred tax assets:
Deferred loan fees/costs $ 155 161
Reserve for loan loss 104 143
Nonaccrual interest 109 86
Depreciation on premises and equipment 33 8
Unrealized loss on securities available for sale -- 44
Other 4 29
--- ---
Total gross deferred tax assets 405 471
---- ----
Deferred tax liabilities:
Unrealized gain on securities available for sale 32 --
Investment securities 26 8
Other 1 1
-- --
Total gross deferred tax liabilities 59 9
--- --
Net deferred tax asset $ 346 462
======== =====
(9 ) Regulatory Matters
Capital Requirements
The Federal Deposit Insurance Corporation (FDIC) has adopted risk-based
capital guidelines which require a minimum ratio of 8% of total
risk-based capital to assets, as defined in the guidelines. Financial
institutions which fail to meet the risk-based capital requirement are
subject to asset growth and other limitations under the FDIC
guidelines.
F-16
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
The FDIC supplemented the risk-based capital guidelines with an
additional capital ratio referred to as the leverage ratio or core
capital ratio. The FDIC regulations require a financial institution to
maintain a minimum leverage ratio of 4% to 5%, depending upon the
condition of the institution.
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA became
effective on December 19, 1992. In addition to the prompt corrective
action requirements, FDICIA includes significant changes to the legal
and regulatory environment for insured depository institutions,
including reductions in insurance coverage for certain kinds of
deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting and operations.
In response to FDICIA, regulators have adopted regulations which
establish a system for prompt regulatory corrective action with respect
to depository institutions which do not meet minimum capital
requirements. The "prompt corrective action" regulations established
five categories of depository institutions: "well-capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Each category
relates to the level of capital for the depository institution. A
"well-capitalized" depository institution is one that significantly
exceeds the minimum level required by regulation (i.e., total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of 5% or greater). The Bank
exceeded the minimum required level.
On May 25, 1993, the Board of Directors of the Bank signed a Memorandum
of Understanding (MOU) with the FDIC. The MOU contained, among other
things, provisions requiring the Bank to : (a) maintain a Tier 1
leverage capital ratio of not less than 8%, prohibiting the Bank from
declaring dividends that would reduce the capital ratio below 8%
without prior approvals; (b) reduce certain classified assets to not
more than 25% of Tier 1 leverage capital; (c) maintain an adequate
level of allowance for loan losses, and (d) revise certain internal
operating policies and procedures. On August 26, 1994, the MOU was
removed by the FDIC.
On May 25, 1994, the Board of Directors of the Bank signed a Memorandum
of Understanding (MOU) with the FDIC with provisions requiring the Bank
to improve the Bank's Compliance Program. On January 25, 1996, the MOU
was removed by the FDIC.
(10) Commitments, Contingencies and Concentrations of Credit Risk
Commitments
The Bank is party to financial instruments and commitments with
off-balance-sheet credit risk in the normal course of business. These
financial instruments and commitments include unused home equity lines
of credit, commitments to extend credit, credit card loans and
commitments to purchase securities. These commitments and instruments
involve, to varying degrees, elements of risk in excess of the amounts
recognized in the consolidated financial statements.
The Bank's maximum exposure to credit losses in the event of
nonperformance by the other party to these financial instruments and
commitments is represented by the contractual amount. The Bank uses the
same credit policies in granting commitments and conditional
obligations as it does for financial instruments recorded in the
consolidated statements of financial condition.
F-17
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
At December 31, 1995, financial instruments and commitments whose
contractual amounts represent off-balance-sheet credit risk are as
follows (in thousands):
Performance standby letters of credit $ 320
Unused portion of commercial lines of credit and
undisbursed portion of construction loans 1,236
Unused home equity lines of credit (primarily
floating rate) 1,280
Unused secured credit card lines of credit - fixed rate 7,723
Commitments to extend credit - variable rate 1,686
------
$12,245
=======
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer.
On July 18, 1991, the Bank entered into an agreement to lease permanent
office and branch retail space from directors of the Bank at a base
annual rate of $94,500 plus certain expenses to be increased annually
by a percent of the annual increase in the Consumer Price Index. The
building is financed by a first mortgage held by the Bank. As part of
the branch approval process, management obtained an independent
appraisal evidencing that the terms and conditions of the lease are no
less favorable than such terms and conditions would be with unrelated
parties.
The Bank leases land and a building for its banking facility under an
operating lease which expires in 1996 but which contains certain
renewal options. As of December 31, 1995, future minimum rental
payments excluding the renewal options under these leases are $55,125
in 1996.
Rental expense aggregated $126,292 $125,780 and $122,092 for the years
ended December 31, 1995, 1994 and 1993, respectively, which is included
in net occupancy expense in the consolidated statements of earnings.
Contingencies
The Bank may, in the ordinary course of business, be a party to
litigation involving collection matters, contract claims and other
legal proceedings relating to the conduct of its business. In
management's judgment, the financial position of the Bank will not be
affected materially by the final outcome of any current legal
proceedings or other contingent liabilities and commitments.
The Bank has entered into employment agreements with its executive
officers which provide for quarterly incentive compensation based on
the Bank's performance as defined in the agreements. As of December 31,
1995 and 1994, there was approximately $42,000 and $34,000,
respectively, due to the officers for such compensation under the
program.
F-18
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT.
Concentrations of Credit Risk
The Bank grants commercial, consumer and other loans that, in many
cases, are fully or partially collateralized by real estate located in
central New Jersey.
(11) Dividend Restrictions
The payment of dividends by the Bank is restricted. Under the New
Jersey Banking Act of 1948, as amended, the Bank may pay dividends only
out of retained earnings and out of paid-in capital to the extent that
paid-in capital exceeds 50% of stated capital.
(12) Long-term Incentive Compensation Plan
During 1992, the shareholders approved a long-term incentive
compensation plan for key employees. In accordance with the plan,
options for the purchase of 5% of the outstanding shares of the Bank's
common stock may be granted. During the year ended December 31, 1993,
12,100 options to purchase the Bank's common stock at an exercise price
of $8.26 per share were granted. In 1995, 10,000 options to purchase
the Bank's common stock at an exercise price of $10 per share were
granted. As of December 31, 1995, no options had been exercised. All
options expire ten years after the date that they are granted. All
shares are fully vested.
The shareholders approved a long-term incentive compensation plan for
outside directors in 1994. In November 1994, 27,492 options to purchase
the Bank's common stock at an exercise price of $9.09 per share were
granted. As of December 31, 1995, no options had been exercised. All
options expire ten years after the date that they are granted. All
shares are fully vested.
(13) Subsequent Event (Unaudited)
The bank entered into an Agreement and Plan of Merger (the "Plan")
dated November 12, 1996 with United National Bancorp ("United") and
United's banking subsidiary, United National Bank. The Plan, if
approved, would result in the Bank being merged with and into United
National Bank, with shareholders of the Bank receiving .7647 shares of
common stock of United for each share of the Bank's common stock,
subject to certain adjustments. The proposed transaction is subject to
various approvals by shareholders and regulatory authorities.
F-19
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and December 31, 1995
(Unaudited)
(Dollars in Thousands)
ASSETS 1996 1995
---- ----
Cash and due from banks $1,923 $1,625
Federal funds sold 6,425 3,004
----- -----
Total cash and cash equivalents 8,348 4,629
Investment securities, net (estimated market value of
$7,098 and $5,159 at September 30, 1996 and
December 31, 1995 respectively) 7,144 5,146
Securities available for sale 16,897 19,173
Loans, net 29,625 30,447
Premises and equipment, net 292 292
Accrued interest receivable 583 558
Other assets 730 472
--- ---
Total assets 63,619 60,717
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Due to depositors:
Non-interest bearing 8,495 7,137
Interest bearing 45,130 44,199
------ ------
Total due to depositors 53,625 51,336
Accrued interest payable 332 253
Accrued expenses and other liabilities 682 990
--- ---
Total liabilities 54,639 52,579
------ ------
SHAREHOLDERS' EQUITY:
Common stock, par value $5.00. Authorized 2,000,000 shares
at September 30, 1996 and December 31, 1995, respectively;
issued and outstanding 665,392 and 604,972 shares at
September 30, 1996 and December 31, 1995, respectively 3,327 3,025
Paid-in capital 3,285 2,982
Retained earnings 2,444 2,082
Unrealized (loss) gain on securities available for sale,
net of income tax (benefit) expense of $(50) and $32 at
September 30, 1996 and December 31, 1995, respectively (76) 49
---- --
Total shareholders' equity 8,980 8,138
------ -----
COMMITMENTS AND CONTINGENCIES
Total liabilities and shareholders' equity $63,619 $60,717
======== ======
FF-1
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months ended September 30, 1996 and 1995
(Unaudited)
(Dollars in Thousands)
1996 1995
---- ----
INTEREST INCOME:
Loans $ 1,034 $ 984
Investment securities 136 68
Securities available for sale 217 242
Federal funds sold 59 45
---------- ---------
Total interest income 1,446 1,339
INTEREST EXPENSE ON DEPOSITS 316 221
---------- ---------
Net interest income 1,130 1,118
PROVISION FOR LOAN LOSSES 100 132
---------- ---------
Net interest income after provision
for loan losses 1,030 986
OTHER INCOME:
Fee income on loans 389 469
Service charges on deposit accounts 9 9
Gain on sales of loans 238 2
Other income 10 19
---------- ---------
Total other income 646 499
OTHER EXPENSE:
Salaries and employee benefits 296 307
Net occupancy expense 81 78
Other operating expenses 481 286
Credit card operations 274 483
---------- ---------
Total other expense 1,132 1,154
Income before income tax expense 544 331
INCOME TAX EXPENSE 212 110
----------- ----------
Net income $ 332 $ 221
========== =========
Net income per share $ .50 $ .33
====== =========
WEIGHTED AVERAGE SHARES OUTSTANDING 665,392 665,392
======= =======
FF-2
<PAGE>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months ended September 30, 1996 and 1995
(Unaudited)
(Dollars in Thousands)
1996 1995
---- ----
INTEREST INCOME:
Loans $ 2,958 3,232
Investment securities 331 380
Securities available for sale 769 436
Federal funds sold 177 126
---------- ---------
Total interest income 4,235 4,174
INTEREST EXPENSE ON DEPOSITS 957 711
---------- ---------
Net interest income 3,278 3,463
PROVISION FOR LOAN LOSSES 228 338
---------- ---------
Net interest income after provision
for loan losses 3,050 3,125
OTHER INCOME:
Fee income on loans 1,196 1,440
Service charges on deposit accounts 28 27
Gain on sales of loans 446 247
Other income 55 68
---------- ---------
Total other income 1,725 1,782
OTHER EXPENSE:
Salaries and employee benefits 918 906
Net occupancy expense 244 232
Other operating expenses 934 1,019
Credit card operations 1,093 1,610
---------- ---------
Total other expense 3,189 3,767
Income before income tax expense 1,586 1,140
INCOME TAX EXPENSE 619 388
--------- --------
Net income $ 967 752
========= =========
Net income per share $ 1.45 1.13
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 665,392 665,392
======= =======
FF-3
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
Nine Months ended September 30, 1996 and 1995
(Unaudited)
(Dollars in Thousands)
Unre-
alized
gain
(loss)
on
secu-
rities
Com- Re- avail- Total
mon Com- Paid- tained able share
Stock mon in earn- for holders'
Shares stock capital ings sale equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1994 549,990 $2,750 $2,673 $1,535 $(66) $6,892
Distributions in lieu of fractional shares - - - (1) - (1)
Dividend in stock 54,982 275 309 (584) - -
Change in unrealized gain on securities
available for sale, net of income taxes - - - - 69 69
Net income - - - 752 - 752
-------- ------- ------- ------- ------ ------
BALANCE at September 30, 1995 604,972 3,025 2,982 1,702 3 7,712
======== ======= ======= ======= ====== ======
BALANCE at December 31, 1995 604,972 3,025 2,982 2,082 49 8,138
Dividend in stock 60,420 302 303 (605) - -
Change in unrealized loss on securities
available for sale, net of income taxes - - - - (125) (125)
Net income - - - 967 - 967
-------- ------- ------- ----- ----- -----
BALANCE at September 30, 1996 665,392 $3,327 $3,285 $2,444 $(76) $8,980
======= ======= ======= ======= ===== ======
</TABLE>
FF-4
<PAGE>
<TABLE>
<CAPTION>
FARRINGTON BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1996 and 1995
(Unaudited)
(Dollars in Thousands)
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $967 752
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 228 338
Depreciation 52 51
Amortization of investment securities premiums and
discounts, net 140 24
Amortization of organizational costs
Loss (gain) on sales of securities available for sale 2 (7)
Gain on sales of loans (446) (247)
Proceeds from sales of loans 4,732 2,371
Origination of loans held for sale (4,910) (1,605)
Increase in accrued interest receivable (25) (102)
(Increase) decrease in other assets (258) 60
Increase in accrued interest payable 79 66
(Decrease) increase in accrued expenses and other liabilities (308) 206
---- ---------
Net cash provided by operating activities 253 1,907
--- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 5,050 13,430
Proceeds from maturities of investment securities 4,045 3,000
Proceeds from sales of securities available for sale 6,087 1,039
Purchases of investment securities (6,078) (3,176)
Purchases of securities available for sale (9,093) (11,145)
Net decrease in loans 1,218 5,748
Capital expenditures, net (52) (9)
--- ---------
Net cash provided by investing activities 1,177 8,887
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 2,289 (8,955)
Distributions in lieu of fractional shares - (1)
Net cash provided by (used in) financing activities 2,289 (8,956)
----- -------
Increase in cash and cash equivalents 3,719 1,838
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,629 3,906
----- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $8,348 5,744
===== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - cash paid
during the year for:
Interest $ 878 645
Income taxes 784 373
=== =========
Noncash activities - transfer of investment securities to securities
available for sale $- 23,368
== =========
Change in unrealized (loss) gain on securities available for sale, net
of income taxes $(125) 69
==== =========
</TABLE>
FF-5
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
UNITED NATIONAL BANCORP
AND
UNITED NATIONAL BANK
AND
FARRINGTON BANK
Dated: November 12, 1996
1 Articles of Association of United National Bank as they will exist on the
Effective Date. The Articles may be amended prior to the Effective Date.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER...............................................................1
1.1. The Merger.......................................................1
1.2. Effect of the Merger.............................................1
1.3. Articles of Association..........................................2
1.4. Bylaws...........................................................2
1.5. Directors and Officers...........................................2
1.6. Effective Time and Closing.......................................2
1.7. Capital Stock....................................................2
ARTICLE II
CONVERSION OF FARRINGTON SHARES..........................................3
2.1. Conversion of Farrington Common Stock............................3
(a) Exchange Ratio...........................................3
(b) Fractional Shares; Average Closing Price.................3
(c) Capital Changes..........................................3
(d) Cancellation of Farrington Certificates..................3
(e) Farrington Stock Options.................................4
2.2. Exchange of Shares...............................................4
2.3. Dissenting Shares................................................6
2.4 UNB Common Stock.................................................6
2.5 Certain Farrington Shares Retired................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FARRINGTON.............................6
3.1. Organization.....................................................7
3.2. Capitalization...................................................7
3.3. Authority; No Violation..........................................8
3.4. Financial Statements.............................................9
3.5. Financial Advisor; Broker's and Other Fees......................10
3.6. Absence of Certain Changes or Events............................10
3.7. Legal Proceedings...............................................10
3.8. Taxes and Tax Returns...........................................10
3.9. Employee Benefit Plans..........................................11
3.10. Reports.........................................................12
3.11. Farrington Information..........................................12
3.12. Compliance with Applicable Law..................................13
(a) General.................................................13
(b) CRA 13
3.13. Certain Contracts..............................................13
3.14. Properties and Insurance.......................................14
3.15. Minute Books...................................................14
3.16. Environmental Matters..........................................14
3.17. Reserves.......................................................15
3.18. Disclosure.....................................................15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF UNB AND UNITED.......................................................15
4.1. Corporate Organization..........................................15
4.2. Capitalization..................................................16
4.3. Authority; No Violation.........................................17
4.4. Financial Statements............................................18
4.5. Brokerage and Other Fees........................................18
4.6. Absence of Certain Changes or Events............................19
4.7. United Information..............................................19
4.8. Capital Adequacy................................................19
4.9. United Common Stock.............................................19
4.10. Legal Proceedings...............................................19
4.11. Taxes and Tax Returns...........................................20
4.12. Employee Benefit Plans..........................................20
4.13. Reports.........................................................20
4.14. Compliance with Applicable Law..................................20
4.15. Properties and Insurance........................................21
4.16. Minute Books....................................................21
4.17. Environmental Matters...........................................21
4.18. Reserves........................................................22
4.19. Disclosures.....................................................22
ARTICLE V
COVENANTS OF THE PARTIES................................................22
5.1. Conduct of the Business of Farrington...........................22
5.2. Negative Covenants and Dividend Covenants.......................22
5.3. No Solicitation.................................................23
5.4. Current Information.............................................24
5.5. Access to Properties and Records; Confidentiality...............24
5.6. Regulatory Matters..............................................26
5.7. Approval of Stockholders........................................27
5.8. Further Assurances..............................................28
5.9. Public Announcements............................................28
5.10. Failure to Fulfill Conditions..................................28
5.11. Disclosure Supplements.........................................28
5.12. Indemnification................................................29
5.13. Pooling and Tax-Free Reorganization Treatment..................29
5.14. Affiliates.....................................................30
5.15. Compliance with the Industrial Site Recovery Act...............30
5.16 Farrington Options.............................................30
5.17 Employment Agreement...........................................30
ARTICLE VI
CLOSING CONDITIONS......................................................31
6.1. Conditions of Each Party's Obligations Under this
Agreement......................................................31
(a) Approval of Stockholders; SEC Registration.............31
(b) Regulatory Filings.....................................31
(c) Suits and Proceedings..................................31
(d) Tax Free Exchange......................................31
(e) Form S-8 For Stock Options.............................32
6.2. Conditions to the Obligations of United Under this
Agreement......................................................32
(a) Representations and Warranties; Performance
of Obligations of Farrington...........................32
(b) Consents...............................................32
(c) Opinion of Counsel.....................................32
(d) Pooling of Interests...................................32
(e) Certificates...........................................32
6.3. Conditions to the Obligations of Farrington Under this
Agreement..............................................33
(a) Representations and Warranties; Performance of
Obligations of United..................................33
(b) Opinion of Counsel to United...........................33
(c) Fairness Opinion.......................................33
(d) Certificates...........................................33
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.......................................33
7.1. Termination.....................................................33
7.2. Effect of Termination...........................................35
7.3. Amendment.......................................................35
7.4. Extension; Waiver...............................................35
ARTICLE VIII
MISCELLANEOUS...........................................................35
8.1. Expenses........................................................35
8.2. Notices.........................................................35
8.3. Parties in Interest.............................................36
8.4. Entire Agreement................................................37
8.5. Counterparts....................................................37
8.6. Governing Law...................................................37
8.7. Descriptive Headings............................................37
EXHIBITS
Certificate of Farrington Directors
Schedule 5.14 - Form of Farrington Affiliate Letter
Schedule 6.2 - Form of Opinion of Counsel to Farrington
Schedule 6.3 - Form of Opinion of Counsel to United
Schedule 1.3 - Articles of Association of United National Bank
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 12,
1996 ("Agreement"), is among United National Bancorp, a corporation chartered
under the laws of the State of New Jersey ("United"), United National Bank, a
national banking association and subsidiary of United ("UNB"), and Farrington
Bank, a commercial bank chartered under the laws of the State of New Jersey
("Farrington").
WHEREAS, United and UNB desire to acquire Farrington and
Farrington's Board of Directors has determined, based upon the terms and
conditions hereinafter set forth, that the acquisition is in the best interests
of Farrington and its stockholders, each of the Board of Directors of
Farrington, United and UNB have duly adopted and approved this Agreement and the
Board of Directors of Farrington has directed that immediately after the Due
Diligence Period (as hereafter defined), it be submitted to its shareholders for
approval; and
WHEREAS, the acquisition will be accomplished by merging
Farrington into UNB with UNB as the surviving bank, and Farrington shareholders
receiving the consideration hereinafter set forth; and
WHEREAS, simultaneously with the execution of this Agreement,
Farrington is issuing an option to United to purchase 133,000 shares of the
authorized and unissued Farrington Common Stock (as hereafter defined) at an
option price of $14.00 per share, subject to the terms and conditions set forth
in the Stock Option Agreement (the "United Stock Option").
NOW, THEREFORE, in consideration of the forgoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.6), Farrington shall
be merged with and into UNB under the charter of UNB (the "Merger") in
accordance with the National Bank Act and the New Jersey Banking Act of 1948, as
amended, and UNB shall be the surviving bank (the "Surviving Bank").
1.2. Effect of the Merger. At the Effective Time, the
Surviving Bank shall be considered the same business and corporate entity as
each of Farrington and UNB and thereupon and thereafter, all the property,
rights, powers and franchises of each of Farrington and UNB shall vest in the
Surviving Bank and the Surviving Bank shall be subject to and be deemed to have
assumed all of the debts, liabilities, obligations and duties of each of
Farrington and UNB and shall have succeeded to all of each of their
relationships, fiduciary or otherwise, as fully and to the same extent as if
such property rights, privileges, powers, franchises, debts, obligations, duties
and relationships had been originally acquired, incurred or entered into by the
Surviving Bank.
1.3. Articles of Association. The Articles of Association of
UNB as they exist immediately prior to the Effective Time shall continue as the
Articles of Association of the Surviving Bank, as set forth in Schedule 1.3,
until otherwise amended as provided by law; provided however, that UNB shall
have the right, between the date hereof and the Closing, to amend its Articles
of Association and upon the acceptance of such amendment by the OCC (as
hereafter defined), the Articles of Association as so amended shall be
substituted for Schedule 1.3.
1.4. Bylaws. The Bylaws of UNB as they exist immediately prior
to the Effective Time shall continue as the Bylaws of the Surviving Bank until
otherwise amended as provided by law.
1.5. Directors and Officers. The directors and officers of UNB
as of the Effective Time shall continue as the directors and officers of the
Surviving Bank.
1.6. Effective Time and Closing. The Merger shall become
effective (and be consummated) upon the date specified in a notice to the
Comptroller of the Currency (the "OCC") filed by UNB with the approval of
Farrington, which approval shall not be unreasonably withheld or delayed. The
date and time specified in such notice shall be the "Effective Time". A closing
(the "Closing") shall take place prior to the Effective Time at 10:00 a.m., on a
day mutually agreed to by United and Farrington within thirty (30) days
following the receipt of all necessary regulatory and governmental approvals and
consents and the expiration of all statutory waiting periods in respect thereof
and the satisfaction or waiver of the conditions to the consummation of the
Merger specified in Article VI hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing), at
the office of Pitney, Hardin, Kipp & Szuch, Florham Park, New Jersey, or at such
other place, time or date as UNB and Farrington may mutually agree upon. The
notice from UNB to the OCC shall specify as the Effective Time the close of
business on the date of the Closing as agreed to by UNB and Farrington.
1.7. Capital Stock. As of September 30, 1996, UNB had capital
of $79,221,000, divided into 512,778 shares of common stock, each of $2.50 par
value, $39,149,000 of surplus, and undivided profits of $34,908,000. As of
September 30, 1996, Farrington had capital of $8,979,839, divided into 665,392
shares of common stock, each of $5.00 par value, $3,284,592 of surplus, and
$2,368,287 of undivided profits. At the Effective Time, the amount of capital
stock of UNB shall be $88,200,839, divided into 1,843,562 shares of common
stock, each of $2.50 par value, and UNB shall have a surplus of $42,433,592 and
undivided profits, including capital reserves, which when combined with the
capital and surplus will be equal to the combined capital structures of UNB and
Farrington as stated in the preceding two sentences, adjusted however, for
earnings and expenses and dividends declared and paid by Farrington between
September 30, 1996 and the Effective Time.
ARTICLE II
CONVERSION OF FARRINGTON SHARES
2.1. Conversion of Farrington Common Stock. Each share of
common stock, par value $5.00 per share, of Farrington ("Farrington Common
Stock"), issued and outstanding immediately prior to the Effective Time (other
than shares of Farrington Common Stock retired pursuant to Section 2.5 and
Dissenting Shares as defined in Section 2.3) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted as follows:
(a) Exchange Ratio. Subject to the provisions of this Section
2.1, each share of Farrington Common Stock issued and outstanding immediately
prior to the Effective Time (excluding shares of Farrington Common Stock retired
pursuant to Section 2.5 and Dissenting Shares) shall be converted at the
Effective Time into the right to receive .7647 shares (the "Exchange Ratio") of
common stock, $2.50 par value, of United ("United Common Stock").
(b) Fractional Shares; Average Closing Price. No fractional
shares of United Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made based on the Average Closing Price. The Average Closing
Price of United Common Stock shall mean the Average Price (as hereinafter
defined) calculated based upon the Closing Price (as hereinafter defined) of
United Common Stock during the first 20 of the 25 consecutive trading days
immediately preceding the date of the Closing. The Closing Price shall mean the
closing price of United Common Stock as supplied by the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS") and
published in The Wall Street Journal during the first 20 of the 25 consecutive
trading days immediately preceding the date of the Closing. The Average Price
shall be determined by taking the average of Closing Prices in the 20 day
period. A trading day shall mean a day for which a Closing Price is so supplied
and published.
(c) Capital Changes. If between the date of this Agreement and
the Effective Time the outstanding shares of United Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, stock split, reclassification, recapitalization, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, stock split, reclassification, recapitalization,
combination or exchange of shares; provided, however, that no adjustment shall
be made for the 6% stock dividend declared by United on September 18, 1996 to
holders of record October 15, 1996 (the "September Stock Dividend").
(d) Cancellation of Farrington Certificates. After the
Effective Time, each such share of Farrington Common Stock shall no longer be
outstanding and shall automatically be cancelled, and each of the certificates
(the "Certificates") previously evidencing any such shares of Farrington Common
Stock outstanding immediately prior to the Effective Time (other than shares of
Farrington Common Stock retired pursuant to Section 2.5 and Dissenting Shares)
shall thereafter represent the right to receive the consideration pursuant to
Section 2.1(a) and 2.1(b) hereof. The holders of the Certificates shall cease to
have any rights with respect to such shares of Farrington Common Stock except as
otherwise provided herein or by law. The Certificates shall be exchanged for
certificates evidencing shares of United Common Stock issued pursuant to this
Article II, upon the surrender of such Certificates in accordance with this
Article II.
(e) Farrington Stock Options. At the Effective Time, each
outstanding option to purchase Farrington Common Stock (a "Farrington Option")
granted under the stock option plans for directors or the plans for officers and
employees of Farrington (both the "Farrington Option Plans") shall be converted
as follows, at the election of the holder of such Farrington Option (an
"optionee"); provided, however, that optionees who have received Farrington
Options under the Farrington Option Plan for non-employee directors must receive
the consideration under paragraph (ii) below and may not receive the
consideration under paragraph (i) below:
(i) into an option to purchase United Common Stock,
wherein (x) the right to purchase shares of Farrington Common Stock
pursuant to the Farrington Option shall be converted into the right to
purchase that same number of shares of United Common Stock multiplied
by the Exchange Ratio (as adjusted), (y) the option exercise price per
share of United Common Stock shall be the previous option exercise
price per share of the Farrington Common Stock divided by the Exchange
Ratio (as adjusted) and (z) in all other material respects the option
shall be subject to the same terms and conditions as governed the
Farrington Option on which it was based, including the length of time
within which the option may be exercised; or
(ii) if the Farrington Option is fully vested at the
Closing, into the right to receive immediately after the Effective Time
a number of whole shares of United Common Stock which is the quotient
obtained by dividing:
(A) the excess of (x) the product obtained by
multiplying (i) the number of shares of Farrington Common
Stock covered by the Farrington Option, times (ii) the
Exchange Ratio (as adjusted), times (iii) the Average Closing
Price, less (y) the aggregate exercise price for the
Farrington Option; by
(B) the Average Closing Price.
No fractional shares of United Common Stock shall be issued pursuant to
this Section 2.1(e)(ii), and in lieu thereof, each optionee who would
otherwise be entitled to a fractional interest will receive an amount
in cash determined by multiplying such fractional interest by the
Average Closing Price.
2.2. Exchange of Shares.
(a) Farrington and United hereby appoint United National Bank,
Trust Department or such other bank as United shall designate (the "Exchange
Agent") as the Exchange Agent for purposes of effecting the conversion of
Farrington Common Stock and Farrington Options. All fees and expenses of the
Exchange Agent shall be paid by United. As soon as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record (a
"Record Holder") of a Certificate or Certificates, a mutually agreed upon letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent), and instructions for use in effecting the
surrender of the Certificates in exchange for United Common Stock (and cash in
lieu of fractional shares). Upon surrender of a Certificate for exchange and
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the Record Holder shall be entitled to promptly receive in
exchange for such Certificate the consideration as provided in Section 2.1
hereof and the Certificates so surrendered shall be cancelled. The Exchange
Agent shall not be obligated to deliver or cause to be delivered to any Record
Holder the consideration to which such Record Holder would otherwise be entitled
until such Record Holder surrenders the Certificate for exchange or, in default
thereof, an appropriate Affidavit of Loss and Indemnity Agreement and/or a bond
as may be reasonably required in each case by United. Notwithstanding the time
of surrender of the Certificates, Record Holders (other than holders of
Dissenting Shares) shall be deemed shareholders of United for all purposes from
the Effective Time, except that United shall withhold the payment of dividends
from any Record Holder until such Record Holder effects the exchange of
Certificates for United Common Stock. (Such Record Holder shall receive such
withheld dividends, without interest, upon effecting the share exchange.) With
respect to each outstanding Farrington Option, the Exchange Agent shall, 30 days
prior to Closing, distribute option election forms to each optionee and, upon
receipt from the optionee of a properly completed option election, shall, after
the Effective Time, distribute to the optionee United Common Stock or an
amendment to the option grant evidencing the conversion of the grant to an
option to purchase United Common Stock in accordance with Section 2.1 hereof.
(b) After the Effective Time, there shall be no transfers on
the stock transfer books of Farrington of the shares of Farrington Common Stock
which were outstanding immediately prior to the Effective Time and, if any
Certificates representing such shares are presented for transfer, they shall be
cancelled and exchanged for the consideration pursuant to Section 2.1 hereof.
(c) If payment of the consideration pursuant to Section 2.1
hereof is to be made in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
payment that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such payment shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
payment to a person other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to the
reasonable satisfaction of the Exchange Agent that such tax has been paid or is
not payable.
(d) No certificates or scrip evidencing fractional shares of
United Common Stock shall be issued upon the surrender for exchange of
Certificates and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of United. Cash shall be paid
in lieu of fractional shares of United Common Stock, based upon the Average
Closing Price of United Common Stock.
2.3. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, any holder of Farrington Common Stock shall have the
right to dissent in the manner provided in the National Bank Act, 12 U.S.C.
Section 215a, and if all necessary requirements of the National Bank Act are
met, such shares shall be entitled to payment in cash from UNB of the fair value
of such shares as determined in accordance with the National Bank Act. All
shares of Farrington Common Stock as to which the holder properly exercises
dissenters' rights in accordance with the National Bank Act shall constitute
"Dissenting Shares" unless and until such rights are waived by the party
initially seeking to exercise such rights.
2.4 UNB Common Stock. The shares of common stock of UNB
outstanding immediately prior to the Effective Time shall not be affected by the
Merger but shall be the same number of shares of the Surviving Bank.
2.5 Certain Farrington Shares Retired. Each share of
Farrington Common Stock that is either (a) owned by United or any direct or
indirect wholly-owned subsidiary of United (other than shares held in trust
accounts, managed accounts or in any similar manner as trustee or in a fiduciary
capacity and shares held as collateral or in lieu of a debt previously
contracted) or (b) held in the treasury of Farrington shall be cancelled and
retired and no capital stock of United, cash or other consideration shall be
paid or delivered in exchange therefor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FARRINGTON
References herein to "Farrington 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 or
will be delivered within 15 days of the date hereof pursuant to Section 5.11(a),
by Farrington to United and UNB. Farrington hereby represents and warrants to
United and UNB as follows:
3.1. Organization.
(a) Farrington is a New Jersey banking corporation whose
deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") to the fullest extent permitted by law. Farrington is duly
organized, validly existing and in good standing under the laws of the State of
New Jersey. Farrington 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 Farrington.
(b) The only subsidiary of Farrington is listed in the
Farrington Disclosure Schedule. The term "Subsidiary", when used in this
Agreement with respect to Farrington, means any corporation, joint venture,
association, partnership, trust or other entity in which Farrington has,
directly or indirectly, at least a 50 percent interest or acts as a general
partner. The Farrington Disclosure Schedule sets forth true and complete copies
of the Certificate of Incorporation and Bylaws of Farrington as in effect on the
date hereof. Except as set forth in the Farrington Disclosure Schedule,
Farrington does not own or control, directly or indirectly, any equity interest
in any corporation, company, association, partnership, joint venture or other
entity and owns no real estate, except real estate used for its banking
premises.
(c) Each Subsidiary of Farrington is duly organized and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary of Farrington 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 Farrington or any of its Subsidiaries. The Farrington
Disclosure Schedule sets forth true and complete copies of the Articles of
Association and Bylaws of the Subsidiary as in effect on the date hereof.
3.2. Capitalization. The authorized capital stock of
Farrington consists of 2,000,000 shares of Farrington Common Stock. As of
October 31, 1996, there were 665,392 shares of Farrington Common Stock issued
and outstanding and no shares issued and held in the treasury. As of October 31,
1996, there were 60,051 shares of Farrington Common Stock issuable upon exercise
of outstanding options granted pursuant to the Farrington Stock Option Plans.
All issued and outstanding shares of Farrington Common Stock, and all issued and
outstanding shares of capital stock of Farrington's Subsidiary, have been duly
authorized and validly issued, are fully paid and nonassessable. The authorized
but unissued shares of Farrington Common Stock are not subject to pre-emptive
rights. All of the outstanding shares of capital stock of Farrington's
Subsidiary are owned by Farrington free and clear of any liens, encumbrances,
charges, restrictions or rights of third parties. Except for the United Stock
Option and options granted under the Farrington Option Plans, neither Farrington
nor the Farrington Subsidiary has nor 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 Farrington
or the Farrington Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of such capital stock or any securities
convertible into or representing the right to subscribe for any such shares, and
there are no agreements or understandings with respect to voting of any such
shares.
3.3. Authority; No Violation.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by the stockholders of Farrington, and subject
to the parties obtaining all necessary regulatory approvals, Farrington has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby in accordance with the terms
hereof. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Farrington. Except for the approvals described in
paragraph (b) below, no other corporate proceedings on the part of Farrington
are necessary to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Farrington and constitutes
the valid and binding obligation of Farrington, enforceable against Farrington
in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
Farrington, nor the consummation by Farrington of the transactions contemplated
hereby in accordance with the terms hereof, or compliance by Farrington with any
of the terms or provisions hereof, will (i) violate any provision of
Farrington's Certificate of Incorporation or other governing instrument or
Bylaws, (ii) assuming that the consents and approvals set forth below are duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Farrington or any of its
properties or assets, or (iii) except as set forth in the Farrington 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 properties or assets of
Farrington 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 Farrington is a party, or by which it or any
of its properties or assets may be bound or affected except, with respect to
(ii) and (iii) above, such as individually and in the aggregate will not have a
material adverse effect on the business, operations, assets or financial
condition of Farrington and the Farrington Subsidiary on a consolidated basis,
or the ability of Farrington to consummate the transactions contemplated hereby.
Except for consents and approvals of or filings or registrations with or notices
to the third parties listed in the Farrington Disclosure Schedule, the OCC, the
Commissioner of Banking of the State of New Jersey (the "Commissioner"), the
Securities and Exchange Commission (the "SEC"), and the stockholders of
Farrington, 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 Farrington in connection with (x) the execution and delivery by
Farrington of this Agreement and (y) the consummation by Farrington of
transactions contemplated hereby.
3.4. Financial Statements.
(a) The Farrington Disclosure Schedule sets forth copies of
the statements of condition of Farrington as of December 31, 1993, 1994 and
1995, and the related statements of income, stockholders' equity and cash flows
for the periods ended December 31 in each of the three years 1993 through 1995,
in each case accompanied by the audit report of KPMG Peat Marwick, LLP,
independent public accountants with respect to Farrington, and the unaudited
statements of condition and related statements of income, stockholders' equity
and cash flows of Farrington for the periods ended March 31, June 30, and
September 30, 1996, as filed with the FDIC (collectively, the "Farrington
Financial Statements"). The Farrington Financial Statements (including the
related notes) have been prepared in accordance with generally accepted
accounting principles consistently applied during the periods involved (except
as approved by such independent public accountants and disclosed therein), and
fairly present the financial condition of Farrington as of the respective dates
set forth therein, and the related statements of income, stockholders' equity
and cash flows fairly present the results of the operations, stockholders'
equity and cash flows of Farrington for the respective periods set forth
therein.
(b) The books and records of Farrington have been and are
being maintained in material compliance with applicable legal and accounting
requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the Farrington Financial Statements (including the notes
thereto), as of September 30, 1996 neither Farrington nor any of its
Subsidiaries had or has, as the case may be, any liabilities, whether absolute,
accrued, contingent or otherwise, which are material to the business,
operations, assets or financial condition of Farrington or any Farrington
Subsidiary. Since September 30, 1996 and to the date hereof, neither Farrington
nor any Farrington Subsidiary has incurred any liabilities except in the
ordinary course of business and consistent with prudent banking practice, and
except as specifically contemplated by this Agreement or relating to other
matters disclosed in this Agreement.
(d) As of September 30, 1996, Farrington had stockholder's
equity of $8,979,839, 665,392 Shares of Common Stock outstanding, Options
(granted under the Farrington Option Plans) outstanding permitting the holders
to purchase 60,051 shares of Common Stock for an aggregate exercise price of
$500,000, and an Allowance for Possible Loan Losses of $803,435. Without
limiting or qualifying the materiality of any other representation, warranty or
covenant in this Agreement, the representations contained in this paragraph
3.4(d) were a material inducement to United in determining the Exchange Ratio
and if these numbers were inaccurate when made and such inaccuracy is material,
United shall have the right to terminate this Agreement due to material breach
of a representation by Farrington.
3.5. Financial Advisor; Broker's and Other Fees. Farrington
has retained Finpro Financial Services, Inc. ("Finpro") to render a fairness
opinion. Neither Farrington 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. Except as set forth in the Farrington Disclosure Schedule, there are
no fees (other than time charges billed at usual and customary rates) payable to
any consultants, including lawyers and accountants, in connection with this
transaction or which would be triggered by consummation of this transaction or
the termination of the services of such consultants by Farrington.
3.6. Absence of Certain Changes or Events.
(a) Except as set forth in the Farrington Disclosure Schedule,
there has not been any material adverse change in the business, operations,
assets or financial condition of Farrington and the Farrington Subsidiary on a
consolidated basis since September 30, 1996, and to the best of Farrington's
knowledge, no facts or conditions exist which Farrington believes will cause or
is likely to cause such a material adverse change in the future.
(b) Except as set forth in the Farrington Disclosure Schedule,
Farrington has not taken or permitted any of the actions set forth in Section
5.2 hereof between September 30, 1996 and the date hereof and each of Farrington
and the Farrington Subsidiary has conducted its business only in the ordinary
course, consistent with past practice.
3.7. Legal Proceedings. Except as disclosed in the Farrington
Disclosure Schedule, neither Farrington nor any Farrington Subsidiary is a party
to any, and there are no pending or, to the best of Farrington's knowledge,
threatened, material legal, administrative, arbitral or other proceedings,
claims, actions or governmental investigations of any nature against Farrington
or any Farrington Subsidiary or against any present or former Farrington officer
or director in their capacity as a Farrington officer or director. Except as
disclosed in the Farrington Disclosure Schedule, neither Farrington nor any
Farrington Subsidiary is a party to any material order, judgment or decree
entered against Farrington or any Farrington Subsidiary in any lawsuit or
proceeding.
3.8. Taxes and Tax Returns.
(a) Farrington and each Farrington 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 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. Farrington and each Farrington
Subsidiary has established (and until the Effective Time will establish) on its
books and records reserves that it reasonably believes are adequate for the
payment of all federal, state and local taxes not yet due and payable, but are
anticipated to be incurred in respect of Farrington and each Farrington
Subsidiary through the Effective Time. Except as set forth in the Farrington
Disclosure Schedule, the federal income tax returns of Farrington and each
Farrington Subsidiary have been examined by the Internal Revenue Service (the
"IRS") (or are closed to examination due to the expiration of the applicable
statute of limitations) and no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. Except as set forth
in the Farrington Disclosure Schedule, the applicable state income tax returns
of Farrington and each Farrington Subsidiary have been examined by the
applicable authorities (or are closed to examination due to the expiration of
the statute of limitations) and no deficiencies were asserted as a result of
such examinations which have not been resolved and paid in full. To the best
knowledge of Farrington, there are no audits or other administrative or court
proceedings presently pending, or claims asserted, for taxes or assessments upon
Farrington or any Farrington Subsidiary nor has Farrington or any Farrington
Subsidiary given any currently outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
taxes or tax Returns.
(b) Except as set forth in the Farrington Disclosure Schedule,
neither Farrington nor any Farrington Subsidiary (i) has requested any extension
of time within which to file any tax Return which Return has not since been
filed, (ii) is a party to any agreement providing for the allocation or sharing
of taxes, (iii) is required to include in income any adjustment pursuant to
Section 481(a) of the Internal Revenue Code of 1986, as amended (the "Code"), by
reason of a voluntary change in accounting method initiated by Farrington (nor
does Farrington have any knowledge that the IRS has proposed any such adjustment
or change of accounting method) and (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 in the Farrington Disclosure Schedule,
neither Farrington nor any Farrington Subsidiary maintains or contributes to any
"employee pension benefit plan", within the meaning of Section 3(2)(A) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), "employee
welfare benefit plan", within the meaning of Section 3(1) of ERISA, stock option
plan, stock purchase plan, deferred compensation plan, severance plan, bonus
plan, employment agreement or other similar plan, program or arrangement.
Neither Farrington nor any Farrington Subsidiary has, since September 2, 1974,
contributed to any "Multiemployer Plan", within the meaning of Sections 3(37)
and 4001(a)(3) of ERISA.
(b) Except with respect to customary health and disability
benefits, there are no unfunded benefits obligations which are not accounted for
by reserves shown on the Farrington Financial Statements and established under
generally accepted accounting principles, or otherwise noted on such Farrington
Financial Statements.
(c) Except as agreed to by United in writing or set forth in
the Farrington Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of Farrington or any Farrington Subsidiary to severance pay or any
similar payment or (ii) accelerate the time of payment, vesting, or increase the
amount, of any compensation due to any current or former employee of Farrington
or any Farrington Subsidiary under any Farrington benefit plan.
(d) No officer; director, employee or agent (or former
officer, director, employee or agent) of Farrington or any Farrington Subsidiary
is entitled now, or will be entitled as a consequence of this Agreement or the
Merger, to any payment or benefit from Farrington, United or UNB which if paid
or provided would constitute an "excess parachute payment", as defined in
Section 280G of the Code or regulations promulgated thereunder.
3.10. Reports.
(a) Each communication mailed by Farrington to all of its
stockholders since January 1, 1993, and each annual, quarterly or special
report, and proxy statement, as of its date, complied in all material respects
with all applicable statutes, rules and regulations enforced or promulgated by
the applicable regulatory agency and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
disclosures as of a later date shall be deemed to modify disclosures as of an
earlier date.
(b) Farrington has, since January 1, 1993, duly filed with the
FDIC in correct form the quarterly and annual reports required to be filed under
applicable laws and regulations, and Farrington promptly will deliver or make
available to United accurate and complete copies of such reports. The Farrington
Disclosure Schedule lists all examinations of Farrington conducted by either the
FDIC or the New Jersey Department of Banking since January 1, 1993 and the dates
of any responses thereto submitted by Farrington.
3.11. Farrington Information. The information relating to
Farrington to be contained in the Proxy Statement/Prospectus (as defined in
Section 5.6(a) hereof) to be delivered to stockholders of Farrington in
connection with the solicitation of their approval of this Agreement and the
transactions contemplated hereby, as of the date the Proxy Statement/Prospectus
is mailed to stockholders of Farrington, and up to and including the date of the
meeting of stockholders to which such Proxy Statement/Prospectus relates, will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information relating to
Farrington in the Registration Statement (as defined in Section 5.6(a) hereof),
as of the date of the filing thereof, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.12. Compliance with Applicable Law.
(a) General. Except as set forth in the Farrington Disclosure
Schedule, Farrington and its Subsidiary hold all material licenses, franchises,
permits and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to each, and has complied with and is not in
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any federal, state or local governmental
authority relating to Farrington and its Subsidiary (other than where such
defaults or non-compliances will not, alone or in the aggregate, result in a
material adverse effect on the business, operations, assets or financial
condition of Farrington and its Subsidiary on a consolidated basis) and neither
Farrington nor any Farrington Subsidiary has received notice of violation of,
nor does it know of any violations (other than violations which will not, alone
or in the aggregate, result in a material adverse effect on the business,
operations, assets or financial condition of Farrington and its Subsidiary on a
consolidated basis) of, any of the above.
(b) CRA. Without limiting the foregoing, except as set forth
in the Farrington Disclosure Schedule, Farrington has complied in all material
respects with the Community Reinvestment Act ("CRA") and received a CRA rating
of "satisfactory" as of its last examination, and Farrington has not received
any written notice from any persons asserting that such person would object to
the consummation of this Merger due to the CRA performance of or rating of
Farrington.
3.13. Certain Contracts.
(a) Except as disclosed in the Farrington Disclosure Schedule,
(i) neither Farrington nor any Farrington Subsidiary is a party to or bound by
any contract or understanding (whether written or, to the best of its knowledge,
oral) with respect to the employment or termination of any present or former
officers, employees, directors or consultants. The Farrington Disclosure
Schedule sets forth true and correct copies of all written employment agreements
or termination agreements with officers, employees, directors, or consultants to
which either Farrington or any Farrington Subsidiary is a party.
(b) Except as disclosed in the Farrington Disclosure Schedule,
(i) as of the date of this Agreement, neither Farrington nor any Farrington
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 either Farrington or its Subsidiary, (ii) no commitment, agreement
or other instrument to which Farrington or any Farrington Subsidiary is a party
or by which it is bound limits the freedom of Farrington or any Farrington
Subsidiary to compete in any line of business or with any person, and (iii)
neither Farrington nor any Farrington Subsidiary is a party to any collective
bargaining agreement.
(c) Except as disclosed in the Farrington Disclosure Schedule,
neither Farrington nor any Farrington Subsidiary nor, to the best knowledge of
Farrington, any other party thereto, is in default in any material respect under
any material lease, contract, mortgage, promissory note, deed of trust, loan
agreement or other commitment or arrangement.
3.14. Properties and Insurance.
(a) Farrington and its Subsidiary have good and, as to owned
real property, if any, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in Farrington'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 such balance sheet or the notes thereto or incurred in the ordinary
course of business after the date of such balance sheet, (ii) statutory liens
for amounts not yet delinquent or which are being contested in good faith, (iii)
such encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets, and financial condition of Farrington and its Subsidiary
taken as a whole and (iv) with respect to owned real property, if any, title
imperfections noted in title reports delivered to United prior to the date
hereof. Farrington and its Subsidiary, as lessees, have the right under valid
and subsisting leases to occupy, use, possess and control, in all material
respects, all real property leased by them, as presently occupied, used,
possessed and controlled by them.
(b) The Farrington Disclosure Schedule lists all policies of
insurance and bonds covering business operations and insurable properties and
assets of Farrington and its Subsidiary, all risks insured against, and the
amount thereof and deductibles relating thereto. Except as set forth in the
Farrington Disclosure Schedule, as of the date hereof, neither Farrington nor
any Farrington Subsidiary has received any notice of cancellation or notice of a
material amendment of any such insurance policy or bond and neither of them is
in default in any material respect under such policy or bond, and, to the best
of Farrington's knowledge, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion.
3.15. Minute Books. The minute books of Farrington and its
Subsidiary contain accurate 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).
3.16. Environmental Matters. Except as disclosed in the
Farrington Disclosure Schedule, neither Farrington nor any Farrington Subsidiary
has received any written notice, citation, claim, assessment, proposed
assessment or demand for abatement alleging that Farrington or any Farrington
Subsidiary (either directly or as a successor-in-interest in connection with the
enforcement of remedies to realize the value of properties serving as collateral
for outstanding loans) is responsible for the correction or clean-up of any
condition material to the business, operations, assets or financial condition of
Farrington or its Subsidiary. Except as disclosed in the Farrington Disclosure
Schedule, Farrington has no knowledge that any toxic or hazardous substances or
materials have been emitted, generated, disposed of or stored on any property
owned or leased by Farrington or any Farrington Subsidiary in any manner that
violates or, after the lapse of time may violate, any presently existing
federal, state or local law or regulation governing or pertaining to such
substances and materials.
3.17. Reserves. The allowance for possible loan and lease
losses in the September 30, 1996 Farrington Financial Statements was adequate at
the time based upon past loan loss experiences and potential losses in the
portfolio at the time to cover all known or reasonably anticipated loan losses.
3.18. Disclosure. There are no material facts concerning the
business, operations, assets or financial condition of Farrington which have not
been disclosed to United which would have a material adverse effect on the
business, operations or financial condition of Farrington. 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 UNB AND UNITED
References herein to the "United 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
United to Farrington. United hereby represents and warrants to Farrington as
follows:
4.1. Corporate Organization.
(a) United is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey. United
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 United or any of
its Subsidiaries (defined below). United is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHCA").
(b) Each of the Subsidiaries of United are listed in the
United Disclosure Schedule. The term "Subsidiary" when used in this Agreement
with reference to United means any corporation, joint venture, association,
partnership, trust or other entity in which United has, directly or indirectly,
at least a 50 percent interest or acts as a general partner. Each Subsidiary of
United is duly organized and validly existing and in good standing under the
laws of the jurisdiction of its incorporation. UNB is a national bank whose
deposits are insured by the Bank Insurance Fund of the FDIC to the fullest
extent permitted by law. Each Subsidiary of United 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 United or any of its Subsidiaries. The United Disclosure
Schedule sets forth true and complete copies of the Articles of Association and
Bylaws of UNB as in effect on the date hereof.
4.2. Capitalization. The authorized capital stock of United
consists of 5,000,000 shares of United Common Stock and 300,000 shares of
preferred stock ("Preferred Stock"). As of September 30, 1996, there were
3,854,964 (including the September Stock Dividend) shares of United Common Stock
issued and outstanding, including 43,995 treasury shares and 5,623 shares of
restricted stock granted under the United National Bancorp Long-Term Stock Based
Incentive Plan (the "United Option Plan") and there were no shares of Preferred
Stock outstanding. Since such date, and from time to time hereafter, United may
repurchase shares of its Common Stock. Since September 30, 1996, to and
including the date of this Agreement, no additional shares of United Common
Stock have been issued except in connection with the exercise of options granted
under the United Stock Option Plan or grants of restricted stock under the
United Option Plan. As of September 30, 1996, except for 145,231 shares of
United Common Stock issuable upon exercise of outstanding stock options granted
pursuant to the United Option Plan and the Non-Employee Director Stock Option
Plan (the "United Director Option Plan"), there were no shares of United Common
Stock issuable upon the exercise of outstanding stock options or otherwise. All
issued and outstanding shares of United Common Stock, and all issued and
outstanding shares of capital stock of United's Subsidiaries, have been duly
authorized and validly issued, are fully paid, nonassessable and free of
preemptive rights, and are free and clear of all liens, encumbrances, charges,
restrictions or rights of third parties. All of the outstanding shares of
capital stock of United's Subsidiaries are owned by United free and clear of any
liens, encumbrances, charges, restrictions or rights of third parties. Except
for the options referred to above under the United Option Plan, the United
Director Option Plan and the September Stock Dividend, neither United nor any of
United's Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase or issuance of any shares of capital stock of United or
United's Subsidiaries or any securities representing the right to otherwise
receive any shares of such capital stock or any securities convertible into or
representing the right to purchase or subscribe for any such shares, and there
are no agreements or understandings with respect to voting of any such shares.
No additional grants of awards, or exercises of outstanding awards, under the
United Option Plan or United Director Option Plan, or exercises of Warrants, or
repurchases of United Common Stock, prior to the Effective Time shall be
required to be disclosed or reported to Farrington to keep the representations
in this section true or correct.
4.3. Authority; No Violation.
(a) United and UNB have full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby in accordance with the terms hereof. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly approved by the Board of Directors of United
and UNB. Except for the approval of United as a shareholder of UNB and as
required by the NASDAQ/NMS listing rules, no other corporate proceedings on the
part of United and UNB are necessary to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
United and UNB and constitutes a valid and binding obligation of United and UNB,
enforceable against United and UNB in accordance with its terms.
(b) Neither the execution or delivery of this Agreement nor
the consummation by United and UNB of the transactions contemplated hereby in
accordance with the terms hereof, will (i) violate any provision of the
Certificate of Incorporation, Articles of Association or other governing
instrument or Bylaws of United or UNB, (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 United or UNB or any of their respective properties or assets, or
(iii) violate, conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets of
United or UNB 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 United or UNB is a party, or by which United
or UNB or any of their properties or assets may be bound or affected, except,
with respect to (ii) and (iii) above, such as individually and in the aggregate
will not have a material adverse effect on the business, operations, assets or
financial condition of United and United's Subsidiaries on a consolidated basis,
or the ability of United and UNB to consummate the transactions contemplated
hereby. Except for consents and approvals of or filings or registrations with or
notices to the OCC, the Commissioner, the SEC, applicable state securities
bureaus or commissions, and the National Association of Securities Dealers,
Inc., 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
United or UNB in connection with (a) the execution and delivery by United or UNB
of this Agreement and (b) the consummation by United of the Merger and the other
transactions contemplated hereby. To the best of United's knowledge, no fact or
condition exists which United has reason to believe will prevent it or UNB from
obtaining the aforementioned consents and approvals within the time frame
contemplated hereby.
4.4. Financial Statements.
(a) United has previously delivered to Farrington copies of
the consolidated statements of financial condition of United as of December 31,
1993, 1994 and 1995, the related consolidated statements of income, changes in
stockholders' equity and of cash flows for the periods ended December 31 in each
of the three fiscal years 1993 through 1995, in each case accompanied by the
audit report of KPMG Peat Marwick, LLP, the current independent public
accountants with respect to United or Arthur Andersen, LLP, previously the
independent public accountants with respect to United, and the unaudited
consolidated statements of condition of United as of March 31, June 30, and
September 30, 1996, and the related unaudited consolidated statements of income,
changes in stockholders' equity and cash flows for the three months then ended
as reported in United's Quarterly Reports on Form 10-Q, filed with the SEC under
the Securities and Exchange Act of 1934, as amended (the "1934 Act")
(collectively, the "United Financial Statements"). The United Financial
Statements (including the related notes), have been prepared in accordance with
generally accepted accounting principles consistently applied during the periods
involved (except as approved by such independent public accountants and
disclosed therein), and fairly present the consolidated financial position of
United and its consolidated subsidiaries as of the respective dates set forth
therein, and the related consolidated statements of income, changes in
stockholders' equity and of cash flows (including the related notes, where
applicable) fairly present the results of the consolidated operations and
changes in stockholders' equity and of cash flows of United and its consolidated
subsidiaries for the respective fiscal periods set forth therein.
(b) The books and records of United have been and are being
maintained in material compliance with applicable legal and accounting
requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the United Financial Statements (including the notes
thereto), as of September 30, 1996 neither United nor any of its Subsidiaries
had or has, as the case may be, any obligation or liability, whether absolute,
accrued, contingent or otherwise, which are material to the business,
operations, assets or financial condition of United or any of its Subsidiaries.
Since September 30, 1996, neither United nor any of its Subsidiaries have
incurred any liabilities, except in the ordinary course of business and
consistent with prudent banking practice.
4.5. Brokerage and Other Fees. Neither United nor UNB nor any
of their respective directors or officers has employed any broker or finder or
incurred any liability for any broker's or finder's fees or commissions in
connection with any of the transactions contemplated by this Agreement.
4.6. Absence of Certain Changes or Events. There has not been
any material adverse change in the business, operations, assets or financial
condition of United and United's Subsidiaries on a consolidated basis since
September 30, 1996 and to the best of United's knowledge, no fact or condition
exists which United believes will cause or is likely to cause such a material
adverse change in the future.
4.7. United Information. The information relating to United,
this Agreement and the transactions contemplated hereby in the Proxy
Statement/Prospectus (as defined in Section 5.6(a) hereof), as of the date of
the mailing of the Proxy Statement/Prospectus, and up to and including the date
of the meeting of stockholders of Farrington to which such Proxy
Statement/Prospectus relates, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The information relating to United, this Agreement and the
transactions contemplated hereby in the Registration Statement (as defined in
Section 5.6(a) hereof), as of the date of the filing thereof, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.8. Capital Adequacy. At the Effective Time, after taking
into effect the Merger and the transactions contemplated hereunder, United will
have sufficient capital to satisfy all applicable regulatory capital
requirements.
4.9. United Common Stock. At the Effective Time, the United
Common Stock to be issued pursuant to the terms of Section 2.1, when so issued,
shall be duly authorized, validly issued, fully paid, and non-assessable, free
of preemptive rights and free and clear of all liens, encumbrances or
restrictions created by or through United.
4.10. Legal Proceedings. Except as disclosed in the United
Disclosure Schedule, neither United nor any of its Subsidiaries is a party to
any, and there are no material pending or, to the best of United's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental investigations of any nature against United or any of
its Subsidiaries which, if decided adversely to United, or any of its
Subsidiaries, would have a material adverse effect on the business, operations,
assets or financial condition of United and its Subsidiaries on a consolidated
basis. Except as disclosed in the United Disclosure Schedule, neither United nor
any of United's Subsidiaries is a party to any order, judgment or decree entered
against United or any such Subsidiary in any lawsuit or proceeding which would
have a material adverse affect on the business, operations, assets or financial
condition of United and its Subsidiaries on a consolidated basis.
4.11. Taxes and Tax Returns. United and each of its
Subsidiaries has duly filed (and until the Effective Time will so file) all
Returns required to be filed by it in respect of any federal, state and local
taxes (including withholding taxes, penalties or other payments required) and
has duly paid (and until the Effective Time will so pay) all such taxes due and
payable, other than taxes or other charges which are being contested in good
faith. United and each of its Subsidiaries have established (and until the
Effective Time will establish) on its books and records reserves that it
reasonably believes are adequate for the payment of all federal, state and local
taxes not yet due and payable, but anticipated to be incurred in respect of
United and its Subsidiaries through the Effective Time. No deficiencies exist or
have been asserted based upon the federal income tax returns of United and UNB.
To the best knowledge of United, there are no audits or other administrative or
court proceedings pending, or claims asserted, for taxes or assessments upon
United or any of its Subsidiaries.
4.12. Employee Benefit Plans.
(a) United and its Subsidiaries maintain or contribute to
certain "employee pension benefit plans" (the "United Pension Plans"), as such
term is defined in Section 3 of ERISA, and "employee welfare benefit plans" (the
"United Welfare Plans"), as such term is defined in Section 3 of ERISA. Since
September 2, 1974, neither United nor its Subsidiaries have contributed to any
"Multiemployer Plan", as such term is defined in Section 3(37) of ERISA.
(b) Each of the United Pension Plans and each of the United
Welfare Plans has been operated in compliance in all material respects with the
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder, and all other applicable governmental laws and
regulations.
4.13. Reports.
(a) Each communication mailed by United to all of its
stockholders since January 1, 1993, and each annual, quarterly or special
report, and proxy statement as of its date, complied in all material respects
with all applicable statutes, rules and regulations enforced or promulgated by
the applicable regulatory agency and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
disclosures as of a later date shall be deemed to modify disclosures as of an
earlier date.
(b) United and UNB have, since January 1, 1993, duly filed
with the SEC, OCC and the FRB in correct form the monthly, quarterly and annual
reports required to be filed under applicable laws and regulations, and United,
upon request, promptly will deliver or make available to Farrington accurate and
complete copies of such reports.
4.14. Compliance with Applicable Law. United and its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and has complied with and is not in default in any respect
under any, applicable law, statute, order, rule, regulation, policy and/or
guideline of any federal, state or local governmental authority or the
NASDAQ/NMS relating to United and its Subsidiaries (other than where such
default or non-compliance will not result in a material adverse effect on the
business, operations, assets or financial condition of United and its
Subsidiaries on a consolidated basis), and neither United nor any of its
Subsidiaries has received notice of violation of, nor does it know of any
violations (other than violations which will not, alone or in the aggregate,
result in a material adverse effect on the business operations, assets or
financial condition of United and its Subsidiaries on a consolidated basis) of,
any of the above.
4.15. Properties and Insurance.
(a) United and its Subsidiaries have good and, as to owned
real property, marketable title to all material assets and properties, whether
real or personal, tangible or intangible, reflected in United'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). United
and its Subsidiaries as lessees have the right under valid and subsisting leases
to occupy, use, possess and control in all material respects, all real property
leased by them as presently occupied, used, possessed and controlled by them.
(b) The business operations and all insurable properties and
assets of United and its Subsidiaries are insured for their benefit against all
risks which, in the reasonable judgment of the management of United should be
insured against, with such deductibles and against such risks and losses as are
in the opinion of the management of United adequate for the business engaged in
by United and its Subsidiaries. As of the date hereof, United has not received
any notice of cancellation of or material amendment to any such insurance policy
or bond and is not in default in any material respect under any such policy or
bond, and, to the best of its knowledge, no coverage thereunder is being
disputed and all material claims thereunder have been filed in a timely fashion.
4.16. Minute Books. The minute books of United and its
Subsidiaries contain accurate 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).
4.17. Environmental Matters. Except as disclosed in the United
Disclosure Schedule, neither United nor any of its Subsidiaries has received any
written notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that United or any of its Subsidiaries (either directly or as
a successor-in-interest in connection with the enforcement of remedies to
realize the value of properties serving as collateral for outstanding loans) is
responsible for the correction or clean-up of any condition material to the
business, operations, assets or financial condition of United or its
Subsidiaries. Except as disclosed in the United Disclosure Schedule, United has
no knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any property owned or leased by
United or any of its Subsidiaries in any manner that violates or, after the
lapse of time may violate, any presently existing federal, state or local law or
regulation governing or pertaining to such substances and materials, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of United and its Subsidiaries on a
consolidated basis.
4.18. Reserves. The allowance for possible loan and lease
losses in the September 30, 1996 United Financial Statements was adequate based
at the time upon past loan loss experiences and potential losses in the
portfolio at the time to cover all known or reasonably anticipated loan losses.
4.19. Disclosures. Except for other acquisition transactions
which have not yet been publicly disclosed by United, there are no material
facts concerning the business, operations, assets or financial condition of
United which would have a material adverse effect on the business, operations or
financial condition of United which have not been disclosed to Farrington
directly or indirectly by access to any filing by United under the 1934 Act. 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 Farrington. During the period
from the date of this Agreement to the Effective Time, Farrington shall conduct
its business and engage in transactions permitted hereunder only in the ordinary
course and consistent with prudent banking practice, except with the prior
written consent of United, which consent will not be unreasonably withheld.
Farrington also shall use its best efforts to (i) preserve its business
organization intact, (ii) keep available to itself the present services of its
employees and (iii) preserve for itself and United the goodwill of its customers
and others with whom business relationships exist, in each case provided that
Farrington shall not be required to take any unreasonable or extraordinary act
or any action which would conflict with any other term of this Agreement.
5.2. Negative Covenants and Dividend Covenants. Farrington
agrees that from the date hereof to the Effective Time, except as otherwise
approved by United in writing, or as permitted or required by this Agreement or
as contained in the Farrington Disclosure Schedule, it will not:
(a) change any provision of its Certificate of Incorporation
or Bylaws or any similar governing documents;
(b) change the number of shares of its authorized capital
stock or issue any more shares of Farrington Common Stock (other than pursuant
to the exercise of options granted under the Farrington Option Plans as of the
date hereof) or other 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 Farrington 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, or redeem or otherwise
acquire any shares of such capital stock;
(c) grant any severance or termination pay (other than
pursuant to policies of Farrington in effect on the date hereof and disclosed to
United in the Farrington Disclosure Schedule or as agreed to by United in
writing) to, or enter into or amend any employment agreement with, any of its
directors, officers or employees; adopt any new employee benefit plan or
arrangement of any type or amend any such existing benefit plan or arrangement;
or award any increase in compensation or benefits to its directors, officers or
employees except with respect to salary increases and bonuses for employees in
the ordinary course of business and consistent with past practices and policies;
(d) sell or dispose of any substantial amount of assets or
incur any significant liabilities other than in the ordinary course of business
consistent with past practices and policies;
(e) make any capital expenditures outside of the ordinary
course of business other than pursuant to binding commitments existing on the
date hereof and other than expenditures necessary to maintain existing assets in
good repair;
(f) file any applications or make any contract 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
(i) agree to do any of the foregoing.
5.3. No Solicitation. Farrington 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 United)
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 Farrington (an "Acquisition Transaction").
Notwithstanding the foregoing, Farrington may (i) enter into discussions or
negotiations or provide information in connection with an unsolicited possible
Acquisition Transaction if the Board of Directors of Farrington, after
consulting with counsel, determines that such discussions or negotiations should
be commenced in the exercise of its fiduciary responsibilities or such
information should be furnished in the exercise of its fiduciary
responsibilities; and (ii) respond to inquiries from its shareholders in the
ordinary course of business. Farrington will immediately communicate to United
the terms of any proposal, whether written or oral, which it may receive in
respect of any Acquisition Transaction and the fact that it is having
discussions or negotiations with, or supplying information to, a third party in
connection with a possible Acquisition Transaction.
5.4. Current Information. During the period from the date of
this Agreement to the Effective Time, Farrington will, at the request of United,
cause one or more of its designated representatives to confer on a monthly or
more frequent basis with representatives of United regarding Farrington's
business, operations, properties, assets and financial condition and matters
relating to the completion of the transactions contemplated herein. Without
limiting the foregoing, after granting any loan or extension of credit by
renewal or otherwise, Farrington will send to United a description (i.e., a copy
of the loan documents) for each new loan or extension of credit, and each
renewal of an existing loan or extension of credit, in excess of $50,000. As
soon as reasonably available, but in no event more than 45 days after the end of
each fiscal quarter (other than the last fiscal quarter of each fiscal year)
ending after the date of this Agreement, Farrington will deliver to United
Farrington's call reports filed with the FDIC and United will deliver to
Farrington United's 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 fiscal year, Farrington will deliver to United and United
will deliver to Farrington their respective Annual Reports.
5.5. Access to Properties and Records; Confidentiality.
(a) Farrington shall permit United and its agents and
representatives, including, without limitation, officers, directors, employees,
attorneys, accountants and financial advisors (collectively, "Representatives"),
and United and UNB shall permit Farrington and its Representatives reasonable
access to their respective properties, and shall disclose and make available to
United and its Representatives or Farrington and its Representatives, as the
case may be, all books, papers and records relating to their respective assets,
stock ownership, properties, operations, obligations and liabilities, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings, organizational
documents, bylaws, material contracts and agreements, filings with any
regulatory authority, independent auditors' work papers (subject to the receipt
by such auditors of a standard access representation letter), litigation files,
plans affecting employees, and any other business activities or prospects in
which United and its representatives or Farrington and its representatives may
have a reasonable interest. Neither party shall be required to provide access to
or to disclose information where such access or disclosure would violate or
prejudice the rights of any customer or would contravene any law, rule,
regulation, order or judgment. The parties will use their best efforts to obtain
waivers of any such restriction and in any event make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Farrington acknowledges that United may be involved in
discussions concerning other potential acquisitions and United shall not be
obligated to disclose such information to Farrington except as such information
is publicly disclosed by United.
(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 Representatives
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 keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or commercial
purposes or any other purpose not expressing permitted hereby. Each party hereto
shall inform its Representatives of the terms of this Section 5.5. Any breach of
this Section 5.5 by a Representative of a party hereto shall conclusively be
deemed to be a breach thereof by such party. In the event that the Merger
contemplated hereby does not occur or this Agreement is terminated, all
documents, notes and other writings prepared by a party hereto or its
Representatives based on information furnished by the other party, and all other
documents and records obtained from another party hereto in connection herewith,
shall be promptly destroyed. The obligation to keep such information
confidential shall continue for five (5) 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 other than as a result of a disclosure by any
party hereto or its Representative; (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, regulatory or
examination requirement or in accordance with an order of a court of competent
jurisdiction, provided that in the event of any disclosure required by this
clause (ii), the disclosing party will give at least ten (10) days prior written
notice of such disclosure to the other parties and shall not disclose any such
information without an opinion of counsel supporting its position that such
information must be disclosed.
(c) In addition to all other remedies that may be available to
any party hereto in connection with a breach by any other party hereto of its or
its Representative's obligations hereunder, each party hereto shall be entitled
to specific performance and injunctive and other equitable relief. Each party
hereto waives, and agrees to use its best efforts to cause its Representatives
to waive, any requirement to secure or post a bond in connection with any such
relief.
(d) Without limiting the foregoing, United and UNB, directly
or through agents, for a period of 30 calendar days (the "Due Diligence Period")
following the date of this Agreement, shall have the right to perform due
diligence on Farrington and a complete acquisition audit of Farrington. Within
the Due Diligence Period, United shall have the right to terminate this
Agreement if the due diligence review by United or any Disclosure Schedules
provided by Farrington after the date hereof causes United to reach a conclusion
about the financial condition, business, assets or the quality of the
representations and warranties of Farrington, adverse from conclusions about the
same matters which United's senior executives held at the time United executed
this Agreement. 122513A01110696
5.6. Regulatory Matters.
(a) For the purposes of holding the meeting of Farrington
stockholders and registering or otherwise qualifying under applicable federal
and state securities laws United Common Stock to be issued to Record Holders in
connection with the Merger, the parties hereto shall cooperate in the
preparation and filing by United of a Registration Statement with the SEC which
shall include an appropriate proxy statement and prospectus satisfying all
applicable requirements of applicable state and federal laws, including the
Securities Act of 1933, as amended (the "1933 Act"), the 1934 Act and applicable
state securities laws and the rules and regulations thereunder. (Such proxy
statement and prospectus in the form mailed by Farrington to the Farrington
shareholders and optionees, together with any and all amendments and supplements
thereto, is herein referred to as the "Proxy Statement/Prospectus" and the
various documents to be filed by United under the 1933 Act with the SEC to
register for sale the United Common Stock to be issued to Record Holders and
optionees, including the Proxy Statement/Prospectus, and the Proxy Statement for
United stockholders, if necessary, together with any and all amendments and
supplements thereto, are referred to herein as the "Registration Statement").
(b) United shall furnish information concerning United as is
necessary in order to cause the Proxy Statement/Prospectus, insofar as it
relates to United, to comply with Section 5.6(a) hereof. United agrees promptly
to advise Farrington if at any time prior to the Farrington shareholder meeting
referred to in Section 5.7 hereof, any information provided by United in the
Proxy Statement/Prospectus becomes incorrect or incomplete in any material
respect and to provide Farrington with the information needed to correct such
inaccuracy or omission. United shall furnish Farrington with such supplemental
information as may be necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to United, to comply with Section
5.6(a) after the mailing thereof to Farrington shareholders.
(c) Farrington shall furnish United with such information
concerning Farrington as is necessary in order to cause the Proxy
Statement/Prospectus and Registration Statement, insofar as it relates to
Farrington, to comply with Section 5.6(a) hereof. Farrington agrees promptly to
advise United if, at any time prior to the Farrington shareholder's meeting
referred to in Section 5.7 hereof, information provided by Farrington in the
Proxy Statement/Prospectus becomes incorrect or incomplete in any material
respect and to provide United with the information needed to correct such
inaccuracy or omission. Farrington shall furnish United with such supplemental
information as may be necessary in order to cause the Proxy Statement/Prospectus
and Registration Statement, insofar as it relates to Farrington, to comply with
Section 5.6(a) after the mailing thereof to Farrington shareholders.
(d) United shall promptly make such filings as are necessary
in connection with the offering of the United Common Stock with applicable state
securities agencies and shall use all reasonable efforts to qualify the offering
of the United Common Stock under applicable state securities laws at the
earliest practicable date. Farrington shall promptly furnish United with such
information regarding the Farrington shareholders as United requires to enable
it to determine what filings are required hereunder. Farrington authorizes
United to utilize in such filings the information concerning Farrington provided
to United in connection with, or contained in, the Proxy Statement/ Prospectus.
United shall furnish Farrington with drafts of all such filings, shall provide
Farrington the opportunity to comment thereon, and shall keep Farrington advised
of the status thereof. United and Farrington shall as promptly as practicable
file the Registration Statement containing the Proxy Statement/Prospectus with
the SEC and the OCC, and each of United and Farrington shall promptly notify the
other of all communications, oral or written, with the SEC and OCC concerning
the Registration Statement and the Proxy Statement/Prospectus.
(e) United shall cause the United Common Stock to be issued in
connection with the Merger to be listed on the NASDAQ/NMS.
(f) The parties hereto will cooperate with each other and use
their best efforts to prepare all necessary documentation, to effect all
necessary filings and to obtain all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement as soon as possible,
including, without limitation, those required by the OCC. The parties shall each
have the right to review in advance and comment on all information relating to
the other, as the case may be, 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. United and UNB shall cause
their application to the OCC to be filed (i) within 60 days of the date hereof,
so long as Farrington provides all information necessary to complete the
application within 45 days of the date hereof, or (ii) within 15 days after all
such information is provided, if Farrington does not provide all such
information within such 45 day period. United shall provide to Farrington drafts
of all filings and applications referred to in this Section 5.6(f) and shall
give Farrington the opportunity to comment thereon prior to their filing.
(g) Each of the parties will promptly furnish each other with
copies of written communications received by them or any of their respective
Subsidiaries from, or delivered by any of the foregoing to, any governmental
body in respect of the transactions contemplated hereby.
5.7. Approval of Stockholders. Farrington will (a) take all
steps reasonably necessary duly to call, give notice of, convene and hold a
meeting of the stockholders of Farrington as soon as reasonably practicable for
the purpose of securing the approval by such stockholders of this Agreement, (b)
subject to the qualification set forth in Section 5.3 hereof, recommend to the
stockholders of Farrington the approval of this Agreement and the transactions
contemplated hereby and use its best efforts to obtain, as promptly as
practicable, such approval, and (c) cooperate and consult with United with
respect to each of the foregoing matters. Except as set forth in the Farrington
Disclosure Schedule, in connection therewith, it is anticipated that each
director of Farrington shall vote his or her shares of Farrington in favor of
the Merger.
5.8. Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws and
regulations to satisfy the conditions to Closing and to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated by this Agreement and using its best
efforts to prevent the breach of any representation, warranty, covenant or
agreement of such party contained or referred to in this Agreement and to
promptly remedy the same. Nothing in this section shall be construed to require
any party to participate in any threatened or actual legal, administrative or
other proceedings (other than proceedings, actions or investigations to which it
is otherwise a party or subject or threatened to be made a party or subject) in
connection with consummation of the transactions contemplated by this Agreement
unless such party shall consent in advance and in writing to such participation
and the other party agrees to reimburse and indemnify such party for and against
any and all costs and damages related thereto.
5.9. Public Announcements. The parties hereto shall cooperate
with each other in the development and distribution of all news releases and
other public disclosures with respect to this Agreement or any of the
transactions contemplated hereby, except as may be otherwise required by law or
regulation or as to which the party releasing such information has used its best
efforts to discuss with the other party in advance.
5.10. Failure to Fulfill Conditions. In the event that United
or Farrington determines that a material condition to its obligation to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to August 1, 1997, and that it will not waive that condition, it will promptly
notify the other party. Except for any acquisition or merger discussions United
may enter into with other parties, Farrington and United will promptly inform
the other of any facts applicable to Farrington or United, respectively, or
their respective directors, officers or Subsidiaries, that would be likely to
prevent or materially delay approval of the Merger by any governmental authority
or which would otherwise prevent or materially delay completion of the Merger.
5.11. Disclosure Supplements.
(a) Farrington has delivered to United as of the date hereof
certain items which presently constitute the Farrington Disclosure Schedule.
Farrington shall have the right to provide supplements, additions and
corrections to the Farrington Disclosure Schedules for a period of 15 calendar
days after the date hereof and such supplements and additions or corrections
provided within that 15-day period shall be deemed to have been provided on the
date hereof and to qualify the representations and warranties of Farrington as
of such date. However, during the Due Diligence Period, United shall have the
right, as hereafter provided, to exercise its termination right based upon the
supplements, additions and corrections so provided.
(b) In addition to Farrington's rights during the first 15-day
period under Section 5.11(a) above, from time to time prior to the Effective
Time, each party hereto will promptly supplement or amend (by written notice to
the other) its respective Disclosure Schedules delivered pursuant hereto with
respect to any matter hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in such Schedules or which is necessary to correct any information in
such Schedules which has been rendered materially inaccurate thereby. For the
purpose of determining satisfaction of the conditions set forth in Article VI,
no supplement or amendment to such Schedules shall correct or cure any warranty
which was untrue when made, but supplements or amendments may be used to
disclose subsequent facts or events to maintain the truthfulness of any
warranty.
5.12. Indemnification. United agrees that it will, or if it is
not permitted to do so under applicable law, it will cause UNB to, after the
Effective Time, and to the extent permitted by applicable law, provide to the
former and then current directors and officers of Farrington indemnification
equivalent to that provided by the Certificate of Incorporation and By-laws of
Farrington with respect to acts or omissions occurring prior to the Effective
Time, whether asserted prior to or after the Effective Time, including without
limitation, the authorization of this Agreement and the transactions
contemplated hereby, for a period of six years from the Effective Time, or in
the case of matters occurring prior to the Effective Time which have not been
resolved prior to the sixth anniversary of the Effective Time, until such
matters are finally resolved. To the extent permitted by applicable law, United
or UNB (as applicable) shall advance expenses to former and current officers and
directors of Farrington in connection with the foregoing indemnification.
5.13. Pooling and Tax-Free Reorganization Treatment. Neither
United nor Farrington shall intentionally take, fail to take or cause to be
taken or not be taken, any action within its control, whether before or after
the Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Code. United and Farrington acknowledge that United
expects the transaction to be accounted for as a "purchase" transaction.
5.14. Affiliates.
(a) Promptly, but in any event within two weeks, after the
execution and delivery of this Agreement, (i) Farrington shall deliver to United
(x) a letter identifying all persons who, to the knowledge of Farrington, may be
deemed to be "affiliates" of Farrington under Rule 145 of the 1933 Act,
including without limitation all directors and executive officers of Farrington
and (y) a letter identifying all persons who, to the knowledge of Farrington,
may be deemed to be "affiliates" of Farrington as that term is used for purposes
of qualifying for "pooling of interests" accounting treatment; and (ii) United
shall identify to Farrington all persons who, to the knowledge of United, may be
deemed "affiliates" of United as that term is used for purposes of qualifying
for "pooling of interests" accounting treatment.
(b) Each person who may be deemed an affiliate of Farrington
(under either Rule 145 of the 1933 Act or the accounting treatment rules) shall
execute a letter substantially in the form of Schedule 5.14 hereto agreeing to
be bound by the restrictions of Rule 145, as set forth in Schedule 5.14 and
agreeing to be bound by the rules which permit the Merger to be treated as a
pooling of interests for accounting purposes. In addition, United shall cause
its affiliates (as that term is used for purposes of qualifying for pooling of
interests) to execute a letter within two weeks of the date hereof, in which
such persons agree to be bound by the rules which permit the Merger to be
treated as a pooling of interests for accounting treatment.
5.15. Compliance with the Industrial Site Recovery Act.
Farrington, at its sole cost and expense, shall obtain prior to the Effective
Time, either: (a) a Letter of Non-Applicability from the New Jersey Department
of Environmental Protection and Energy ("NJDEPE") stating that none of the
facilities located in New Jersey owned or operated by Farrington (each, a
"Facility") is an "industrial establishment," as such term is defined under the
Industrial Site Recovery Act ("ISRA"); (b) a Remediation Agreement issued by the
NJDEPE pursuant to ISRA authorizing the consummation of the transactions
contemplated by this Agreement; or (c) a Negative Declaration approval, Remedial
Action Workplan approval, No Further Action letter or other document or
documents issued by the NJDEPE advising that the requirements of ISRA have been
satisfied with respect to each Facility subject to ISRA. In the event Farrington
obtains a Remediation Agreement, Farrington will post or have posted an
appropriate Remediation Funding Source or will have obtained the NJDEPE's
approval to self-guaranty any Remediation Funding Source required under any such
Remediation Agreement.
5.16 Farrington Options. From and after the Effective Time,
each Farrington Option which is converted to an option to purchase United Common
Stock under Section 2.1(e)(i) shall be administered, operated and interpreted by
a committee comprised of members of the Board of Directors of United appointed
by the Board of Directors of United. United shall reserve for issuance the
number of shares of United Common Stock issuable upon the exercise of such
converted Farrington Options. United shall also register promptly after the
Effective Time, if not previously registered pursuant to the 1933 Act, the
shares of United Common Stock authorized for issuance under the Farrington
Options so converted for the benefit of each person who becomes an employee of
United or UNB, but shall not be obligated to register the shares of United
Common Stock under the 1933 Act for directors of Farrington or for persons who
do not become employees of United or UNB.
5.17 Employment Agreement. Within 30 days of the Closing, in
cancellation of his employment agreement and as a full release for all other
severance and similar payments due him from Farrington or claims against
Farrington, United shall pay John E. Pellizzari an amount equal to 2.99 times
the annual average of his base salary, cash incentive compensation and cash
bonus paid to Pellizzari during the five calendar years preceding the Closing.
In no event shall the amount paid to Pellizzari cause a breach of Section
3.9(d). Prior to any payment, Pellizzari or Farrington shall provide
documentation reasonably satisfactory to United with respect to Pellizzari's
base salary, cash incentive compensation and cash bonus during such five year
period.
ARTICLE VI
CLOSING CONDITIONS
6.1. Conditions of Each Party's Obligations Under this
Agreement. The respective obligations of each party under this Agreement to
consummate the Merger shall be subject to the satisfaction, or, where
permissible under applicable law, waiver at or prior to the Effective Time of
the following conditions:
(a) Approval of Stockholders; SEC Registration. This Agreement
and the transactions contemplated hereby shall have been approved by the
requisite vote of the stockholders of Farrington and, if necessary, United. The
Registration Statement shall have been declared effective by the SEC and shall
not be subject to a stop order or any threatened stop order, and the issuance of
the United Common Stock shall have been qualified in every state where such
qualification is required under the applicable state securities laws. The United
Common Stock to be issued in connection with the Merger, shall have been
approved for listing on the NASDAQ/NMS.
(b) Regulatory Filings. All necessary regulatory or
governmental approvals and consents (including without limitation any required
approval of the OCC) required to consummate the transactions contemplated hereby
shall have been obtained without any term or condition which would materially
impair the value of Farrington, taken as a whole, to United. All conditions
required to be satisfied prior to the Effective Time by the terms of such
approvals and consents shall have been satisfied; and all statutory waiting
periods in respect thereof shall have expired.
(c) Suits and Proceedings. No order, judgment or decree shall
be outstanding against a party hereto or a third party that would have the
effect of preventing completion of the Merger; no suit, action or other
proceeding shall be pending or threatened by any governmental body in which it
is sought to restrain or prohibit the Merger and no suit, action or other
proceeding shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit the Merger or obtain other substantial
monetary or other relief against one or more parties hereto in connection with
this Agreement and which United or Farrington determines in good faith, based
upon the advice of their respective counsel, makes it inadvisable to proceed
with the Merger because any such suit, action or proceeding has a significant
potential to be resolved in such a way as to deprive the party electing not to
proceed of any of the material benefits to it of the Merger.
(d) Tax Free Exchange. United and Farrington shall have
received an opinion, satisfactory to United and Farrington, of Pitney, Hardin,
Kipp & Szuch, counsel for United, to the effect that the transactions
contemplated hereby will result in a reorganization (as defined in Section
368(a) of the Code), and accordingly no gain or loss will be recognized for
federal income tax purposes to United, Farrington or UNB or to the shareholders
of Farrington who exchange their shares of Farrington for United Common Stock
(except to the extent that cash is received in lieu of fractional shares of
United Common Stock).
(e) Form S-8 For Stock Options. United shall have agreed to
file, no later than 15 days after the Closing, a Registration Statement on Form
S-8 to cover any Farrington Stock Options which will continue as United Stock
Options, except for Farrington Stock Options held by persons who were directors
of Farrington or who will not become employees of United or UNB.
6.2. Conditions to the Obligations of United Under this
Agreement. The obligations of United 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 Farrington. The representations and warranties of Farrington 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. Farrington shall have
performed in all material respects the agreements, covenants and obligations
necessary to be performed by it prior to the Closing Date. With respect to any
representation or warranty which as of the Closing Date has required a
supplement or amendment to the Farrington Disclosure Schedule to render such
representation or warranty true and correct as of the Closing Date, the
representation and warranty shall be deemed true and correct as of the Closing
Date only if (i) the information contained in the supplement or amendment to the
Disclosure Schedule related to events occurring following the execution of this
Agreement and (ii) the facts disclosed in such supplement or amendment would not
either alone, or together with any other supplements or amendments to the
Farrington Disclosure Schedule, materially adversely effect the representation
as to which the supplement or amendment relates.
(b) Consents. United shall have received the written consents
of any person whose consent to the transactions contemplated hereby is required
under the applicable instrument.
(c) Opinion of Counsel. United shall have received an opinion
of counsel to Farrington, dated the date of the Closing, in form and substance
reasonably satisfactory to United covering the matters set forth in Schedule
6.2.
(d) Pooling of Interests. The Merger shall be qualified to be
treated by United as a pooling-of-interests for accounting purposes.
(e) Certificates. Farrington shall have furnished United with
such certificates of its officers or others (without personal liability) and
such other documents to evidence fulfillment of the conditions set forth in this
Section 6.2 as United may reasonably request.
6.3. Conditions to the Obligations of Farrington Under this
Agreement. The obligations of Farrington 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 United. The representations and warranties of United 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. United and UNB shall have
performed in all material respects, the agreements, covenants and obligations to
be performed by them 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 United Disclosure Schedule to render such
representation or warranty true and correct as of the Closing Date, the
representation and warranty shall be deemed true and correct as of the Closing
Date only if (i) the information contained in the supplement or amendment to the
Disclosure Schedule related to events occurring following the execution of this
Agreement and (ii) the facts disclosed in such supplement or amendment would not
either alone, or together with any other supplements or amendments to the United
Disclosure Schedule, materially adversely effect the representation as to which
the supplement or amendment relates.
(b) Opinion of Counsel to United. Farrington shall have
received an opinion of counsel to United, dated the date of the Closing, in form
and substance reasonably satisfactory to Farrington, covering the matters set
forth in Schedule 6.3.
(c) Fairness Opinion. Farrington shall have received an
opinion from Finpro as of the date the Proxy Statement/Prospectus is mailed to
Farrington's stockholders, to the effect that, in its opinion, the consideration
to be paid to stockholders of Farrington hereunder is fair to such stockholders.
(d) Certificates. United shall have furnished Farrington with
such certificates of its officers or others (without personal liability) and
such other documents to evidence fulfillment of the conditions set forth in this
Section 6.3 as Farrington 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 Farrington:
(a) By mutual written consent of the parties hereto.
(b) By United or Farrington (i) if the Effective Time shall
not have occurred on or prior to August 1, 1997, or (ii) if a vote of the
stockholders of Farrington or, if necessary, of United, is taken and such
stockholders fail to approve this Agreement at the meeting (or any adjournment
thereof) held for such purpose, unless in each case the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein to be performed
or observed by such party at or before the Effective Time.
(c) By United or Farrington upon written notice to the other
if any application for regulatory or governmental approval necessary to
consummate the Merger and the other transactions contemplated hereby shall have
been denied or withdrawn at the request or recommendation of the applicable
regulatory agency or governmental authority or by United upon written notice to
Farrington if any such application is approved with conditions which materially
impair the value of Farrington, taken as a whole, to United, unless any 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 Date.
(d) By United if (i) there shall have occurred a material
adverse change in the business, operations, assets, or financial condition of
Farrington from that disclosed by Farrington on the date of this Agreement, or
(ii) there was a material breach in any representation, warranty, covenant,
agreement or obligation of Farrington hereunder.
(e) By Farrington, if (i) there shall have occurred a material
adverse change in the business, operations, assets or financial condition of
United, UNB or United and its Subsidiaries on a consolidated basis from that
disclosed by United on the date of this Agreement; or (ii) there was a material
breach in any representation, warranty, covenant, agreement or obligation of
United hereunder.
(f) By United or Farrington if any condition to Closing
specified under Article VI hereof applicable to such party cannot reasonably be
met after giving the other party a reasonable opportunity to cure any such
condition.
(g) By United during the Due Diligence Period if the due
diligence review by United or any Disclosure Schedules provided by Farrington
after the date hereof causes United to reach a conclusion about the financial
condition, business, assets or the quality of the representations and warranties
of Farrington, adverse from conclusions about the same matters which United's
senior executives held at the time United executed this Agreement; or
(h) By Farrington if the Average Closing Price is less than
$28.50 per share. This amount shall be adjusted for any capital change after the
date hereof, as provided in Section 2.1(c). Provided, however, that (i) United
shall have the right to increase the Exchange Ratio to a number (taken to four
decimal places) such that each Share of Farrington Common Stock is exchanged for
United Common Stock which has a value, based upon the Average Closing Price,
which is as high as the value which would have been received if the Average
Closing Price had been $28.50 and (ii) if United agrees in writing to the
increased Exchange Ratio, at or before the Closing, Farrington shall not have
the right to terminate this Agreement under this paragraph 7.1(h). In order to
calculate the required increase in the Exchange Ratio, the Exchange Ratio shall
be multiplied by a fraction, the numerator of which is $28.50 and the
denominator of which is the Average Closing Price.
122513A01110696
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement by either United or Farrington pursuant to
Section 7.1, this Agreement (except the provisions of Section 5.5(b) hereof)
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 mutual action
taken by the parties hereto at any time before or after adoption of this
Agreement by the stockholders of Farrington 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 Farrington without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of United and Farrington.
7.4. Extension; Waiver. The parties may, at any time prior to
the Effective Time of the Merger, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.
ARTICLE VIII
MISCELLANEOUS
8.1. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including legal,
accounting and investment banking fees and expenses) shall be borne by the party
incurring such costs and expenses.
8.2. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by telecopier with confirming copy sent the same day by
registered or certified mail, postage prepaid, as follows:
If to United:
United National Bancorp
1130 Route 22 East
P.O. Box 6000
Bridgewater, New Jersey 08807-0010
Attn.: Thomas C. Gregor, Chairman, President & CEO
With a copy to:
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Ronald H. Janis, Esq.
If to Farrington:
Farrington Bank
630 Georges Road
North Brunswick, New Jersey 08902
Attn.: John E. Pellizzari, President & CEO
With a copy to:
Norris, McLaughlin & Marcus
721 Route 202-206
P.O. Box 1018
Somerville, New Jersey 08876
Attn.: Peter Hutcheon, Esq.
or such other addresses as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so delivered or telecopied and mailed.
8.3. Parties in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No assignment of this Agreement may be made
except upon the written consent of the other parties hereto. No person or entity
shall be deemed a third-party beneficiary under this Agreement, other than
current and former directors and officers of Farrington with respect to Section
5.12 hereof.
8.4. Entire Agreement. This Agreement, which includes the
Disclosure Schedules hereto and the other documents, agreements and instruments
executed and delivered pursuant to or in connection with this Agreement,
contains the entire Agreement between the parties hereto with respect to the
transactions contemplated by this Agreement and supersedes all prior
negotiations, arrangements or understandings, written or oral, with respect
thereto.
8.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
8.6. Governing Law. This Agreement shall be governed by the
laws of the State of New Jersey, without giving effect to the principles of
conflicts of laws thereof.
8.7. Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
IN WITNESS WHEREOF, United, UNB and Farrington have caused
this Agreement to be executed by their duly authorized officers as of the day
and year first above written.
ATTEST: UNITED NATIONAL BANCORP
By: /S/ RALPH L. STRAW, JR. By: /S/ THOMAS C. GREGOR
-------------------------------- -----------------------
Ralph L. Straw, Jr., Secretary Thomas C. Gregor,
Chairman, President and CEO
ATTEST: FARRINGTON BANK
By: /S/ VINCENT J. DINO By: /S/ JOHN E. PELLIZZARI
-------------------------------- -----------------------
Vincent J. Dino, Secretary John E. Pellizzari,
President and CEO
ATTEST: UNITED NATIONAL BANK
By: /S/ RALPH L. STRAW, JR. By: /S/ THOMAS C. GREGOR
-------------------------------- -----------------------
Ralph L. Straw, Jr. Cashier Thomas C. Gregor,
Chairman, President and CEO
-37-
<PAGE>
CERTIFICATE OF FARRINGTON DIRECTORS
Reference is made to the Agreement and Plan of Merger, dated
November 12, 1996 (the "Agreement"), among United National Bancorp, United
National Bank and Farrington Bank. Capitalized terms used herein have the
meanings given to them in the Agreement.
Each of the following persons, being all of the directors of
Farrington Bank, agrees to vote or cause to be voted all shares of Farrington
Common Stock which are held by such person, or over which such person exercises
full voting control, in favor of the Merger.
/s/ JOSEPH C. ZULLO, M.D.
---------------------------
Joseph C. Zullo, M.D.
/s/ CARMELO R. IARIA
---------------------------
Carmelo R. Iaria
/s/ VINCENT J. DINO
----------------------------
Vincent J. Dino
/s/ MSGR. FRANCIS J. CRUPI
----------------------------
Msgr. Francis J. Crupi
/s/ STEPHEN M. DEIXLER
----------------------------
Stephen M. Deixler
/s/ WILLIAM A. MACARO
----------------------------
William A. Macaro
/s/ JOHN E. PACKENHAM, JR.
----------------------------
John E. Packenham, Jr.
/s/ JOHN E. PELLIZZARI
----------------------------
John E. Pellizzari
/s/ HENRY ROSENZWEIG
----------------------------
Henry Rosenzweig
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") dated as of November
12, 1996, is by and between United National Bancorp, a New Jersey corporation
and registered bank holding company ("United"), and Farrington Bank, a
commercial bank organized under the laws of New Jersey ("Farrington").
BACKGROUND
1. United, United National Bank ("UNB"), and Farrington, as of the date
hereof, have executed a definitive agreement and plan of merger (the "Merger
Agreement") pursuant to which United will acquire Farrington through a merger of
Farrington with and into UNB (the "Merger").
2. As an inducement to United to enter into the Merger Agreement and in
consideration for such entry, Farrington desires to grant to United an option to
purchase authorized but unissued shares of common stock of Farrington 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, United and Farrington,
intending to be legally bound hereby, agree:
1. Grant of Option. Farrington hereby grants to United the option to
purchase 133,000 shares of common stock, $5.00 par value (the "Common Stock") of
Farrington at a price of $14.00 per share (the "Option Price"), on the terms and
conditions set forth herein (the "Option").
2. Exercise of Option. This Option shall not be exercisable until the
occurrence of a Triggering Event (as such term is hereinafter defined). Upon or
after the occurrence of a Triggering Event (as such term is hereinafter
defined), United may exercise the Option, in whole or in part, at any time or
from time to time.
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 United or an affiliate of United:
a. acquires beneficial ownership (as such term is defined in Rule 13d-3
as promulgated under the Exchange Act) of at least 10% of the then outstanding
shares of Common Stock;
b. enters into a letter of intent or an agreement, whether oral or
written, with Farrington pursuant to which such person or any affiliate of such
person would (i) merge or consolidate, or enter into any similar transaction
with Farrington, (ii) acquire all or a significant portion of the assets or
liabilities of Farrington, or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities
representing 10% or more of the then outstanding shares of Common Stock;
c. makes a filing with any bank or thrift regulatory authorities or
publicly announces a bona fide proposal (a "Proposal") for (i) any merger,
consolidation or acquisition of all or a significant portion of all the assets
or liabilities of Farrington or any other business combination involving
Farrington, or (ii) a transaction involving the transfer of beneficial ownership
of securities representing, or the right to acquire beneficial ownership or to
vote securities representing, 10% or more of the outstanding shares of Common
Stock, and thereafter, if such Proposal has not been Publicly Withdrawn (as such
term is hereinafter defined) at least 15 days prior to the meeting of
stockholders of Farrington called to vote on the Merger and Farrington'
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, Farrington willfully takes any action in any manner
which would materially interfere with its desire or ability to enter into a
definitive Merger Agreement or its ability to consummate the Merger or
materially reduce the value of the transaction to United; or
e. which is the holder of more than 5% of the Common Stock solicits
proxies in opposition to approval of the Merger.
Provided, however, that for these purposes the Board of Directors of
Farrington shall not be considered to be a "group" merely because of their
service on the Board and their ownership of Common Stock and no action by the
estate or heirs of any director who deceases after October 1, 1996, shall
constitute a Triggering Event. The term "Triggering Event" also means the taking
of any direct or indirect action by Farrington or any of its directors, officers
or agents to invite, encourage or solicit any proposal which has as its purpose
a tender offer for the shares of Farrington Common Stock, a merger,
consolidation, plan of exchange, plan of acquisition or reorganization of
Farrington, or a sale of shares of Farrington Common Stock or any significant
portion of its assets or liabilities.
The term "significant portion" means 10% of the assets or liabilities
of Farrington.
"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 Farrington or in soliciting or inducing any other
person (other than United 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 Farrington to issue the Option Shares or United 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.
Farrington shall notify United promptly in writing of the occurrence of
any Triggering Event known to it, it being understood that the giving of such
notice by Farrington shall not be a condition to the right of United to exercise
the Option. Farrington will not take any action which would have the effect of
preventing or disabling Farrington from delivering the Option Shares to United
upon exercise of the Option or otherwise performing its obligations under this
Agreement.
In the event United wishes to exercise the Option, United shall send a
written notice to Farrington (the date of which is hereinafter referred to as
the "Notice Date") specifying the total number of Option Shares it wishes to
purchase and a place and date for the closing of such a purchase (a "Closing");
provided, however, that a Closing shall not occur prior to two days after the
later of receipt of any necessary regulatory approvals and the expiration of any
legally required notice or waiting period, if any.
3. Payment and Delivery of Certificates. At any Closing hereunder (a)
United will make payment to Farrington of the aggregate price for the Option
Shares so purchased by wire transfer of immediately available funds to an
account designated by Farrington, (b) Farrington will deliver to United 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 Farrington, registered in the
name of United or its designee, in such denominations as were specified by
United in its notice of exercise and, if necessary, bearing a legend as set
forth below and (c) United shall pay any transfer or other taxes required by
reason of the issuance of the Option Shares so purchased.
If required under applicable federal securities laws, a legend will be
placed on each stock certificate evidencing Option Shares issued pursuant to
this Agreement, which legend will read substantially as follows:
The shares of stock evidenced by this certificate have not been
registered for sale under the Securities Act of 1933 (the "1933 Act").
These shares may not be sold, transferred or otherwise disposed of
unless a registration statement with respect to the sale of such shares
has been filed under the 1933 Act and declared effective or, in the
opinion of counsel reasonably acceptable to Farrington, said transfer
would be exempt from registration under the provisions of the 1933 Act
and the regulations promulgated thereunder.
No such legend shall be required if a registration statement is filed and
declared effective under Section 4 hereof.
4. Registration Rights. Upon or after the occurrence of a Triggering
Event and upon receipt of a written request from United, Farrington shall, if
necessary for the resale of the Option or the Option Shares by United, prepare
and file a registration statement with the Securities and Exchange Commission,
the Federal Deposit Insurance Corporation and any state securities bureau,
covering the Option and such number of Option Shares as United shall specify in
its request, and Farrington 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 United
shall in no event have the right to have more than one such registration
statement become effective.
In connection with such filing, Farrington shall use its best efforts
to cause to be delivered to United such certificates, opinions, accountant's
letters and other documents as United 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 Farrington 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 Farrington and blue sky fees and expenses shall be paid by
Farrington. Underwriting discounts and commissions to brokers and dealers
relating to the Option Shares, fees and disbursements of counsel to United and
any other expenses incurred by United in connection with such registration shall
be borne by United. In connection with such filing, Farrington shall indemnify
and hold harmless United against any losses, claims, damages or liabilities,
joint or several, to which United may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any preliminary or final registration statement or any
amendment or supplement thereto, or arise out of a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
Farrington will reimburse United for any legal or other expense reasonably
incurred by United in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that Farrington 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 United
specifically for use in the preparation thereof. United will indemnify and hold
harmless Farrington 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 United for use in the preparation of such preliminary or
final registration statement or such amendment or supplement thereto; and United
will reimburse Farrington for any legal or other expense reasonably incurred by
Farrington in connection with investigating or defending any such loss, claim,
damage, liability or action.
5. Adjustment Upon Changes in Capitalization. In the event of any
change in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
then the number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
In the event any capital reorganization or reclassification of the
Common Stock, or any consolidation, merger or similar transaction of Farrington
with another entity, or in the event any sale of all or substantially all of the
assets of Farrington shall be effected in such a way that the holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
(in form reasonably satisfactory to the holder hereof) shall be made whereby the
holder hereof shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified herein and in lieu of the
Common Stock immediately theretofore purchasable and receivable upon exercise of
the rights represented by this Option, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore purchasable and receivable
upon exercise of the rights represented by this Option had such reorganization,
reclassification, consolidation, merger or sale not taken place; provided,
however, that if such transaction results in the holders of Common Stock
receiving only cash, the holder hereof shall be paid the difference between the
Option Price and such cash consideration without the need to exercise the
Option.
6. Filings and Consents. Each of United and Farrington 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 United is the holder hereof,
approval of the Board of Governors of the Federal Reserve System and Farrington
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 Farrington. Farrington hereby
represents and warrants to United as follows:
a. Due Authorization. Farrington 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 Farrington.
b. Authorized Shares. Farrington has taken and, as long as the
Option is outstanding, will take all necessary corporate action to authorize and
reserve for issuance all shares of Common Stock that may be issued pursuant to
any exercise of the Option.
c. No Conflicts. Neither the execution and delivery of this
Agreement nor consummation of the transactions contemplated hereby (assuming all
appropriate regulatory approvals) will violate or result in any violation or
default of or be in conflict with or constitute a default under any term of the
certificate of incorporation or by-laws of Farrington or any agreement,
instrument, judgment, decree, statute, rule or order applicable to Farrington.
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, United shall have the right to seek money damages
against Farrington 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. United 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 United, except upon or
after the occurrence of a Triggering Event. United represents that it is
acquiring the Option for United's own account and not with a view to or for sale
in connection with any distribution of the Option or the Option Shares. United
shall have the right to assign this Agreement to any party it selects after the
occurrence of a Triggering Event.
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 United:
United National Bancorp
1130 Route 22 East
P.O. Box 6000
Bridgewater, New Jersey 08807-0010
Attn.: Thomas C. Gregor, Chairman, President and CEO
With a copy to:
Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Ronald H. Janis, Esq.
If to Farrington:
Farrington Bank
630 Georges Road
North Brunswick, New Jersey 08902
Attn.: John E. Pellizzari,
President and CEO
With a copy to:
Norris, McLaughlin & Marcus
721 Route 202-206
P.O. Box 1018
Somerville, New Jersey 08876
Attn.: Peter Hutcheon, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
15. Captions. The captions in the Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
16. Waivers and Extensions. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (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 United to assign its rights and obligations
hereunder.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
19. Termination. This Agreement shall terminate upon either the
termination of the Merger Agreement as provided therein or the consummation of
the transactions contemplated by the Merger Agreement; provided, however, that
if termination of the Merger Agreement occurs after the occurrence of a
Triggering Event (as defined in Section 2 hereof), this Agreement shall not
terminate until the later of 18 months following the date of the termination of
the Merger Agreement or the consummation of any proposed transactions which
constitute the Triggering Event.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to
resolutions adopted by its Board of Directors, has caused this Agreement to be
executed by its duly authorized officer, all as of the day and year first above
written.
FARRINGTON BANK
By: /s/ JOHN E. PELLIZZARI
--------------------------
John E. Pellizzari,
President & CEO
UNITED NATIONAL BANCORP
By: /s/ THOMAS C. GREGOR
---------------------------
Thomas C. Gregor,
Chairman, President & CEO
<PAGE>
APPENDIX C
November 12, 1996
Board of Directors
Farrington Bank
630 Georges Road
North Brunswick, NJ 08902
Members of the Board:
You have requested our opinion, as an independent financial analyst to
the common shareholders of Farrington Bank, North Brunswick, New Jersey
("Farrington"), as to the fairness, from a financial point of view to the common
shareholders of Farrington, of the terms of the proposed merger of Farrington
with United National Bancorp, Bridgewater, New Jersey, ("United") and United's
subsidiary bank United National Bank, Lebanon Township, New Jersey, ("UNB").
Pursuant to the Agreement and Plan of Merger dated November 12, 1996, and
discussions with management, each share of Farrington common stock issued and
outstanding immediately prior to the Effective Time shall be converted at the
Effective Time into the right to receive 0.7647 shares of common stock, $2.50
par value, of United. It is understood that prior to the Effective Time, all of
Farrington's outstanding options will have converted into 60,051 of Farrington
common shares. Based upon a negotiated value of $35.00 per share for United's
common stock, United will issue 554,746 common shares to Farrington shareholders
for a total transaction value of $19,416,119. This transaction will be accounted
for under the pooling of interest method of accounting.
As part of its banking analysis business, FinPro, Inc. is continually
engaged in the valuation of bank, bank holding company and thrift securities in
connection with mergers and acquisitions nationwide. Prior to being retained for
this assignment, FinPro, Inc. had provided professional services and products to
Farrington. The revenues derived from such services and products are
insignificant when compared to the firm's total gross revenues.
In connection with this assignment, we reviewed: (i) the Agreement and
Plan of Merger dated November 12, 1996; (ii) the most recent external auditor's
reports to the Boards of Directors of each organization; (iii) the September 30,
1996 Report of Condition and Income for each organization; (iv) the Rate
Sensitivity Analysis reports for each organization; (v) each organization's
listing of marketable securities showing rate, maturity, and market value as
compared to book value; (vi) each organization's internal loan classification
list; (vii) a listing of other real estate owned for each organization; (viii)
the budget and long range operating plan of each organization; (ix) the Minutes
of the Board of Directors meeting for each organization; (x) the most recent
Board report for each organization; (xi) the listing and description of
significant real properties for each organization; and (xii) the directors and
officers liability and blanket bond insurance policies for each organization.
FinPro conducted an on-site review of each organization's historical performance
and current financial condition and performed a market area analysis.
We have also had discussions with the management of Farrington and
United regarding their respective financial results and have analyzed the most
current financial data available on Farrington and United. We also considered
such other information, financial studies, analyses and investigations, and
economic and market criteria which we deemed relevant. We have met with the
management of Farrington and United to discuss the foregoing information with
them.
We have considered certain financial data of Farrington and United, and
have compared that data with similar data for other banks and bank holding
companies which have recently merged or been acquired; furthermore, we have
considered the financial terms of these business combinations involving said
banks and bank holding companies.
We have not independently verified any of the information reviewed by
us and have relied on its being complete and accurate in all material respects.
In addition, we have not made an independent evaluation of the assets of
Farrington and United.
In reaching our opinion we took into consideration the financial
benefits of the proposed transaction to all Farrington shareholders. Based on
all factors that we deem relevant and assuming the accuracy and completeness of
the information and data provided to us by Farrington and United, it is our
opinion as of November 12, 1996, that the proposed transaction is fair and
equitable to all Farrington shareholders from a financial point of view.
We hereby consent to the reference to our firm in the proxy statement
or prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Respectfully submitted,
FinPro, Inc.
Liberty Corner, New Jersey
By /S/ DONALD J. MUSSO
---------------------
Donald J. Musso
President
<PAGE>
APPENDIX D
SUBSECTIONS (b), (c) and (d) of SECTION 215a of TITLE 12 of the U.S. CODE,
"MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS"
(b) Dissenting Shareholders
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approve by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving association;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, the
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who shall cause a reappraisal to be made
which shall be final and binding as to the value of the share of the appellant.
(d) Application to shareholders of merging association; appraisal by
Comptroller; expenses of receiving association; sale and resale of
shares; State appraisal and merger law
If, within ninety days from the date of consummation of the merger, for
any reason one or more of the appraisers is not selected as herein provided, or
the appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification. The New Jersey Business Corporation Act empowers a
corporation to indemnify a corporate agent against his expenses and liabilities
incurred in connection with any proceeding (other than a derivative lawsuit)
involving the corporate agent by reason of his being or having been a corporate
agent if (a) the agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
(b) with respect to any criminal proceeding, the corporate agent had no
reasonable cause to believe his conduct was unlawful. For purposes of the Act,
the term "corporate agent" includes any present or former director, officer,
employee or agent of the corporation, and a person serving as a "corporate
agent" at the request of the corporation for any other enterprise.
With respect to any derivative action, the corporation is empowered to
indemnify a corporate agent against his expenses (but not his liabilities)
incurred in connection with any proceeding involving the corporate agent by
reason of his being or having been a corporate agent if the agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. However, only the court in which the proceeding
was brought can empower a corporation to indemnify a corporate agent against
expenses with respect to any claim, issue or matter as to which the agent was
adjudged liable for negligence or misconduct.
The corporation may indemnify a corporate agent in a specific case if
a determination is made by any of the following that the applicable standard of
conduct was met: (i) the Board of Directors, or a committee thereof, acting by a
majority vote of a quorum consisting of disinterested directors; (ii) by
independent legal counsel, if there is not a quorum of disinterested directors
or if the disinterested quorum empowers counsel to make the determination; or
(iii) by the shareholders.
A corporate agent is entitled to mandatory indemnification to the
extent that the agent is successful on the merits or otherwise in any
proceeding, or in defense of any claim, issue or matter in the proceeding. If a
corporation fails or refuses to indemnify a corporate agent, whether the
indemnification is permissive or mandatory, the agent may apply to a court to
grant him the requested indemnification. In advance of the final disposition of
a proceeding, the corporation may pay an agent's expenses if the agent agrees to
repay the expenses unless it is ultimately determined he is entitled to
indemnification.
Exculpation. Article 4 of the certificate of incorporation of United
National Bancorp provides:
1. Elimination of Certain Liability of Directors. A director of
the Corporation shall not be personally liable to the Corporation or
its shareholders for damages for breach of any duty owed to the
Corporation or its shareholders, except for liability for any breach
of duty based upon an act or omission (a) in breach of such person's
duty of loyalty to the Corporation or its shareholders, (b) not in
good faith or involving a knowing violation of law, or (c) resulting
in receipt by such person of an improper personal benefit. If the New
Jersey Business Corporation Act is amended after approval by the
shareholders of this provision to authorize corporate action further
eliminating or limiting the personal liability of directors or
officers, then the liability of a director and/or officer of the
Corporation shall be eliminated or limited to the fullest extent
permitted by the New Jersey Business Corporation Act as so amended.
<PAGE>
2. Elimination of Certain Liability of Officers. Unless provided
otherwise by law, an officer of the Corporation shall not be
personally liable to the Corporation or its shareholders for damages
for breach of any duty owed to the Corporation or its shareholders,
except for liability for any breach of duty based upon an act or
omission (a) in breach of such person's duty of loyalty to the
Corporation or its shareholders, (b) not in good faith or involving a
knowing violation of law or (c) resulting in receipt by such person of
an improper personal benefit.
3. Repeal or Modification of this Article. Any repeal or
modification of the foregoing paragraphs by the shareholders of the
Corporation shall not adversely affect any right or protection of a
director or an officer of the Corporation existing at the time of such
repeal or modification.
The New Jersey Business Corporation Act, as it affects exculpation, has not been
changed since the adoption of this provision by United National Bancorp in 1987.
Item 21.
A. Exhibits
Exhibit No. Description
2(a)* Agreement and Plan of Merger, dated November 12, 1996, by and
among United National Bancorp, United National Bank and Farrington
Bank, included as Appendix A to the Joint Proxy
Statement/Prospectus.
2(b)* Stock Option Agreement, dated November 12, 1996, by and among
United National Bancorp and Farrington Bank, included as Appendix
B to the Joint Proxy Statement/Prospectus.
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of the
securities to be registered.
8 Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax
consequences of the Merger.
10(a)** Employment and Change-In-Control Agreement by and between Thomas
C. Gregor, United National Bancorp, and United National Bank dated
as of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10a)).
10(b)** Employment and Change-In-Control Agreement by and between Ralph L.
Straw, United National Bancorp, and United National Bank dated as
of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10b)).
10(c)** Employment and Change-In-Control Agreement by and between Warren
R. Gerleit, United National Bancorp, and United National Bank
dated as of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10c)).
10(d)** Employment and Change-In-Control Agreement by and between Donald
W. Malwitz, United National Bancorp, and United National Bank
dated as of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10d)).
10(e)** Employment and Change-In-Control Agreement by and between A.
Richard Abrahamian, United National Bancorp, and United National
Bank dated as of August 15, 1994. (Incorporated by reference from
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10f)).
23(a) Consent of Arthur Andersen LLP with respect to United National
Bancorp.
23(b) Consent of KPMG Peat Marwick LLP with respect to Farrington Bank.
23(c)* Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5
and 8 hereto).
<PAGE>
23(d)* Consent of Finpro, Inc. (included in Appendix C to Proxy
Statement).
24*** Power of Attorney of Officers and Directors of United National
Bancorp.
99(a) Form of Proxy Card to be utilized by the Board of Directors of
Farrington Bank.
- -----------------------------------
* Included elsewhere in this registration statement.
** Incorporated by Reference from other filed documents, as indicated.
*** To be filed by amendment.
B. Financial Schedules
All financial statement schedules have been omitted because they are
not applicable or the required information is included in the financial
statements or notes thereto or incorporated by reference therein.
C. Report, Opinion or Appraisals
Form of Fairness Opinion of Finpro, Inc. is included as Appendix C to
Joint Proxy Statement/Prospectus.
Item 22. Undertakings
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
2. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
3. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph 2 immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a) (3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
5. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
6. Subject to appropriate interpretation, the undersigned registrant
hereby undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it becomes effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Bridgewater, State of New Jersey,
on the 17th day of December, 1996.
UNITED NATIONAL BANCORP
By: /S/ THOMAS C. GREGOR
------------------------------------
Thomas C. Gregor, Chairman,
President and Chief Executive Officer
Signature Title Date
/S/THOMAS C. GREGOR
- --------------------- Chairman of the Board, President December 17, 1996
Thomas C. Gregor and Chief Executive Officer
/S/ DONALD W. MALWITZ
- --------------------- Executive Vice President, December 17, 1996
Donald W. Malwitz Treasurer and CFO (Principal
Financial Officer)
/S/ A. RICHARD ABRAHAMIAN
- ------------------------- Senior Vice President and Chief December 17, 1996
A. Richard Abrahamian Accounting Officer
(Principal Accounting Officer
/S/ GEORGE W. BLANK
- --------------------- Director December 17, 1996
George W. Blank
/S/ DONALD A. BUCKLEY
- --------------------- Director December 17, 1996
Donald A. Buckley
/S/ C. DOUGLAS CHERRY
- --------------------- Director December 17, 1996
C. Douglas Cherry
/S/ CHARLES E. HANCE
- --------------------- Director December 17, 1996
Charles E. Hance
/S/ JOHN R. KOPICKI
- --------------------- Director December 17, 1996
John R. Kopicki
/S/ RICHARD C. MARDER
- --------------------- Director December 17, 1996
Richard C. Marder
/S/ ANTONIA S. MARROTA
- ---------------------- Director December 17, 1996
Antonia S. Marotta
/S/ JOHN W. MCGOWAN III
- ----------------------- Director December 17, 1996
John W. McGowan III
/S/ PATRICIA A. MCKIERNAN
- ------------------------- Director December 17, 1996
Patricia A. McKiernan
/S/ CHARLES N. POND, JR.
- ------------------------ Director December 17, 1996
Charles N. Pond, Jr.
/S/ KENNETH W. TURNBULL
- ----------------------- Director December 17, 1996
Kenneth W. Turnbull
/S/ DAVID R. WALKER
- --------------------- Director December 17, 1996
David R. Walker
/S/ RONALD E. WEST
- --------------------- Director December 17, 1996
Ronald E. West
/S/ GEORGE J. WICKARD
- --------------------- Director December 17, 1996
George J. Wickard
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
2(a)* Agreement and Plan of Merger, dated November 12, 1996, by and
among United National Bancorp, United National Bank and Farrington
Bank, included as Appendix A to the Joint Proxy
Statement/Prospectus.
2(b)* Stock Option Agreement, dated November 12, 1996, by and among
United National Bancorp and Farrington Bank, included as Appendix
B to the Joint Proxy Statement/Prospectus.
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of the
securities to be registered.
8 Opinion of Pitney, Hardin, Kipp & Szuch as to certain tax
consequences of the Merger.
10(a)** Employment and Change-In-Control Agreement by and between Thomas
C. Gregor, United National Bancorp, and United National Bank dated
as of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10a)).
10(b)** Employment and Change-In-Control Agreement by and between Ralph L.
Straw, United National Bancorp, and United National Bank dated as
of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10b)).
10(c)** Employment and Change-In-Control Agreement by and between Warren
R. Gerleit, United National Bancorp, and United National Bank
dated as of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10c)).
10(d)** Employment and Change-In-Control Agreement by and between Donald
W. Malwitz, United National Bancorp, and United National Bank
dated as of August 15, 1994. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10d)).
10(e)** Employment and Change-In-Control Agreement by and between A.
Richard Abrahamian, United National Bancorp, and United National
Bank dated as of August 15, 1994. (Incorporated by reference from
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (Exhibit 10f)).
23(a) Consent of Arthur Andersen LLP with respect to United National
Bancorp.
23(b) Consent of KPMG Peat Marwick LLP with respect to Farrington Bank.
23(c)* Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits 5
and 8 hereto).
23(d)* Consent of Finpro, Inc. (included in Appendix C to Proxy
Statement).
24*** Power of Attorney of Officers and Directors of United National
Bancorp.
99(a) Form of Proxy Card to be utilized by the Board of Directors of
Farrington Bank.
- -----------------------------------
* Included elsewhere in this registration statement.
** Incorporated by Reference from other filed documents, as indicated.
*** To be filed by amendment.
EXHIBIT 5
PITNEY, HARDIN, KIPP & SZUCH
P.O. BOX 1945
MORRISTOWN, NEW JERSEY 07962-1945
January 3, 1997
United National Bancorp
1130 Route 22 East
P.O. Box 6000
Bridgewater, New Jersey 08807-0010
Attn.: Mr. Thomas C. Gregor, Chairman, President, and
Chief Executive Officer
Ladies and Gentlemen:
We have acted as counsel to United National Bancorp ("United"), a New
Jersey corporation which is a registered bank holding company, and United
National Bank ("UNB"), a national banking association which is a wholly owned
subsidiary of United, in connection with the proposed merger of Farrington Bank
("Farrington") with and into UNB (the "Merger"). The Merger will be effected
pursuant to the provisions of an Agreement and Plan of Merger dated November 12,
1996 (the "Merger Agreement") by and among United, UNB, and Farrington.
We have examined the Registration Statement on Form S-4 (the
"Registration Statement") to be filed by United with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended (the "Act"), of shares of common stock of United, $2.50 par value
(the "Shares") to be issued pursuant to the Merger Agreement.
We have also examined originals, or copies certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Certificate of
Incorporation, as amended, and By-laws of United, as currently in effect, and
relevant resolutions of the Board of Directors of United; and we have examined
such other documents as we deemed necessary in order to express the opinion
hereinafter set forth.
In our examination of such documents and records, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, and conformity with the originals of all documents submitted to us
as copies.
Based on the foregoing, it is our opinion that when, as and if the
Registration Statement shall have become effective pursuant to the provisions of
the Act, and the Shares shall have been duly issued and delivered in the manner
contemplated by the Merger Agreement and the Registration Statement, including
the Prospectus relating to the Shares (the "Prospectus"), the Shares will be
legally issued, fully paid and non-assessable.
The foregoing opinion is limited to the federal laws of the United
States and the laws of the State of New Jersey, and we are expressing no opinion
as to the effect of the laws of any other jurisdiction.
We consent to use of this opinion as an Exhibit to the Registration
Statement and to the reference to this firm under the heading "Legal Opinion" in
the Prospectus.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 8
January 2, 1997
United National Bancorp
1130 Route 22 East
P.O. Box 6050
Bridgewater, NJ 08807-0010
Attn: Thomas C. Gregor, Chairman,
President, and Chief Executive Officer
Farrington Bank
630 Georges Road
North Brunswick, NJ 08902
Attn: John E. Pellizzari, President
and Chief Executive Officer
Re: Merger of Farrington Bank
With and Into United National Bancorp
Ladies and Gentlemen:
We have represented United National Bancorp ("United"), a New Jersey
corporation which is a registered bank holding company, and United National Bank
("UNB"), a national banking association wholly-owned by United, in connection
with the proposed merger of Farrington Bank ("Farrington"), a bank chartered
under the laws of New Jersey with and into UNB (the "Merger"). The Merger shall
be effected pursuant to the provisions of the Agreement and Plan of Merger dated
November 12, 1996 (the "Merger Agreement") among United, UNB, and Farrington.
The Merger Agreement defines those capitalized terms appearing in this letter
which are not defined in this letter.
In connection with such representation, we have reviewed the
Registration Statement to be filed with the Securities and Exchange Commission
pertaining to the Merger (the "Registration Statement"), and, in our opinion,
the information included in the section of the Registration Statement captioned
"Federal Income Tax Consequences" accurately describes the material federal
income tax consequences of the Merger. In addition, we have attached to this
letter a form of opinion of this firm regarding certain federal income tax
matters applicable to the Merger (the "Closing Tax Opinion"). Section 6.1(d) of
the Merger Agreement requires as a condition precedent to the consummation of
the Merger the delivery of the Closing Tax Opinion by this firm. At this time,
we expect to deliver the Closing Tax Opinion substantially in the form attached
to this letter at the Closing.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Opinion" in the Registration Statement.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
<PAGE>
[PHKS LETTER]
[Date of Effective Time]
United National Bancorp
1130 Route 22 East
P.O. Box 6000
Bridgewater, New Jersey 08807-0010
Attn: Thomas C. Gregor, Chairman,
President, and Chief Executive Officer
Farrington Bank
630 Georges Road
North Brunswick, New Jersey 08902
Attn: John E. Pellizzari, President
and Chief Executive Officer
Re: Merger of Farrington Bank
With and Into United National Bancorp
Ladies and Gentlemen
We have represented United National Bancorp ("United"), a New Jersey
corporation which is a registered bank holding company, and United National Bank
("UNB"), a national banking association wholly-owned by United, in connection
with the proposed merger of Farrington Bank ("Farrington"), a bank chartered
under the laws of New Jersey, with and into UNB. The Merger shall be effected
pursuant to the provisions of the Agreement and Plan of Merger dated November
12, 1996 (the "Merger Agreement") among United, UNB, and Farrington. We deliver
this opinion pursuant to Section 6.1(d) of the Merger Agreement. The Merger
Agreement defines those capitalized terms appearing in this letter which are not
defined in this letter. Unless otherwise indicated, all sections refer to the
Internal Revenue Code of 1986, as amended (the "Code").
Pursuant to the terms of the Merger Agreement, at the Effective Time,
the Merger shall be effectuated by the merger of Farrington with and into UNB,
with UNB surviving, in accordance with federal and New Jersey law.
Pursuant to the Merger Agreement, at the Effective Time, each
outstanding share of common stock, $5.00 par value, of Farrington (the
"Farrington Common Stock"), other than shares held by Farrington as treasury
stock or held by any other direct or indirect subsidiary of Farrington (except
as trustee or in a fiduciary capacity) or held by United, shall be converted
into the right to receive and be exchangeable for .7647 shares of United Common
Stock.
In addition to the foregoing facts, on the date of this letter, you
have delivered to us certificates in which you have made certain
representations, which we consider relevant to this opinion, in regard to the
Merger and have authorized us to rely on such representations in expressing the
opinions contained in this letter.
As counsel to United and UNB, we have examined the Merger Agreement
and copies of ancillary agreements, certificates, instruments and documents
pertaining to the Merger delivered by the parties to the Merger. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us. As to any facts material to our
opinions expressed in this letter, we have relied on representations of the
parties to the Merger and have not undertaken to verify any of those
representations by independent investigation. We have based our opinions
contained in this letter on our analysis of the Code, Treasury Regulations
promulgated thereunder, and relevant interpretive authorities as in effect on
the date of this letter.
Based on the foregoing, we are of the opinion that:
1. The Merger qualifies as a "reorganization" within the meaning of
Section 368(a)(1)(A) and 368(a)(2)(D). United, UNB, and Farrington each are a
"party to a reorganization" within the meaning of Section 368(b)(2).
2. No gain or loss will be recognized for federal income tax purposes
by United, UNB, or Farrington in connection with the Merger. Sections 361(a) and
1032(a).
3. No gain or loss will be recognized for federal income tax purposes
by holders of shares of Farrington Common Stock upon the conversion in the
Merger of such shares into shares of United Common Stock (except with respect to
cash received in lieu of a fractional share interest in United Common Stock).
Section 354(a).
4. The basis of shares of United Common Stock received in the Merger
by holders of Farrington Common Stock will be the same as the basis of such
shares of Farrington Common Stock surrendered in exchange therefor. Section 358.
5. The holding period of shares of United Common Stock received in the
Merger by holders of Farrington Common Stock will include the period during
which such shares of Farrington Common Stock surrendered in exchange therefor
were held by the holder thereof, provided such shares of Farrington Common Stock
were held as capital assets. Section 1223(1).
Very truly yours,
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United National Bancorp:
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated January 12, 1996
incorporated by reference in United National Bancorp's Form 10-K for the year
ended December 31, 1995 and to all references to our Firm included in this
Registration Statement on Form S-4.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 30, 1996
EXHIBIT 23(b)
Independent Auditors' Consent
The Shareholders and Board of Directors
Farrington Bank:
We consent to the use of our report dated February 22, 1996, relating to the
consolidated statements of financial condition of Farrington Bank and subsidiary
as of December 31, 1995 and 1994, and the related consolidated statements of
earnings, changes in shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1995, included in the Registration
Statement on Form S-4 of United National Bancorp, and to the reference to our
Firm under the heading "Experts" in the Prospectus.
Our report on the consolidated financial statements refers to a change in the
method of accounting for income taxes in 1993 and a change in the method of
accounting for certain investments in debt and equity securities in 1994.
KPMG Peat Marwick LLP
Short Hills, New Jersey
December 27, 1996
EXHIBIT 99(a)
PROXY SOLICITED BY MANAGEMENT
OF
FARRINGTON BANK
For Special Meeting of Stockholders
on
______________, 1997
KNOW ALL MEN BY THESE PRESENTS: That the undersigned stockholder in Farrington
Bank does hereby constitute and appoint:
----------------------- ---------------------- -------------------
and any one of them, Attorney, Agent, and Proxy of the undersigned, with full
power of substitution for and in the name, place and stead of the undersigned to
vote as Proxy at the Special Meeting of Stockholders of Farrington Bank to be
held on _________________, 1997 and at any adjournment thereof, according to the
number of votes which the undersigned would be entitled to vote if personally
present, hereby revoking all proxies heretofore given and hereby ratifying and
confirming all that said attorneys, or any of them, shall lawfully do or cause
to be done by virtue hereof. I authorize and instruct my Proxies to vote as
follows:
1. Proposal to Approve the Merger of Farrington Bank with and into
United National Bank ("UNB") pursuant to the Agreement and Plan of Merger dated
November 12, 1996 among Farrington Bank, UNB and United National Bancorp.
[ ] FOR APPROVAL [ ] AGAINST APPROVAL [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL IN ITEM 1.
This proxy when properly executed, will be voted in the manner directed herein
by the undersigned shareholder(s). If no direction is made, this proxy will be
voted "FOR" the proposal listed under Item 1 above.
The undersigned acknowledges receipt of the Proxy Statement-Prospectus, and
revokes all former proxies.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND MAY BE REVOKED BY THE
STOCKHOLDER PRIOR TO ITS EXERCISE, BY DELIVERING WRITTEN NOTICE OF REVOCATION TO
THE SECRETARY OF THE BANK PRIOR TO THE MEETING OR, IF THE MEETING IS IN
PROGRESS, BY FILING NOTICE OF REVOCATION WITH THE SECRETARY PRIOR TO THE
TABULATION OF VOTES
Signature of Shareholder(s):
------------------------------------
------------------------------------
Number of Shares: ----------------
Dated: --------------------------
(Please insert date at left, sign exactly as name appears on record, and mail in
the enclosed envelope. When signing as Officer, Partner, Executor,
Administrator, Trustee or Guardian, please give full title. For Corporations, if
the officer signing is not the President or a Vice President, please submit
evidence of your authority to sign. For joint accounts, each joint owner should
sign.)
