As filed with the Securities and Exchange Commission on August 12, 1998
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 or Organization)
6712 22-2894827
- ---------------------------- ------------------------------------
(Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
---------
1130 Route 22 East
P.O. Box 6000
Bridgewater, New Jersey 08807-0010
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
P.O. Box 6000
Bridgewater, New Jersey 08807-0010
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:
MICHAEL W. ZELENTY, ESQ. PETER EHRENBERG, ESQ.
Pitney, Hardin, Kipp & Szuch Lowenstein Sandler PC
P.O. Box 1945 65 Livingston Avenue
Morristown, New Jersey 07962-1945 Roseland, New Jersey 07068
(973) 966-8125 (973) 597-2500
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 June 25, 1998 (the "Agreement"), among the Registrant, United National
Bank and State Bank of South Orange ("SBSO"), attached as Appendix A to the
Proxy Statement/Prospectus.
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<PAGE>
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. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_| __________
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_| __________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered offering price per unit* aggregate offering price* registration fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.25 par value 796,271 $11.8773 $9,457,550 $2,790
Shares**
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</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 book value per share of common stock of SBSO, $5.00 par value per
share ("SBSO Common Stock") as of June 30, 1998 ($9.54) multiplied by the
Exchange Ratio in the Merger Agreement (1.245).
** Based on the number of shares of SBSO Common Stock issued and outstanding
(639,575) multiplied by the Exchange Ratio in the Merger Agreement (1.245).
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.
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<PAGE>
STATE BANK OF SOUTH ORANGE
VALLEY AND THIRD STREETS, P.O. BOX 384
SOUTH ORANGE, NEW JERSEY 07049
August __, 1998
To Our Stockholders:
A Special Meeting of Stockholders (the "Meeting") of State Bank of South
Orange ("SBSO") will be held on September __, 1998 at ____ _.m. at
_____________________________________________, New Jersey. At the Meeting you
will be asked to approve an Agreement and Plan of Merger (the "Merger
Agreement") by and among SBSO, United National Bancorp ("United") and United
National Bank ("UNB"), pursuant to which SBSO will be merged with and into UNB
(the "Merger"). If the Merger is approved and becomes effective, stockholders of
SBSO will receive 1.245 shares of Common Stock of United for each share of SBSO
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
Stockholders, 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 SBSO.
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 promptly in the postage-paid 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 stockholders of SBSO if the
Merger is consummated.
We urge you to read the attached Proxy Statement-Prospectus carefully. It
describes the Merger Agreement in detail and includes a copy of the Merger
Agreement as Appendix A.
On behalf of the Board of Directors and all of the employees of SBSO, we
thank you for your support. We look forward to seeing you on September __, 1998.
Sincerely,
JAMES J. YOUNG
President
MILTON J. WIGDER
Chairman of the Board of Directors
<PAGE>
STATE BANK OF SOUTH ORANGE
VALLEY AND THIRD STREETS, P.O. BOX 384
SOUTH ORANGE, NEW JERSEY 07049
----------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER __, 1998
----------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"MEETING") of State Bank of South Orange ("SBSO") will be held at
____________________________________________, New Jersey on _________, September
__, 1998 at _____ _.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
June 25, 1998 (the "MERGER AGREEMENT"), by and among United National
Bancorp ("UNITED"), United's national bank subsidiary, United National Bank
("UNB"), and SBSO, pursuant to which SBSO will merge into UNB (the
"MERGER"), and each share of SBSO Common Stock outstanding on the effective
date of the Merger will be converted into 1.245 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 stockholders of record as of the close of business on August
10, 1998 will be entitled to notice of, and to vote at, the Meeting. A list of
such stockholders 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 SBSO 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 complete, date and sign the enclosed Proxy Card and return it promptly in
the enclosed postage-paid return envelope. You may revoke the proxy at any time
prior to its exercise.
By Order of the Board of Directors,
JAMES J. YOUNG
President
South Orange, New Jersey
August __, 1998
THE MERGER IS IMPORTANT TO THE STOCKHOLDERS OF STATE BANK OF SOUTH ORANGE.
ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
STATE BANK OF SOUTH ORANGE UNITED NATIONAL BANCORP
PROXY STATEMENT PROSPECTUS
FOR THE SPECIAL MEETING OF STOCKHOLDERS FOR THE COMMON STOCK OF UNITED NATIONAL BANCORP
OF STATE BANK OF SOUTH ORANGE TO BE ISSUED IN CONNECTION WITH THE
TO BE HELD ON MERGER OF STATE BANK OF SOUTH ORANGE
SEPTEMBER __, 1998 WITH AND INTO UNITED NATIONAL BANK
</TABLE>
----------
This Proxy Statement-Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of State Bank of South Orange
("SBSO") to be used at a Special Meeting of its stockholders (the "MEETING") to
be held on September __, 1998 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 June 25, 1998 (the "MERGER AGREEMENT"), by and among SBSO,
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 stockholders of SBSO, receipt of all requisite
regulatory approvals and satisfaction or waiver of all conditions, SBSO will
merge with and into UNB (the "MERGER"). Upon consummation of the Merger, each
share of common stock of SBSO, $5.00 par value per share ("SBSO COMMON STOCK"),
issued and outstanding immediately prior to the effective time of the Merger,
will be converted into 1.245 shares (the "EXCHANGE RATIO") of common stock of
United, $1.25 par value per share ("UNITED COMMON STOCK"), subject to certain
adjustments more fully described in this Proxy Statement-Prospectus. Under the
terms of the Merger Agreement, cash will be paid in lieu of fractional shares of
United Common Stock.
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 SBSO 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.
SBSO STOCK CERTIFICATES SHOULD NOT BE RETURNED TO SBSO WITH THE ENCLOSED
PROXY AND SHOULD NOT BE FORWARDED UNTIL AFTER RECEIPT OF A LETTER OF TRANSMITTAL
WHICH WILL BE PROVIDED TO SBSO STOCKHOLDERS 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 AUGUST __, 1998.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION...................................................... 1
INFORMATION INCORPORATED BY REFERENCE...................................... 2
SUMMARY.................................................................... 4
THE MEETING................................................................ 4
THE COMPANIES.............................................................. 5
THE MERGER................................................................. 5
SELECTED FINANCIAL DATA OF UNITED.......................................... 11
SELECTED FINANCIAL DATA OF SBSO............................................ 13
COMPARATIVE PER SHARE DATA................................................. 14
SUMMARY PRO FORMA FINANCIAL INFORMATION.................................... 16
INTRODUCTORY STATEMENT..................................................... 17
CERTAIN INFORMATION REGARDING UNITED....................................... 17
GENERAL.................................................................... 17
UNITED NATIONAL BANK....................................................... 17
CERTAIN INFORMATION REGARDING SBSO......................................... 18
THE MEETING................................................................ 18
GENERAL.................................................................... 18
PURPOSE OF THE MEETING..................................................... 18
VOTE REQUIRED; SHARES ENTITLED TO VOTE..................................... 19
SOLICITATION, VOTING AND REVOCATION OF PROXIES............................. 19
THE PROPOSED MERGER........................................................ 20
GENERAL DESCRIPTION........................................................ 20
CONSIDERATION.............................................................. 20
EXCHANGE OF CERTIFICATES................................................... 20
BACKGROUND AND REASONS FOR THE MERGER...................................... 21
OPINION OF SBSO'S FINANCIAL ADVISOR........................................ 22
EFFECTIVE TIME; CONDITIONS TO CONSUMMATION OF THE MERGER................... 26
REGULATORY APPROVALS....................................................... 27
TERMINATION OF THE MERGER AGREEMENT........................................ 27
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.............. 30
BUSINESS PENDING CONSUMMATION OF THE MERGER................................ 31
MANAGEMENT AND OPERATIONS AFTER THE MERGER................................. 31
STOCK OPTION FOR SHARES OF SBSO COMMON STOCK............................... 31
RIGHTS OF DISSENTING SBSO STOCKHOLDERS..................................... 34
PRO FORMA COMBINED FINANCIAL INFORMATION................................... 35
<PAGE>
SBSO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................... 41
OVERVIEW................................................................... 41
RESULTS OF OPERATIONS...................................................... 41
FINANCIAL CONDITION........................................................ 46
EFFECT OF INFLATION AND CHANGING PRICES.................................... 54
BUSINESS OF SBSO........................................................... 54
GENERAL.................................................................... 54
COMPETITION................................................................ 54
EMPLOYEES.................................................................. 54
PROPERTIES................................................................. 54
LEGAL PROCEEDINGS.......................................................... 55
SUPERVISION AND REGULATION OF SBSO......................................... 55
SBSO....................................................................... 55
DIVIDEND RESTRICTIONS...................................................... 55
INSURANCE OF DEPOSITS...................................................... 55
CAPITAL REQUIREMENTS....................................................... 55
LEGISLATION AND REGULATORY ACTION.......................................... 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............................ 56
CERTAIN TRANSACTIONS OF SBSO............................................... 57
DESCRIPTION OF UNITED CAPITAL STOCK........................................ 57
COMMON STOCK............................................................... 57
PREFERRED STOCK............................................................ 58
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF UNITED AND SBSO................ 59
VOTING REQUIREMENTS........................................................ 59
CLASSIFIED BOARD OF DIRECTORS.............................................. 59
RIGHTS OF DISSENTING STOCKHOLDERS.......................................... 60
SHAREHOLDER CONSENT TO CORPORATE ACTION.................................... 60
DIVIDENDS.................................................................. 60
BY-LAWS.................................................................... 60
PREEMPTIVE RIGHTS.......................................................... 61
SHAREHOLDER PROTECTION LEGISLATION......................................... 61
MINIMUM PRICE PROVISION.................................................... 61
CONSIDERATION OF ACQUISITION PROPOSALS..................................... 61
PREFERRED STOCK............................................................ 61
LEGAL OPINION.............................................................. 62
EXPERTS.................................................................... 62
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF SBSO......................... 63
FINANCIAL STATEMENTS OF SBSO............................................... F-1
APPENDIX A -- AGREEMENT AND PLAN OF MERGER................................. A-1
APPENDIX B -- STOCK OPTION AGREEMENT....................................... B-1
APPENDIX C -- RYAN, BECK OPINION........................................... C-1
APPENDIX D................................................................. D-1
ii
<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.
All information contained or incorporated 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
SBSO was supplied by SBSO. Although neither United nor SBSO 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 SBSO can warrant the accuracy or completeness of such information or
statements as they relate to the other entity.
<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, 1997.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
3. Current Report on Form 8-K filed with the Commission on July 1, 1998.
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 shall be deemed a part hereof
from the date of filing of such documents.
Any statement contained in a document 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 or in any
subsequently filed document which 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.
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 _______________, 1998.
CONTAINED WITHIN AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS ARE CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF UNITED AND SBSO. SUCH
STATEMENTS ARE NOT HISTORICAL FACTS AND INCLUDE EXPRESSIONS ABOUT UNITED'S
AND/OR SBSO'S CONFIDENCE, STRATEGIES AND EXPRESSIONS ABOUT EARNINGS, NEW AND
EXISTING PROGRAMS AND PRODUCTS, RELATIONSHIPS, OPPORTUNITIES, TECHNOLOGY AND
MARKET CONDITIONS. THESE STATEMENTS MAY BE IDENTIFIED BY FORWARD-LOOKING
TERMINOLOGY, SUCH AS "EXPECT", "BELIEVE" OR "ANTICIPATE", OR EXPRESSIONS OF
CONFIDENCE LIKE "STRONG" OR "ON-GOING", OR SIMILAR STATEMENTS OR VARIATIONS OF
SUCH TERMS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS OR REVENUE ENHANCEMENTS FROM
THE MERGER CANNOT BE REALIZED AS ANTICIPATED; (2) DEPOSIT ATTRITION, CUSTOMER
LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3)
COMPETITIVE PRESSURE IN THE BANKING AND FINANCIAL SERVICES INDUSTRY INCREASES
SIGNIFICANTLY; (4) CHANGES IN THE INTEREST RATE ENVIRONMENT; AND (5) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE STATE OF NEW JERSEY, ARE LESS
FAVORABLE THAN EXPECTED.
2
<PAGE>
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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. SBSO
stockholders 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 stockholders (including
any adjournment or postponement, the "MEETING")
of State Bank of South Orange ("SBSO") will be
held on _____________, September __, 1998, ____
_.m. at ___________ ___________________________,
New Jersey.
Record Date................... August 10, 1998 (the "RECORD DATE").
Shares Entitled to Vote....... 639,575 shares of common stock, $5.00 par value
per share, of SBSO ("SBSO 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 June 25, 1998 (the
"MERGER AGREEMENT"), by and among United
National Bancorp ("UNITED"), United's national
bank subsidiary, United National Bank ("UNB"),
and SBSO.
Vote Required................. The affirmative vote, in person or by proxy, of
at least two-thirds of the outstanding shares of
SBSO Common Stock is required to approve the
Merger Agreement. In connection with the
execution of the Merger Agreement, all the
directors of SBSO agreed to vote in favor of the
Merger Agreement all shares of SBSO Common Stock
which they hold, or over which they exercise
voting control. As of the Record Date, such
persons held or had voting control of
approximately 44.7% of the issued and
outstanding shares of SBSO Common Stock. As of
the Record Date, executive officers of SBSO who
are not also directors beneficially owned in the
aggregate less than 1% of the issued and
outstanding shares of SBSO Common Stock.
Recommendation of the SBSO
Board of Directors............ THE SBSO BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF SBSO COMMON STOCK
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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3
<PAGE>
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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, a
national bank which operates over 25 branches
located in Central and Northern 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 June 30,
1998, United had consolidated assets of
approximately $1.4 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."
SBSO.......................... SBSO is a commercial bank organized under the
laws of the State of New Jersey. SBSO presently
operates from a single banking facility in South
Orange, New Jersey and its deposits are insured
by the FDIC. At June 30, 1998, SBSO had total
assets of $70.2 million. SBSO's principal
executive offices are located at Valley and
Third Streets, South Orange, New Jersey 07049
and its telephone number is (973) 762-2000. See
"Certain Information Regarding SBSO," "SBSO
Management's Discussion and Analysis of
Financial Condition and Results of Operations,"
"Business of SBSO," "Supervision and Regulation
of SBSO," "Security Ownership of Certain
Beneficial Owners and Management of SBSO" and
"Certain Transactions of SBSO."
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 stockholders of SBSO, receipt of all
requisite regulatory approvals and satisfaction
or waiver of all other conditions, SBSO 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") to be filed by UNB with the approval of
SBSO. A closing under the Merger Agreement (the
"CLOSING") will occur on a day mutually agreed
to by United and SBSO within 10 business 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) and
the expiration of all statutory waiting periods,
or on such other date as UNB and SBSO 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
SBSO Common Stock issued and outstanding
immediately prior to the Effective Time (except
for Excluded Shares) will be converted into
1.245 shares (the "EXCHANGE RATIO") of common
stock of United, $1.25 par value per share
("UNITED COMMON STOCK"). "EXCLUDED SHARES" are
those shares of SBSO Common Stock which (i) are
held by SBSO as treasury shares, (ii) are held
directly or indirectly by United (other than as
trustee or in a fiduciary capacity or in
satisfaction of a debt previously contracted
for), or (iii) as to which dissenters' rights
have been validly perfected under applicable
law. 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
================================================================================
4
<PAGE>
================================================================================
also subject to adjustment if SBSO notifies
United of its intent to terminate the Merger
Agreement under certain specified circumstances
and United overrides the termination by
increasing the Exchange Ratio in accordance with
a formula set forth in the Merger Agreement. In
lieu of receiving fractional shares of United
Common Stock, SBSO stockholders 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 10 of the 15 consecutive trading days
immediately preceding the Closing. 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."
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."
SBSO STOCKHOLDERS 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
stockholder of SBSO 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
SBSO that he dissents from the Merger and does
not thereafter vote in favor of the Merger. If
the Merger is consummated, each dissenting SBSO
stockholder 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 SBSO shares as of the Effective
Time. Section 215a provides that the value of
the shares of any dissenting stockholder shall
be ascertained, as of the Effective Time, by an
appraisal made by a three person committee. Any
dissenting stockholder may appeal this appraisal
to the OCC. The value of the shares ascertained
is required to be paid by United promptly to
dissenting stockholders. Shares represented by
SBSO proxies that are returned signed but
unmarked as to voting instructions will be voted
in favor of the Merger, and therefore
stockholders of such shares will have waived
their rights to dissent. See "Rights Of
Dissenting SBSO Stockholders" and Appendix D to
this Proxy Statement, which set forth the steps
to be taken by a SBSO stockholder who wishes to
exercise the right to dissent.
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5
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Opinion of SBSO's Financial
Advisor....................... The Board of Directors of SBSO retained Ryan,
Beck & Co., Inc. ("RYAN, BECK") to evaluate the
terms of the Merger. Ryan, Beck has delivered
written opinions dated June 25, 1998 and August
__, 1998 to the Board of Directors of SBSO to
the effect that the Exchange Ratio is, as of the
date of such opinions, fair to SBSO's
stockholders from a financial point of view. For
information concerning the matters reviewed,
assumptions made and factors considered by Ryan,
Beck, see "The Proposed Merger -- Opinion of
SBSO's Financial Advisor" and Appendix C to this
Proxy Statement-Prospectus, which sets forth
Ryan, Beck's August __, 1998 fairness opinion in
its entirety.
Conditions to the Merger...... Consummation of the Merger is contingent upon a
number of conditions, including the receipt of
all necessary regulatory approvals; the approval
of the Merger by the requisite vote of the
stockholders of SBSO 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; and the Merger
qualifying for pooling-of-interests accounting
treatment. See "The Proposed Merger --
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 stockholders of SBSO. An application for OCC
approval was filed on July 28, 1998. Also on
______________, 1998, 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 SBSO 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 SBSO. See
"The Proposed Merger -- Regulatory Approvals."
Termination Rights............ The Merger Agreement may be terminated by SBSO
if the Average Closing Price of United Common
Stock is less than $25.00, 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 SBSO 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 was
$25.00. The Merger Agreement may be terminated
by SBSO if its Board of Directors approves
another acquisition transaction after
determining, upon advice of counsel, that such
approval is necessary in the exercise of its
fiduciary duties. The Merger Agreement may be
terminated by either SBSO or United if the
Effective Time has not occurred by February 28,
1999. For a more complete description of these
and other termination rights available to SBSO
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 SBSO at any time prior to
the Effective Time. However, following SBSO
stockholder approval of the Merger Agreement,
SBSO stockholders 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."
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6
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================================================================================
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, SBSO'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."
No Solicitation by SBSO of
Alternative Transactions...... Pursuant to the Merger Agreement, SBSO has
agreed that it will not, directly or indirectly,
encourage or solicit or hold discussions or
negotiations with, or provide any information
to, any person other than United concerning any
merger or similar acquisition transactions
involving SBSO (an "ACQUISITION TRANSACTION"),
except that SBSO may enter into discussions or
negotiations or provide information in
connection with an unsolicited possible
Acquisition Transaction if the Board of
Directors of SBSO, after consulting with
counsel, determines in the exercise of its
fiduciary responsibilities that such action
should be so taken. This restriction, along with
the Stock Option Agreement described in the
following paragraph, may be considered a
deterrent to other potential acquisitions of
SBSO.
Stock Option to United for
SBSO Shares................... In connection with the negotiation by United and
SBSO of the Merger Agreement, United and SBSO
entered into a Stock Option Agreement (the
"STOCK OPTION AGREEMENT") dated as of June 25,
1998. Pursuant to the Stock Option Agreement,
SBSO granted United an option (the "OPTION"),
exercisable only under certain limited and
specifically defined circumstances, to purchase
up to 127,275 authorized but unissued shares of
SBSO Common Stock, representing approximately
16.6% of the shares of SBSO Common Stock which
would be outstanding immediately following the
exercise of the Option, for an exercise price of
$31.25 per share. United does not have any
voting rights with respect to the shares of SBSO
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 SBSO Common Stock
received pursuant to the exercise of the Option
if such shares of SBSO Common Stock were sold at
prices exceeding $31.25 per share. The ability
of United to exercise the Option and to cause up
to an additional 127,275 shares of SBSO Common
Stock to be issued may be considered a deterrent
to other potential acquirors of control of SBSO,
as it is likely to increase the cost of an
acquisition of all of the shares of SBSO 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
SBSO Common Stock."
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7
<PAGE>
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Interests of Certain Persons
in the Merger................. Milton J. Wigder, Chairman, James J. Young,
President, and Frank A. Mustilli, Senior Vice
President and Chief Financial Officer of SBSO,
are each parties to special termination
agreements with SBSO. The terms of the
agreements with Messrs. Wigder and Young
commence in connection with a "change of
control" of SBSO (which would include the
Merger), and run for a "contract period" of two
years following consummation of the change in
control. The agreements with Messrs. Wigder and
Young provide that if the executive's employment
is terminated without cause at any time during
the contract period, or if the executive resigns
for good reason (as defined in the agreement)
within 30 days after consummation of the change
in control, or if the executive resigns for any
reason more than 30 days after consummation of
the change in control but during the contract
period, the executive will be entitled to
receive a lump sum severance payment, plus
additional employee benefit contributions and
coverages. The lump sum payment is to equal
three times the sum of the executive's then
current annual base salary plus the highest
annual incentive bonus paid to him for any of
the three fiscal years immediately prior to the
change in control.
The term of the agreement with Mr. Mustilli also
commences in connection with a "change of
control" of SBSO, but runs for a "contract
period" of one year following consummation of
the change in control. Mr. Mustilli's agreement
provides that if his employment is terminated
without cause at any time during the contract
period, or if he resigns for good reason (as
defined in the agreement) at any time during the
contract period, he will be entitled to receive
a lump sum severance payment, plus additional
employee benefit contributions and coverages.
The lump sum payment for Mr. Mustilli is to
equal two times the sum of his then current
annual base salary plus the highest annual
incentive bonus paid to him for any of the three
fiscal years immediately prior to the change in
control.
The agreements for all three executives provide
for automatic reduction of payments in the event
the distributions to be made under the
agreements would otherwise constitute "excess
parachute payments" under Section 280G of the
Code. Had the Merger closed on June 30, 1998 and
had payments under these agreements been
triggered on that date, the amounts payable
thereunder to Messrs. Wigder, Young and
Mustilli, net of the automatic reductions, would
have been approximately $186,000, $428,000 and
$191,000, respectively.
In addition to the foregoing, the Merger
Agreement requires United to indemnify, for a
period of six years after the Effective Time,
each director and officer of SBSO to the fullest
extent which SBSO would have been permitted
under applicable law and its Certificate of
Incorporation and By-laws had the Merger not
occurred, with respect to any claims made
against such person because he or she served in
such capacity or acted as a director or officer
of a third party at the request of SBSO. The
Merger Agreement also requires United to provide
SBSO's officers and directors with directors'
and officers' liability insurance for at least
six years after the Effective Time.
As of the Record Date, the directors of SBSO and
their affiliates beneficially owned in the
aggregate approximately 44.7% of the issued and
outstanding shares of SBSO Common Stock. In
connection with the execution of the Merger
Agreement, the directors of SBSO agreed to vote
in favor of the Merger Agreement. As of the
Record Date, executive officers of SBSO who are
not also directors beneficially owned in the
aggregate less than 1% of the issued and
outstanding shares of SBSO Common Stock. See
"Security Ownership of Certain Beneficial Owners
and Management of SBSO."
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8
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================================================================================
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 SBSO, who may be deemed to be
"affiliates" of SBSO 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........................ SBSO 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 SBSO
stockholders are currently governed by the
Banking Act. At the Effective Time, each SBSO
stockholder 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 SBSO."
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9
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<TABLE>
===================================================================================================================================
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, 1993 through December
31, 1997 are derived from United's consolidated financial statements, which have been audited. Interim unaudited data for the six
months ended June 30, 1998 and 1997 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 six months ended June 30, 1998 are not
necessarily indicative of results which may be expected for any other interim period or for the year as a whole.
<CAPTION>
For Six Months Ended
June 30, For Years Ended December 31,
------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest Income .............................. $48,119 $41,283 $88,577 $79,360 $77,552 $65,384 $64,386
Interest Expense ............................. 21,039 15,954 36,700 30,130 30,104 18,913 20,062
------- ------- ------- ------- ------- ------- -------
Net Interest Income .......................... 27,080 25,329 51,877 49,230 47,448 46,471 44,324
Provision For Possible Loan Losses ........... 1,700 1,800 3,600 3,049 871 2,123 5,239
------- ------- ------- ------- ------- ------- -------
Net Interest Income After
Provision For Possible
Loan Losses ................................ 25,380 23,529 48,277 46,181 46,577 44,348 39,085
Non-Interest Income .......................... 9,881 8,708 19,388 15,546 14,653 14,421 16,312
Non-Interest Expense ......................... 24,941 24,329 47,420 43,102 47,429 42,633 42,111
------- ------- ------- ------- ------- ------- -------
Income Before Income Taxes and
Effect of Accounting Change ................ 10,320 7,908 20,245 18,625 13,801 16,136 13,286
Provision for Income Taxes ................... 2,840 2,414 6,365 6,345 4,295 5,264 4,653
------- ------- ------- ------- ------- ------- -------
Income Before Effect of
Accounting Change .......................... 7,480 5,494 13,880 12,280 9,506 10,872 8,633
Cumulative Effect of Change in
Accounting for Income Taxes ................. -- -- -- -- -- -- 1,059
------- ------- ------- ------- ------- ------- -------
Net Income ................................... 7,480 $ 5,494 13,880 12,280 9,506 $10,872 9,692
======= ======= ======= ======= ======= ======= =======
Income Before Merger Related
and Restructuring Charges,
Effect of Accounting Change,
and SAIF Assessment ........................ $ 7,480 $ 6,892 $15,278 $12,587 $11,595 $10,872 $ 8,633
======= ======= ======= ======= ======= ======= =======
COMMON SHARE DATA: (1)
Net Income Per Diluted Share ................. $ 0.79 $ 0.59 $ 1.48 $ 1.33 $ 1.03 $ 1.20 $ 1.08
Net Income Per Diluted Share
Before Merger-Related and
Restructuring Charges,
and SAIF Assessment ........................ $ 0.79 $ 0.74 $ 1.63 $ 1.36 $ 1.26 $ 1.20 $ 0.96
Cash Dividends Declared Per Share ............ $ 0.30 $ 0.28 $ 0.57 $ 0.49 $ 0.46 $ 0.42 $ 0.37
Book Value Per Share (period-end) ............ $ 12.51 $ 11.02 $ 11.97 $ 10.58 $ 9.80 $ 8.11 $ 8.13
Average Diluted Shares
Outstanding (in thousands) ................. 9,440 9,333 9,364 9,264 9,203 9,047 8,968
FINANCIAL RATIOS:
Return on Average Assets ..................... 1.13% 0.99% 1.16% 1.15% 0.92% 1.18% 1.09%
Return on Average
Stockholders' Equity ....................... 13.24% 11.21% 13.49% 13.21% 11.52% 14.39% 13.87%
Net Interest Margin .......................... 4.59% 5.08% 4.86% 5.17% 5.13% 5.62% 5.57%
Efficiency Ratio ............................. 63.14% 60.53% 59.93% 61.93% 65.52% 65.93% 67.17%
ADJUSTED FINANCIAL RATIOS: (2)
Return on Average Assets ..................... 1.13% 1.24% 1.28% 1.17% 1.12% 1.18% 0.97%
Return on Average
Stockholders' Equity ....................... 13.24% 14.06% 14.84% 13.55% 14.05% 14.39% 12.35%
====================================================================================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
For Six Months Ended
June 30, For Years Ended December 31,
-------------------------- --------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Total Assets .................. $1,380,716 $1,217,755 $1,309,836 $1,103,242 $1,071,262 $ 950,158 $ 924,395
Securities .................... 612,692 511,298 587,774 373,756 383,730 343,922 428,323
Federal Funds Sold ............ 8,200 -- 1,500 5,887 10,004 14,085 9,772
Loans (Net of Unearned Income) 654,687 624,949 613,712 621,035 582,554 519,651 415,052
Allowance for Possible Loan
Losses ...................... 7,069 7,682 7,633 8,158 8,297 10,768 11,950
Deposits ...................... 974,823 941,022 987,849 936,720 905,964 815,868 816,127
Short-Term Borrowing (3) ...... 134,404 79,896 79,546 46,328 53,347 52,301 26,681
Other Borrowings (4) .......... 119,980 59,699 92,706 9,693 9,680 1,269 1,266
Stockholders' Equity .......... 116,068 102,161 110,950 96,952 89,537 72,694 72,633
CAPITAL RATIOS:
Leverage Ratio (period-end) ... 8.96% 9.66% 8.96% 7.96% 7.18% 8.68% 8.15%
Tier I Capital to Risk-Weighted
Assets (period-end) .......... 14.45% 14.54% 14.87% 11.66% 10.99% 14.30% 16.13%
Combined Tier I and Tier II
Capital to Risk-Weighted
Assets (period-end) .......... 15.30% 15.56% 15.86% 12.78% 12.20% 15.73% 18.06%
OTHER RATIOS:
Loans to Deposits (period end) 67.16% 66.41% 62.13% 66.30% 64.30% 63.69% 50.86%
Non-Performing Loans to Loans
(period end) (5) ............. 1.02% 1.45% 1.41% 1.81% 1.59% 2.34% 3.14%
Allowance for Possible Loan
Losses
to Non-Performing Loans ...... 105.49% 85.03% 88.45% 72.46% 92.18% 88.74% 91.62%
(period end)
Allowance for Possible Loan
Losses ......................... 1.08% 1.23% 1.24% 1.31% 1.34% 1.83% 2.80%
to Loans (period end)
Non-Performing Assets As a
Percentage of Loans, Other
Real Estate Owned and
Other Assets Owned (period end) 1.25% 1.70% 1.67% 2.11% 2.04% 2.63% 3.70%
Dividends Payout Ratio ........ 38% 47% 39% 37% 44% 35% 34%
- -----------------
(1) Adjusted for stock dividends and splits.
(2) Before merger-related and restructuring charges, effect of accounting change and SAIF assessment.
(3) Includes Federal funds purchased, securities sold under agreements to repurchase less than one year, Federal Home Loan Bank
advances and demand notes - U.S. Treasury.
(4) Includes obligation under capital lease, Federal Home Loan Bank advances - one year or more and long-term debt.
(5) Non-performing loans consists of non-accrual loans, restructured loans and loans past due 90 days or more and still accruing.
====================================================================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SELECTED FINANCIAL DATA OF SBSO
The following table sets forth certain selected historical consolidated
financial data for SBSO. This data is derived from, and should be read in
conjunction with, the consolidated financial statements of SBSO, including the
notes thereto, included elsewhere herein. The data for the years ended December
31, 1993 through December 31, 1997 are derived from SBSO's consolidated
financial statements, which have been audited by Arthur Andersen LLP. Interim
unaudited data for the six months ended June 30, 1998 and 1997 reflect, in the
opinion of the management of SBSO, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the six months ended June 30, 1998 are not necessarily indicative of results
which may be expected for any other interim period or for the year as a whole.
For Six Months Ended
June 30, For Years Ended December 31,
---------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ----------- --------- --------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest Income .......................... $ 2,790 $ 2,544 $ 5,182 $ 4,691 $ 4,427 $ 3,192 $ 2,419
Interest Expense ......................... 1,135 1,148 2,241 2,051 2,012 1,205 878
--------- --------- ----------- ---------- ---------- ----------- ----------
Net Interest Income ...................... 1,655 1,396 2,941 2,640 2,415 1,987 1,541
Provision For Possible Loan Losses ....... 96 96 232 192 227 142 100
--------- --------- ----------- ---------- ---------- ----------- ----------
Net Interest Income after
Provision For Possible
Loan Losses ........................... 1,559 1,300 2,709 2,448 2,188 1,845 1,441
Non-Interest Income ...................... 276 305 589 540 505 466 427
Non-Interest Expense ..................... 1,166 1,060 2,168 1,949 1,942 1,845 1,733
--------- --------- ----------- ---------- ---------- ----------- ----------
Income Before Income Taxes ............... 669 545 1,130 1,039 751 466 135
Income Taxes ............................. 265 258 471 251 -- 6 --
--------- --------- ----------- ---------- ---------- ----------- ----------
Net Income ............................... $ 404 $ 287 $ 659 $ 788 $ 751 $ 460 $ 135
========= ========= =========== ========== ========== =========== ==========
COMMON SHARE DATA:
Net Income Per Diluted Share ............. $ 0.63 $ 0.45 $ 1.03 $ 1.23 $ 1.17 $ 0.72 $ 0.21
========= ========= =========== ========== ========== =========== ==========
Weighted Average Number of
Diluted Shares Outstanding ............ 640 640 640 640 640 640 640
Book Value Per Share ..................... $ 9.54 $ 8.21 $ 8.88 $ 7.71 $ 6.64 $ 5.41 $ 4.88
Cash Dividends Declared -- -- -- -- -- -- --
FINANCIAL RATIOS:
Return on Average Assets ................. 1.13% 0.84% 0.98% 1.24% 1.28% 0.92% 0.36%
Return on Average Equity ................. 13.62% 11.17% 12.42% 17.61% 21.05% 14.10% 4.39%
STATEMENT OF CONDITION DATA (AT
PERIOD END):
Total Assets ............................. $ 70,236 $ 66,065 $ 73,847 $ 72,203 $ 63,701 $ 53,393 $ 42,520
Securities Available for Sale ............ 8,059 12,812 11,755 11,126 7,139 11,189 9,429
Federal funds sold ....................... 6,775 5,850 5,825 11,485 12,440 5,955 1,205
Loans (net of unearned income) ........... 49,695 42,242 49,846 42,683 38,259 31,133 27,333
Allowance for possible loan losses ....... 847 848 801 751 561 379 381
Deposits ................................. 63,747 60,440 67,837 66,630 58,634 49,624 39,184
Stockholders' equity ..................... 6,102 5,248 5,677 4,931 4,207 3,460 3,123
CAPITAL RATIOS:
Leverage Ratio ........................... 8.68% 7.91% 8.30% 8.11% 6.81% 6.71% 7.04%
Tier I Capital to Risk-Weighted
Assets (period end) .................... 11.12% 11.17% 10.30% 10.50% 9.96% 10.30% 10.41%
Total Capital to Risk-Weighted Assets
(period end) .......................... 12.37% 12.42% 11.55% 11.75% 11.21% 11.39% 11.90%
ASSET QUALITY RATIOS:
Non-Performing Loans to Loans
(period end) .......................... 1.83% 0.84% 0.59% 0.88% 0.82% 0.82% 0.38%
Allowance for Possible Loan Losses to
Non-Performing Loans (period end) ..... 93.08% 239.55% 274.32% 200.27% 179.23% 148.05% 362.86%
Allowance for Possible Loan Losses to
Loans (period end) .................... 1.70% 2.01% 1.61% 1.76% 1.47% 1.22% 1.39%
====================================================================================================================================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
COMPARATIVE PER SHARE DATA
The following table sets forth the earnings per share, period-end book
value per share, and cash dividends per share of United Common Stock and SBSO
Common Stock for the six months ended June 30, 1998 and for each of the years in
the three-year period ended December 31, 1997, on an historical and pro forma
basis, as well as pro forma equivalent per share data for SBSO. The historical
per share data have been derived from the financial statements of United and
SBSO 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-interests method of accounting.
The historical per share data for United and SBSO has been restated to
retroactively reflect the effect of stock dividends and splits. See "Pro Forma
Combined Financial Information;" "Selected Financial Data of United" and
"Selected Financial Data of SBSO."
PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED EQUIVALENT PER
UNITED SBSO SBSO SHARE (1)
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1998
Earnings Per Diluted Share ............. $ 0.79 $ 0.63 $ 0.77 $ 0.96
Book Value Per Share ................... 12.51 9.54 12.12 15.09
Cash Dividends Per Share (2) ........... 0.30 -- 0.30 0.37
YEAR ENDED DECEMBER 31, 1997
Earnings Per Diluted Share ............. 1.48 1.03 1.43 1.78
Book Value Per Share ................... 11.97 8.88 11.58 14.42
Cash Dividends Per Share (2) ........... 0.57 -- 0.57 0.71
YEAR ENDED DECEMBER 31, 1996
Earnings Per Diluted Share ............. 1.33 1.23 1.28 1.59
Book Value Per Share ................... 10.58 7.71 10.23 12.74
Cash Dividends Per Share (2) ........... 0.49 -- 0.49 0.61
YEAR ENDED DECEMBER 31, 1995
Earnings Per Diluted Share ............. 1.03 1.17 1.00 1.25
Book Value Per Share ................... 9.80 6.58 9.44 11.75
Cash Dividends Per Share (2) ........... 0.46 -- 0.46 0.57
(1) SBSO 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 1.245.
(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 (including the United Common Stock issued in
the Merger for SBSO Common Stock) equal to its historical cash dividends
per share declared on United Common Stock.
The first table below presents, for the periods indicated, the high and low
closing prices per share of United Common Stock. The second table below presents
information concerning the last sale price of United Common Stock on June 24,
1998 (the last business day preceding the announcement of the Merger Agreement),
and the last sale price of United Common Stock on August __, 1998, a date
shortly prior to the date of this Proxy Statement-Prospectus. The
====================================================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
tables also present the equivalent value of United Common Stock per SBSO 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 1.245.
United Common Stock is traded on the NASDAQ/NMS. SBSO 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 SBSO Common Stock, its trading
has been extremely limited and SBSO does not regard the information that it
receives regarding particular transactions in SBSO Common Stock as being
indicative of an actual market price. As of the Record Date, there were
approximately 230 holders of record of SBSO Common Stock. SBSO stockholders are
urged to obtain current market quotations for United Common Stock. Because the
Exchange Ratio is fixed, SBSO stockholders 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 prices for United have been restated to
retroactively reflect the effect of stock dividends and splits.
EQUIVALENT VALUE OF UNITED
CLOSING SALE PRICE PER SHARE COMMON STOCK
OF UNITED PER SHARE OF
COMMON STOCK SBSO COMMON STOCK
---------------------------- ---------------------------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1996:
First Quarter....................... $ 15.13 $ 14.24 $ 18.84 $ 17.73
Second Quarter...................... 14.80 13.57 18.43 16.89
Third Quarter....................... 15.46 13.91 19.25 17.32
Fourth Quarter...................... 17.45 15.30 21.73 19.05
1997:
First Quarter....................... 20.87 17.10 25.98 21.29
Second Quarter...................... 18.99 17.45 23.64 21.73
Third Quarter....................... 23.47 18.99 29.22 23.64
Fourth Quarter...................... 28.88 23.59 35.96 29.37
1998:
First Quarter....................... 32.25 25.50 40.15 31.75
Second Quarter...................... 31.88 28.75 39.69 35.79
Third Quarter (through
August __, 1998)....................
</TABLE>
<TABLE>
<CAPTION>
EQUIVALENT VALUE OF
CLOSING SALE PRICE UNITED COMMON STOCK
PER SHARE OF PER SHARE OF SBSO
DATE UNITED COMMON STOCK COMMON STOCK
------------------- -------------------
<S> <C> <C> <C> <C>
June 24, 1998....................... $ 31.88 $ 39.69
August __, 1998.....................
====================================================================================================================================
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following tables present certain unaudited combined condensed financial
information from the Pro Forma Unaudited Combined Condensed Statements of Income
for the six month period ended June 30, 1998 and for the years ended December
31, 1997, 1996 and 1995, and the Pro Forma Unaudited Combined Condensed Balance
Sheet at June 30, 1998. 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 June 30,
1998. See "Pro Forma Combined Financial Information". The Summary Pro Forma
Financial Information is based on the historical financial statements of United
and SBSO included or incorporated by reference herein. See "Information
Incorporated By Reference". The Pro Forma Financial Information assumes an
Exchange Ratio of 1.245 shares of United Common Stock for each share of SBSO
Common Stock outstanding.
The unaudited summary Pro Forma Financial Information should be read in
conjunction with the Pro Forma Financial Information and the related notes
thereto presented elsewhere in this Proxy Statement-Prospectus and the
consolidated financial statements and related notes included or incorporated by
reference in this Proxy Statement-Prospectus. The Pro Forma Financial
Information is not necessarily indicative of the results of operations which
would have been achieved had the Merger been consummated as of the beginning of
the periods for which such data are presented and should not be construed as
being representative of future periods.
PRO FORMA UNAUDITED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
For the Six
Months Ended For the Years Ended December 31,
June 30, ---------------------------------------
1998 1997 1996 1995
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Net Interest Income Before Provision For
Possible Loan Losses .................................. $ 28,735 $ 54,818 $ 51,870 $ 49,863
Provision for Possible Loan Losses ...................... 1,796 3,832 3,241 1,098
Net Interest Income After Provision for
Possible Loan Losses .................................. 26,939 50,986 48,629 48,765
Income Before Income Taxes .............................. 10,989 21,375 19,664 14,552
Net Income .............................................. 7,884 14,539 12,863 10,001
Net Income per Diluted Common Share ..................... 0.77 1.43 1.28 1.08
BALANCE SHEET:
Total Assets ............................................ 1,450,952
Total Deposits .......................................... 1,038,782
Total Stockholders' Equity .............................. 122,170
Book Value Per Common Share ............................. 12.12
====================================================================================================================================
</TABLE>
15
<PAGE>
INTRODUCTORY STATEMENT
This Proxy Statement-Prospectus solicits, on behalf of the Board of
Directors of State Bank of South Orange ("SBSO"), approval by the holders of
shares of common stock of SBSO, $5.00 par value per share ("SBSO COMMON STOCK"),
of the Agreement and Plan of Merger, dated as of June 25, 1998 (the "MERGER
AGREEMENT"), by and among United National Bancorp ("UNITED"), United's national
bank subsidiary, United National Bank ("UNB") and SBSO. Pursuant to the Merger
Agreement, SBSO will be merged with and into UNB (the "MERGER"). If the Merger
Agreement is approved and becomes effective, each outstanding share of SBSO
Common Stock will be converted into 1.245 shares (the "EXCHANGE RATIO") of
common stock of United, $1.25 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 SBSO of the Merger
Agreement, United and SBSO entered into a Stock Option Agreement (the "STOCK
OPTION AGREEMENT") dated as of June 25, 1998. Pursuant to the Stock Option
Agreement, SBSO granted United an option (the "OPTION"), exercisable only under
certain limited and specifically defined circumstances, to purchase up to
127,275 authorized but unissued shares of SBSO Common Stock, representing
approximately 16.6% of the shares of SBSO Common Stock which would be
outstanding immediately following the exercise of the Option, for an exercise
price of $31.25 per share. United does not have any voting rights with respect
to the shares of SBSO 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 SBSO was supplied by SBSO 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 stockholders of SBSO is on or
about August __, 1998.
This Proxy Statement-Prospectus does not cover any resales of shares of
United Common Stock to be received by stockholders of SBSO upon consummation of
the Merger. Affiliates of SBSO 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. In addition to
UNB, United indirectly owns additional subsidiaries through UNB, including an
investment subsidiary and a 50% interest in a financial services corporation.
As of June 30, 1998, United had consolidated assets of approximately $1.4
billion, deposits of $1.0 billion and shareholders' equity of $116 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 over 25 branches
throughout Hunterdon,
16
<PAGE>
Middlesex, Morris, Somerset, Union and Warren counties, New Jersey. UNB also
operates over 25 automatic teller machines ("ATMs") affiliated with the MAC
System, an eight-state network with membership in the Plus Nationwide network
and the Honor 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 SBSO
SBSO is a commercial bank established under the laws of the State of New
Jersey. SBSO commenced operations in 1988 and its deposits are insured by the
FDIC. Through its office in South Orange, New Jersey, SBSO provides commercial
and retail bank services, including the acceptance of demand, savings and time
deposits, and commercial and retail lending.
At June 30, 1998, SBSO had assets of $70.2 million, deposits of $63.7
million and shareholders' equity of $6.1 million. SBSO's principal executive
offices are located at Valley and Third Streets, South Orange, New Jersey 07049
and its telephone number is (973) 762-2000. See "SBSO Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business of
SBSO."
THE MEETING
GENERAL
This Proxy Statement-Prospectus solicits, on behalf of the SBSO Board of
Directors, proxies to be voted at a Special Meeting of Stockholders (the
"MEETING") of SBSO which is to be held at _______________________
_______________, New Jersey on _________, September __, 1998 at ___ _.m., and at
any adjournments or postponements thereof.
PURPOSE OF THE MEETING
At the Meeting, the SBSO stockholders 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 on
the date and at the time (the "EFFECTIVE TIME") specified in a notice to the OCC
to be filed by UNB, with the approval of SBSO. A closing under the Merger
Agreement (the "CLOSING") will occur prior to the Effective Time on a day
mutually agreed to by United and SBSO within 10 days following the receipt of
all necessary regulatory and governmental approvals and consents, the expiration
of all statutory waiting periods 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 SBSO agree upon. At the Effective
Time, each outstanding share of SBSO Common Stock, except for Excluded Shares
(as defined below), will be converted into 1.245 shares of United Common Stock,
subject to adjustment, as more fully set forth in the Merger Agreement. See "The
Proposed Merger --- General Description."
17
<PAGE>
THE BOARD OF DIRECTORS OF SBSO RECOMMENDS THAT THE STOCKHOLDERS OF SBSO
VOTE IN FAVOR OF THE MERGER AGREEMENT.
VOTE REQUIRED; SHARES ENTITLED TO VOTE
Only holders of record of SBSO Common Stock at the close of business on
August 10, 1998 (the "RECORD DATE") are entitled to notice of and to vote at the
Meeting. The number of shares of SBSO Common Stock issued, outstanding and
entitled to vote at the close of business on the Record Date was 639,575, held
by approximately 230 holders of record. Holders of SBSO 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 SBSO Common Stock is required to approve the Merger
Agreement. In connection with the execution of the Merger Agreement, the
directors of SBSO have agreed to vote in favor of the Merger Agreement the
shares of SBSO Common Stock which they beneficially own (approximately 44.7% of
the issued and outstanding shares of SBSO Common Stock as of the Record Date).
As of the Record Date, executive officers of SBSO who are not also directors
beneficially owned in the aggregate less than 1% of the issued and outstanding
shares of SBSO Common Stock. See "Security Ownership of Certain Beneficial
Owners and Management of SBSO."
Broker non-votes will not be counted as having been voted in person or by
proxy at the meeting and will have the same effect as a vote against the Merger
Agreement.
BECAUSE THE REQUIRED VOTE OF SBSO STOCKHOLDERS ON THE MERGER AGREEMENT IS
BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF SBSO COMMON STOCK ENTITLED
TO VOTE AND NOT UPON THE NUMBER OF SHARES THAT ARE ACTUALLY VOTED, A FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON, OR ABSTAINING FROM
VOTING, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
The enclosed proxy is designed to permit each stockholder of record on the
Record Date to vote on all matters to come before the Meeting or any
adjournments or postponements thereof. This proxy is solicited by the Board of
Directors of SBSO. Any proxy may be revoked at any time before its exercise by
giving written notice of revocation to Mr. Brian McGuiness, Secretary of SBSO,
at the main office of SBSO at Valley and Third Streets, P.O. Box 384, South
Orange, New Jersey 07049. A subsequently dated and duly executed proxy, if
properly presented, will revoke a prior proxy. Any stockholder entitled to vote
who has previously executed a proxy may attend the Meeting and vote in person,
provided the stockholder 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
stockholder 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 SBSO 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 SBSO. In
addition to the use of the mails, proxies may be solicited personally, by
telephone or telegram, and by directors, officers and employees of SBSO 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 SBSO for reasonable out-of-pocket expenses.
18
<PAGE>
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. SBSO stockholders are urged to carefully
review the Merger Agreement.
GENERAL DESCRIPTION
The Merger Agreement provides that, at the Effective Time, SBSO will merge
with and into UNB, with UNB as the surviving entity (the "SURVIVING BANK"). The
separate identity and existence of SBSO will cease upon consummation of the
Merger. All property, rights, powers and franchises of each of SBSO 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 SBSO Common Stock issued and
outstanding immediately prior to the Effective Time (except for Excluded Shares)
will be converted into 1.245 shares of United Common Stock. "EXCLUDED SHARES"
are those of SBSO Common Stock which (i) are held by SBSO as treasury shares,
(ii) are held directly or indirectly by United (other than as trustee or in a
fiduciary capacity or in satisfaction of a debt previously contracted for), or
(iii) as to which dissenters' rights have been validly perfected under
applicable law. 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 holder of SBSO 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, determined by multiplying the
stockholders' fractional interest by the Average Closing Price of United Common
Stock (as hereinafter defined). 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 National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ/NMS") and published
in the Wall Street Journal during the first 10 of the 15 consecutive trading
days immediately preceding the Closing. Like the Exchange Ratio, 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.
Under federal and state banking law, the SBSO stockholders are entitled to
dissenter's rights of appraisal in connection with the Merger. See "Rights of
Dissenting SBSO Stockholders."
EXCHANGE OF CERTIFICATES
At the Effective Time, holders of certificates formerly representing shares
of SBSO Common Stock will cease to have any rights as SBSO stockholders and
their certificates automatically will represent the shares of United Common
Stock into which their shares of SBSO Common Stock will have been converted by
the Merger. As soon as practicable after the Effective Time, United will send to
each holder of record of SBSO Common Stock (other than those that exercise their
dissenter's rights) written notice indicating the number of shares of United
Common Stock into which such holder's shares of SBSO Common Stock have been
converted and instructions for the surrender of certificates.
Each holder of outstanding certificates for SBSO 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 SBSO Common Stock previously represented by the surrendered
certificates have been converted.
19
<PAGE>
At the time of issuance of a new stock certificate, each stockholder 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 SBSO Common Stock
are converted will be deemed to have been issued at the Effective Time.
Accordingly, SBSO stockholders 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 SBSO 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 SBSO COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
BACKGROUND AND REASONS FOR THE MERGER
United's Reasons for the Merger
United entered into the Merger Agreement with SBSO 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.
SBSO's Reasons for the Merger
Since it began operations in 1988, SBSO has sought to enhance profitability
and remain competitive while responding to significant changes in the banking
industry, including enhanced regulatory scrutiny, intensifying competition and
consolidation. The management and the Board of Directors of SBSO have focused on
the changes in the industry and sought to best position SBSO and its
stockholders. In September 1991, the Board appointed Mr. James J. Young as
President of SBSO. Under Mr. Young's direction, SBSO launched a strategic
management reorganization and restructuring plan focused on improving
stockholder value, which was designed to improve asset quality, reduce future
operating costs and enhance net interest income while attempting to optimize the
management of SBSO's capital. The effect was to reposition SBSO to enhance
profitability and build stockholder value by implementing its reorganization and
restructuring plan.
While the performance of SBSO was improving significantly as a result of
the restructuring that had taken place, management and the Board remained
cognizant of competitive pressures and other market factors that could impede
SBSO's ability to continue to maximize stockholder value. On September 15, 1997,
SBSO engaged Ryan, Beck to act as financial advisor with respect to the
potential sale of SBSO.
Ryan, Beck, in consultation with SBSO, prepared a confidential offering
memorandum containing December 31, 1997 financial information. In early March
1998, Ryan, Beck contacted 21 companies identified as possible acquirors to
determine whether they were interested in acquiring SBSO. The confidential
offering memorandum was provided to 14 of these institutions after execution of
confidentiality agreements. The companies were requested to provide their
preliminary non-binding expressions of interest by April 9, 1998.
On April 10, 1998, representatives of Ryan, Beck met with the Board of
Directors of SBSO and advised the Board that SBSO had received four preliminary
indications of interest. Ryan, Beck prepared an analysis of each of these
preliminary indications and an analysis of each institution, including
profitability, key financial ratios, future projections, relative market
valuations, the liquidity of each company's stock, and other factors. After
review of these analyses, Ryan, Beck and SBSO determined that all four
institutions should be invited to perform due diligence on SBSO. However, due to
aggressive preliminary bidding only three of the four participated, one of the
companies having decided that it did not want to proceed with due diligence
after being informed that its preliminary indication would have to be increased
to be competitive. Additionally, another company started the diligence process
and subsequently decided to withdraw from the process. Upon completion of the
due diligence
20
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reviews, Ryan, Beck and SBSO requested that each of the two remaining
institutions provide them with a firm indication by May 19, 1998. Two firm
indications were received, one from United and one from another institution,
with each indication for an aggregate value of $23.5 million.
On May 27, 1998, after an extensive review of the two firm indications of
interest, including relative market valuations, performance of the institutions,
their future growth potential, liquidity of each company's stock, and other
factors, SBSO's Board of Directors determined that the proposal from United was
in the best interest of SBSO and its stockholders and should be pursued. After
discussions and various questions, the Board of Directors of SBSO authorized
their counsel and Ryan, Beck to negotiate certain business terms of the merger
as well as a definitive agreement with United. On the afternoon of May 27, 1998
representatives of Ryan, Beck negotiated certain business terms with United's
financial advisor and discussed various methods for determining the Exchange
Ratio. On May 28, 1998, counsel for the other bidder indicated that his client
wished to increase their indication to $25.5 million (subject to the
satisfaction of certain conditions). A telephone meeting of SBSO's Board of
Directors was held on May 28, 1998 to evaluate this revised indication of
interest. After extensive discussion, it was determined to proceed to negotiate
the terms of a definitive agreement with United. Later that day, the Exchange
Ratio was fixed at 1.245 shares of United Common Stock for each share of SBSO
Common Stock and termination provisions were negotiated.
With the assistance of SBSO's legal counsel and Ryan, Beck, the terms of
the definitive agreement were negotiated and provided in draft to each of the
SBSO directors for his review. On June 24, 1998, the Board of Directors of SBSO
reviewed the transaction and the proposed definitive Merger Agreement with
SBSO's legal counsel and Ryan, Beck. On June 25, 1998, the Board of Directors
met again to consider the Merger Agreement. On June 25, 1998, Ryan, Beck
presented to the Board its written opinion that the Exchange Ratio is fair to
SBSO's stockholders from a financial point of view. Ryan, Beck noted that as a
result of the performance of United's stock from May 27, 1998 to June 24, 1998,
the aggregate value of the United transaction had increased to $25.4 million.
The Board of Directors then determined that the proposed merger is in the best
interests of SBSO and its stockholders, and the Board unanimously approved the
Merger Agreement. United and SBSO publicly announced the execution of the Merger
Agreement on June 25, 1998.
OPINION OF SBSO'S FINANCIAL ADVISOR
On September 15, 1997, SBSO retained Ryan, Beck to act as SBSO's financial
advisor with respect to the acquisition of SBSO. Ryan, Beck is regularly engaged
in the valuation of banks, bank holding companies, savings and loan
associations, savings banks and savings and loan holding companies in connection
with mergers, acquisitions and other securities-related transactions. Ryan, Beck
has knowledge of, and experience with, the Mid-Atlantic banking market and
banking organizations operating in that market, and was selected by SBSO because
of its knowledge of, experience with, and reputation in the financial services
industry.
In its capacity as SBSO's financial advisor, Ryan, Beck participated in the
negotiations with respect to the pricing and other terms and conditions of the
Merger, but the decision as to whether to accept the United proposal and the
final pricing of the Merger was ultimately made by the Board of Directors of
SBSO. Ryan, Beck rendered a formal written opinion to the SBSO Board of
Directors on June 25, 1998, and rendered an additional written opinion dated as
of August __, 1998 (the "RYAN, BECK OPINION") that, based on and subject to the
assumptions, factors, and limitations set forth in the Ryan, Beck Opinion and
described below, the Exchange Ratio is "fair" to SBSO's stockholders from a
financial point of view. No limitations were imposed by the SBSO Board of
Directors upon Ryan, Beck with respect to the investigations made or procedures
followed by it in arriving at its opinion.
THE FULL TEXT OF THE RYAN, BECK OPINION, WHICH SETS FORTH ASSUMPTIONS MADE
AND MATTERS CONSIDERED, IS SUBSTANTIALLY THE SAME AS THE OPINION RENDERED BY
RYAN, BECK ON JUNE 25, 1998, AND IS ATTACHED AS APPENDIX C TO THIS PROXY
STATEMENT-PROSPECTUS. STOCKHOLDERS OF SBSO ARE URGED TO READ THE RYAN, BECK
OPINION IN ITS ENTIRETY. THE RYAN, BECK OPINION IS DIRECTED ONLY TO THE
FINANCIAL FAIRNESS OF THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SBSO STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE MEETING. THE SUMMARY OF THE RYAN, BECK OPINION SET FORTH IN THIS PROXY
STATEMENTS-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE RYAN, BECK OPINION. RYAN, BECK DOES NOT ADMIT THAT IT IS AN EXPERT WITHIN
THE
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MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER, OR THAT ITS OPINIONS CONSTITUTE A REPORT OR
VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER.
In connection with its analysis, Ryan, Beck reviewed: (i) the Merger
Agreement and related documents; (ii) this Proxy Statement-Prospectus; (iii)
United's Annual Reports to Stockholders and Annual Reports on Form 10-K for the
years ended December 31, 1997, 1996, and 1995, and United's Quarterly Reports on
Form 10-Q for the periods ended June 30, 1998, March 31, 1998, September 30,
1997, June 30, 1997 and March 31, 1997; (iv) SBSO's Annual Reports to
Stockholders for the years ended December 31, 1997, 1996, and 1995 and SBSO's
quarterly reports of income and condition filed with the FDIC for each of the
quarters included in such periods and for March 31, 1998 and June 30, 1998; (v)
the historical stock prices and trading volume of United Common Stock; (vi) the
publicly available financial data of commercial banking organizations which
Ryan, Beck deemed generally comparable to United; (vii) the publicly available
financial data of commercial banking organizations which Ryan, Beck deemed
generally comparable to SBSO; (vii) the terms of recent acquisitions of
commercial banking organizations which Ryan, Beck deemed generally comparable in
whole or in part to SBSO; and (viii) the potential pro-forma impact of the
Merger on United's financial condition, operating results and per share figures.
Ryan, Beck also conducted or reviewed such other studies, analyses, inquiries
and examinations as it deemed appropriate. As part of its review, Ryan, Beck
also considered the future prospects of SBSO in the event it remained
independent.
In connection with its review, Ryan, Beck relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information regarding SBSO and United provided to Ryan, Beck by SBSO and
United and their representatives. Ryan, Beck is not an expert in the evaluation
of allowances for loan losses. Therefore, Ryan, Beck has not assumed any
responsibility for making an independent evaluation of the adequacy of the
allowances for loan losses as set forth on SBSO's and United's balance sheets at
June 30, 1998, and Ryan, Beck assumed such allowances were adequate and complied
fully with applicable law, regulatory policy and sound banking practice as of
such date. Ryan, Beck has reviewed certain historical financial data and
financial projections (and the assumptions and basis therefor) provided by SBSO
and United. Ryan, Beck assumed that such forecasts and projections reflected the
best currently available estimates and judgments of the respective managements.
In certain instances, for the purposes of its analyses, Ryan, Beck made
adjustments to such financial and operating forecasts which in Ryan, Beck's
judgment were appropriate under the circumstances. Ryan, Beck was not retained
to nor did it make any independent evaluation or appraisal of the assets or
liabilities of SBSO or United nor did Ryan, Beck review any loan files of SBSO
or United and its subsidiary. Ryan, Beck also assumed that the Merger in all
respects is, and will be, undertaken and consummated in compliance with all laws
and regulations that are applicable to SBSO and United.
The preparation of a fairness opinion on a transaction such as the Merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, the Ryan, Beck Opinion is not readily susceptible
to summary description. In arriving at its opinion, Ryan, Beck performed a
variety of financial analyses. Ryan, Beck believes that all of these analyses
must be considered as a whole and the consideration of portions of such analyses
and the factors considered therein, or any particular analysis without
considering all factors and analyses, could create an incomplete view of the
analysis and the process underlying the Ryan, Beck Opinion. No one of the
analyses was assigned a greater significance than any other.
The projections furnished to Ryan, Beck were prepared by the respective
managements of SBSO and United, without input or guidance by Ryan, Beck. SBSO
and United do not publicly disclose internal management projections of the type
provided to Ryan, Beck in connection with the review of the Merger. Such
projections were not prepared with a view towards public disclosure. The public
disclosure of such projections could be misleading since the projections were
based on numerous variables and assumptions which are inherently uncertain,
including, without limitation, factors related to general economic and
competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of SBSO or United. Any estimates
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contained in Ryan, Beck's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals nor
do they necessarily reflect the prices at which companies or their securities
may actually be sold.
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at the Ryan, Beck Opinion.
Analysis of Selected Publicly Traded Companies: Ryan, Beck compared SBSO's
financial data as of March 31, 1998 to a peer group of 15 selected banks located
in the Mid-Atlantic, New England and Southeast Region with assets between $50
million and $110 million for which public trading and pricing information was
available. Ryan, Beck deemed this group to be generally comparable to SBSO. At
or for the twelve months ended March 31, 1998, SBSO had an equity to assets
ratio of 7.82%, a tangible equity to tangible assets ratio of 7.82%, a return on
average assets of 0.97%, a return on average equity of 12.13%, a net interest
margin of 4.75%, a ratio of non-performing assets to total assets of 0.81%, a
ratio of loan loss reserves to total loans of 1.71%, a ratio of loan loss
reserves to non-performing loans of 136.24%, a ratio of non-interest expenses to
average assets of 3.05%, and an efficiency ratio of 61.48%. SBSO has paid no
dividends. These ratios were compared to the median ratios of the 15 selected
commercial banking organizations, which were, as calculated, an equity to assets
ratio of 9.67%, a tangible equity to tangible assets ratio of 9.73%, a return on
average assets of 0.98%, a return on average equity of 9.27%, a dividend yield
of 0.28%, a net interest margin of 5.03%, a ratio of non-performing assets to
total assets of 0.72%, a ratio of loan loss reserves to total loans of 1.49%, a
ratio of loan loss reserves to non-performing loans of 151.97%, a ratio of
non-interest expense to average assets of 3.29%, and an efficiency ratio of
67.28%. Ryan, Beck noted that SBSO's performance as measured by return on
average assets was comparable to that of the peer group. SBSO's return on
average equity was higher than that of the peer group due to the fact that SBSO
had a lower level of equity to assets as compared to the peer group. Ryan, Beck
also noted that SBSO's non-interest expenses as a percent of average assets was
less than that of the peer group, and its efficiency ratio was superior to that
of the peer group.
Ryan, Beck also compared United's financial data as of March 31, 1998 with
that of a group of twenty-one selected commercial banking organizations with
assets between $1.0 billion and $2.5 billion and which are located in the
Mid-Atlantic region of the United States for which public trading and pricing
information was available. Ryan, Beck deemed this group to be generally
comparable to United. At or for the twelve months ended March 31, 1998, United
had a ratio of equity to assets of 8.46%, a return on average assets of 1.21%, a
return on average equity of 14.23%, a dividend yield of 1.96%, a net interest
margin of 4.75%, a ratio of non-performing assets to total assets of 0.66%, a
ratio of loan loss reserves to non-performing loans of 98.60%, an efficiency
ratio of 59.05%, a ratio of non-interest expenses to average assets of 3.59% and
a ratio of non-interest income to average assets of 1.45%. These ratios were
compared to the median ratios of the twenty-one selected commercial banking
organizations, which were, as calculated, an equity to assets ratio of 8.06%, a
return on average assets of 1.17%, a return on average equity of 13.93%, a
dividend yield of 2.11%, a net interest margin of 4.36%, a ratio of
non-performing assets to total assets of 0.50%, a ratio of loan loss reserves to
non-performing loans of 270.46%, an efficiency ratio of 54.88%, a ratio of
non-interest expenses to average assets of 2.69% and a ratio of non-interest
income to average assets of 0.76%. Using United's common stock price as
represented by the closing price on June 22, 1998, its price to latest twelve
months earnings per share was 18.79 times, price to book value was 249.80% and
price to tangible book value was 274.91%. The median peer group ratio for the
price to latest twelve month earnings was 19.59 times, price to book value was
260.42% and price to tangible book value was 280.35%.
Analysis of Selected Transactions: Ryan, Beck compared SBSO's financial
data as of March 31, 1998 with that of a group of eleven selected commercial
banking organizations being acquired in transactions announced since January 1,
1997, located in the Mid-Atlantic and Northeast Region, and for which pricing
data pertaining to the transactions were publicly available. The criteria for
this group was acquired banks with assets between $50 million and $120 million.
Ryan, Beck deemed this group to be generally comparable to SBSO. The median
ratios of the eleven selected companies, as calculated, represented a 9.04%
tangible equity to tangible assets ratio, a non-performing assets to assets
ratio of 0.35%, an annualized year-to-date return on average assets of 1.34% and
an annualized year-to-date return on average equity of 11.78%. Also, Ryan, Beck
compared SBSO's financial data with the last ten New Jersey commercial bank
acquisitions for which pricing data pertaining to the transactions were publicly
available. The median ratios of the ten companies, as calculated, represented an
8.25% tangible equity to
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tangible assets ratio, a non-performing assets to assets ratio of 0.96%, an
annualized year-to-date return on average assets of 0.97% and an annualized
year-to-date return on average equity of 13.21%.
Ryan, Beck also calculated certain ratios based on the Exchange Ratio of
1.245 shares of United Common Stock for each share of SBSO Common Stock.
United's closing price on June 24, 1998 was $31.88, which equated to a
transaction value of $39.68 per SBSO share. This was compared to the median
ratios for the eleven selected Mid-Atlantic and Northeast bank acquisitions and
the ten New Jersey bank acquisitions (the "COMPARABLE TRANSACTIONS"). The
transaction value represented 431.30% of SBSO's stated book value at March 31,
1998, 35.7 times SBSO's latest twelve months diluted earnings and a core deposit
premium over tangible book value at March 31, 1998 of 28.30%. The median ratios
for the Mid-Atlantic and Northeast transactions mentioned above, as calculated,
represented a price to stated book value of 224.79%, a price to tangible book
value of 224.79%, a price to latest twelve months diluted earnings of 20.65
times and a core deposit premium over tangible book value of 15.37%. The imputed
value of SBSO based on the median of the Mid-Atlantic and Northeast acquisition
peer group was $20.68 based on price to stated book value and tangible book
value, $22.92 based on price to latest twelve month earnings and $25.80 based on
the core deposit premium over tangible book value. The median ratios for the New
Jersey bank acquisitions mentioned above, as calculated, represented a price to
stated book value of 252.81%, a price to tangible book value of 255.92%, a price
to latest twelve month earnings of 23.68 times and a core deposit premium over
tangible book value of 19.59%. The imputed value of SBSO based on the median of
the New Jersey acquisitions peer group was $23.26 based on price to stated book
value, $23.54 based on price to tangible book value, $26.28 based on price to
latest twelve month earnings and $30.35 based on the core deposit premium over
tangible book value.
No company or transaction used in the Analysis of Selected Publicly Traded
Companies and Analysis of Selected Transactions sections is identical to SBSO,
United or the Merger. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the trading values of the
securities of the company or companies to which they are being compared.
Impact Analysis: Ryan, Beck analyzed the Merger in terms of its effect on
United's projected 1999 and 2000 earnings per share, current book value and
tangible book value based on projections derived from information provided by
both managements. Based upon certain assumptions, including those with respect
to cost savings and other synergies from the Merger and the stand-alone earnings
projections provided by SBSO and analysts projected earnings for United, the
analysis showed that the Merger would be accretive to United's projected 1999
earnings per share by approximately 1.52% and dilutive to United's stated book
value per share by approximately 4.14%. Ryan, Beck analyzed the impact of the
Merger on United values per SBSO share based on the Exchange Ratio of 1.245
shares of United Common Stock for each share of SBSO Common Stock using pro
forma projected 1999 fiscal year earnings per share, pro forma projected 2000
fiscal year earnings per share, pro forma stated book value per share, and
dividends per share at December 31, 1997. That analysis found that, based on
such Exchange Ratio, SBSO's equivalent projected 1999 earnings per share would
increase by approximately 33.95%, projected 2000 earnings per share would
increase by approximately 33.95%, and stated book value would increase by
approximately 59.10%. Additionally, SBSO stockholders, based on United's current
dividend level, would receive annual dividends of $0.75 per share as compared to
none at the present time. The actual results achieved may vary materially from
the projected results.
Discounted Dividend Analysis: Using a discounted dividend analysis, Ryan,
Beck estimated the present value of the future dividend streams that SBSO could
produce in perpetuity. Projection ranges for SBSO's five-year balance sheet and
income statement were provided by SBSO's management. Management's projections
were based upon various factors and assumptions, many of which are beyond the
control of SBSO. These projections are, by their nature, forward-looking and may
differ materially from the actual values or actual future results which may be
significantly more or less favorable than suggested by such projections. In
producing a range of per share SBSO values, Ryan, Beck utilized the following
assumptions: discount rates range from 11.0% to 13.0%, terminal price/earnings
multiples range from 12.0x to 14.0x (which when applied to terminal year
estimated earnings produces a value which approximates the net present value of
the dividends in perpetuity, given certain assumptions regarding growth rates
and discount rates) and earnings that include estimated savings in SBSO's
non-interest expense equal to 50.0% in 1999 and 55.0% in 2000, with an assumed
5% growth in synergies in years thereafter. The discounted dividend analysis
produced a range of net present values per share of SBSO Common Stock from
$31.94 to $39.03. These analyses do not purport to be
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indicative of actual values or expected values or an appraisal range of the
shares of SBSO Common Stock. The discounted dividend analysis is a widely used
valuation methodology, but Ryan, Beck notes that it relies on numerous
assumptions, including expense savings levels, dividend payout rates, terminal
values and discount rates, the future values of which may be significantly more
or less than such assumptions. Any variation from these assumptions would most
likely produce different results.
In connection with the Ryan, Beck Opinion, Ryan, Beck confirmed the
appropriateness of its reliance on the analyses used to render its June 25, 1998
written opinion by performing procedures to update certain of such analyses and
by reviewing the assumptions and conclusions contained in the June 25th opinion.
The Ryan, Beck Opinion was based solely upon the information available to
Ryan, Beck and the economic, market and other circumstances as they existed as
of the date of the Ryan, Beck Opinion. Ryan, Beck did not and does not express
any opinion as to the price or range of prices at which United Common Stock
might trade subsequent to the Merger. Events occurring after the date of the
Ryan, Beck Opinion could materially affect the assumptions and conclusions
contained in the Ryan, Beck Opinion. Ryan, Beck has not undertaken to reaffirm
or revise the Ryan, Beck Opinion or otherwise comment upon any events occurring
after the date of the Ryan, Beck Opinion
The summary set forth above does not purport to be a complete description,
but is a brief summary of the material analyses and procedures performed by
Ryan, Beck in the course of arriving at the Ryan, Beck Opinion.
With regard to Ryan, Beck's services in connection with the Merger, SBSO
has paid to Ryan, Beck a $25,000 retainer and has agreed to pay Ryan, Beck an
advisory fee equal to 1.75% of the aggregate dollar value of the consideration
received by SBSO's stockholders in the Merger. Based upon the estimated
aggregate purchase price to be paid in connection with the Merger, Ryan, Beck's
aggregate fees will be approximately $470,000 including the $25,000 retainer
fee. Ryan, Beck's advisory fee will be paid at the time of the closing of the
Merger. In addition, SBSO has agreed to reimburse Ryan, Beck for its reasonable
out-of-pocket expenses, which shall not exceed $10,000 without the prior consent
of SBSO. SBSO has also agreed to indemnify Ryan, Beck and certain related
persons against certain liabilities, including liabilities under federal
securities law, incurred in connection with its services. The amounts of Ryan,
Beck's fees were determined by negotiation between SBSO and Ryan, Beck.
Prior to this engagement, Ryan, Beck had no investment banking relationship
with SBSO. Ryan, Beck has had an investment banking relationship with United. As
well as acting as a market maker for United Common Stock, Ryan, Beck was also a
co-manager of a capital securities offering by UNB Capital Trust I, a business
trust formed by United, completed in March, 1997, in connection with which Ryan,
Beck received certain commissions and fees. Additionally Ryan, Beck's research
department has issued research reports on United and comments on United in its
periodic commentaries.
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 SBSO within 10 business days following the receipt of all
necessary regulatory and governmental approvals and consents, the expiration of
statutory waiting periods, 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 SBSO 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 SBSO 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 SBSO 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 SBSO stockholders, 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 "--
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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 SBSO 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 each of SBSO and United contained in the Merger Agreement; (ii)
the performance by SBSO 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 SBSO of an opinion from Ryan, Beck,
dated the date of this Proxy Statement-Prospectus, to the effect that, in its
opinion, the consideration to be paid to SBSO stockholders under the Merger
Agreement is fair to such stockholders from a financial point of view. This
opinion has been issued and is attached as Appendix C to this Proxy
Statement-Prospectus and, accordingly, the condition described in clause (iv)
above has been satisfied. See "-- Opinion of SBSO'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 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 stockholders of SBSO. An application for OCC approval was filed on July 28,
1998. Also on August 3, 1998, 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
SBSO 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 SBSO.
TERMINATION OF THE MERGER AGREEMENT
SBSO has the right to terminate the Merger Agreement if the Average Closing
Price of United Common Stock is less than $25.00, 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 SBSO
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 $25.00.
United has the right to terminate the Merger Agreement if any necessary
regulatory or governmental approval contains conditions which materially impair
the value of SBSO, taken as a whole, to United.
Either United or SBSO may terminate the Merger Agreement if (i) the
Effective Time has not occurred by February 28, 1999; (ii) the stockholders of
SBSO 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 the deficiency with respect to 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 and the provisions regarding
the sharing of certain expenses contained therein) will be abandoned without
further action by any party. In the event of a termination, each party will bear
its own expenses (other than certain specified shared expenses), and each party
will retain all rights and remedies it may have at law or equity under the
Merger Agreement.
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AMENDMENT OF THE MERGER AGREEMENT
The terms of the Merger Agreement may be amended, modified or supplemented
by the written consent of United and SBSO at any time prior to the Effective
Time. However, following SBSO stockholder approval of the Merger Agreement, SBSO
stockholders 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 is expected to 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 FOLLOWING IS A DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER BUT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF SUCH
CONSEQUENCES. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY
AND MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS SBSO STOCKHOLDERS, IF ANY, WHO
RECEIVED SBSO COMMON STOCK AS COMPENSATION, THAT HOLD SBSO COMMON STOCK AS PART
OF A "STRADDLE" OR "CONVERSION TRANSACTION", OR THAT ARE INSURANCE COMPANIES,
SECURITIES DEALERS, FINANCIAL INSTITUTIONS OR FOREIGN PERSONS, AND DOES NOT
DISCUSS ANY ASPECTS OF STATE, LOCAL OR FOREIGN TAXATION. THIS DISCUSSION IS
BASED UPON LAWS, REGULATIONS, RULINGS AND DECISIONS NOW IN EFFECT AND ON
PROPOSED REGULATIONS, ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY WITH
RETROACTIVE EFFECT) BY LEGISLATION, ADMINISTRATIVE ACTION OR JUDICIAL DECISION.
NO RULING HAS BEEN OR WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE ON ANY
TAX MATTER RELATING TO THE TAX CONSEQUENCES OF THE MERGER.
As an exhibit to the Registration Statement of which this Proxy Statement
is a part, Pitney, Hardin, Kipp & Szuch, counsel to United, have advised United
and SBSO in an opinion that:
(i) No gain or loss will be recognized for federal income tax purposes by
SBSO stockholders upon the exchange in the Merger of shares of SBSO Common Stock
solely for United Common Stock (except with respect to cash received in lieu of
a fractional share interest in United Common Stock).
(ii) The basis of United Common Stock received in the Merger by SBSO
shareholders (including the basis of any fractional share interest in United
Common Stock) will be the same as the basis of the shares of SBSO Common Stock
surrendered in exchange therefor.
(iii) The holding period of United Common Stock (including the holding
period of any fractional share interest in United Common Stock) will include the
holding period during which the shares of SBSO Common Stock surrendered in
exchange therefor were held by the SBSO stockholder, provided such shares of
SBSO Common Stock were held as capital assets.
(iv) Cash received by a holder of SBSO Common Stock in lieu of a fractional
share interest in United Common Stock will be treated as received in exchange
for such fractional share interest and, provided the fractional share would have
constituted a capital asset in the hands of such holder, the holder should in
general recognize capital gain or loss in an amount equal to the difference
between the amount of cash received and the portion of the adjusted tax basis in
SBSO Common Stock allocable to the fractional share interest.
Consummation of the Merger is conditioned, among other things, on receipt
by each of United and SBSO of an opinion of Pitney, Hardin, Kipp & Szuch, dated
the Closing Date, to the effect that, as of such date, the transactions
contemplated 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, SBSO or UNB or to the shareholders of SBSO who exchange
their shares of SBSO for United Common Stock (except to the extent that cash is
received in lieu of fractional shares of United Common Stock). Unlike a ruling
from the Internal Revenue Service, an opinion of counsel is not binding on the
Internal Revenue Service, and there can be no assurance that the Internal
Revenue
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Service will not take a position contrary to one or more of the positions
reflected herein or that the positions herein will be upheld by the courts if
challenged by the Internal Revenue Service. While United and SBSO have the
contractual right to waive this condition to closing, neither will do so, and
the Merger will not take place if the opinion is not obtained.
The opinions of Pitney, Hardin, Kipp & Szuch summarized above are or will
be based, among other things, on representations contained in certificates of
officers of SBSO and United.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH HOLDER OF SBSO COMMON STOCK, AND OTHER FACTORS,
EACH SUCH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER (INCLUDING THE
APPLICATION AND EFFECT OF STATE AND LOCAL INCOME 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 SBSO or by the stockholders of SBSO upon the
conversion of their shares of SBSO Common Stock solely into shares of United
Common Stock pursuant to the Merger.
Consequences of Receipt of Cash in Lieu of Fractional Shares. Cash received
by an SBSO stockholder in lieu of any fractional share interest will be treated
as having been received as a payment in redemption of such fractional share
interest as if a fractional share of United Common Stock had been issued in the
Merger and then redeemed by United, and, provided the fractional share would
have constituted a capital asset in the hands of such shareholder, the
shareholder should in general recognize capital gain or loss in an amount equal
to the difference between the amount of cash received and the portion of the
adjusted basis in SBSO Common Stock allocable to the fractional share interest.
Basis of United Common Stock. The basis of United Common Stock received by
a SBSO stockholder who receives solely United Common Stock will be the same as
the basis of such stockholder's SBSO Common Stock surrendered in exchange
therefor.
Holding Period. The holding period of shares of United Common Stock
received in the Merger by holders of SBSO Common Stock will include the period
during which such shares of SBSO Common Stock surrendered in exchange therefor
were held by the holder thereof, provided such shares of SBSO Common Stock were
held as capital assets.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Milton J. Wigder, Chairman, James J. Young, President, and Frank A.
Mustilli, Senior Vice President and Chief Financial Officer of SBSO, are each
parties to special termination agreements with SBSO. The terms of the agreements
with Messrs. Wigder and Young commence in connection with a "change of control"
of SBSO (which would include the Merger), and run for a "contract period" of two
years following consummation of the change in control. The agreements with
Messrs. Wigder and Young provide that if the executive's employment is
terminated without cause at any time during the contract period, or if the
executive resigns for good reason (as defined in the agreement) within 30 days
after consummation of the change in control, or if the executive resigns for any
reason more than 30 days after consummation of the change in control but during
the contract period, the executive will be entitled to receive a lump sum
severance payment, plus additional employee benefit contributions and coverages.
The lump sum payment is to equal three times the sum of the executive's then
current annual base salary plus the highest annual incentive bonus paid to him
for any of the three fiscal years immediately prior to the change in control.
The term of the agreement with Mr. Mustilli also commences in connection
with a "change of control" of SBSO, but runs for a "contract period" of one year
following consummation of the change in control. Mr. Mustilli's agreement
provides that if his employment is terminated without cause at any time during
the contract period, or if
28
<PAGE>
he resigns for good reason (as defined in the agreement) at any time during the
contract period, he will be entitled to receive a lump sum severance payment,
plus additional employee benefit contributions and coverages. The lump sum
payment for Mr. Mustilli is to equal two times the sum of his then current
annual base salary plus the highest annual incentive bonus paid to him for any
of the three fiscal years immediately prior to the change in control.
The agreements for all three executives provide for automatic reduction of
payments in the event the distributions to be made under the agreements would
otherwise constitute "excess parachute payments" under Section 280G of the Code.
Had the Merger closed on June 30, 1998 and had payments under these agreements
been triggered on that date, the amounts payable thereunder to Messrs. Wigder,
Young and Mustilli, net of the automatic reductions, would have been
approximately $186,000, $428,000 and $191,000, respectively.
In addition to the foregoing, the Merger Agreement requires United to
indemnify, for a period of six years after the Effective Time, each director and
officer of SBSO to the fullest extent which SBSO would have been permitted under
applicable law and its Certificate of Incorporation and By-laws had the Merger
not occurred, with respect to any claims made against such person because he or
she served in such capacity or acted as a director or officer of a third party
at the request of SBSO. The Merger Agreement also requires United to provide
SBSO's officers and directors with directors' and officers' liability insurance
for at least six years after the Effective Time.
As of the Record Date, the directors of SBSO beneficially owned in the
aggregate approximately 44.7% of the issued and outstanding shares of SBSO
Common Stock. In connection with the execution of the Merger Agreement, the
directors of SBSO agreed to vote in favor of the Merger Agreement. As of the
Record Date, executive officers of SBSO who are not also directors beneficially
owned in the aggregate less than 1% of the issued and outstanding shares of SBSO
Common Stock.
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 SBSO, who may
be deemed to be "affiliates" of SBSO 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 SBSO 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 SBSO 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 SBSO
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 SBSO have been published by United. Also, in connection
with the pooling-of-interests rules, the affiliates have agreed not to transfer
their SBSO 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 SBSO.
29
<PAGE>
BUSINESS PENDING CONSUMMATION OF THE MERGER
SBSO 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: (i) change any provision of its Certificate of
Incorporation or Bylaws or any similar governing documents; (ii) except for the
issuance of the Option, change the number of shares of, or issue any more shares
of or grant any option or right with respect to, SBSO Common Stock, or split,
combine or reclassify any shares of SBSO Common Stock, or redeem or otherwise
acquire any shares of SBSO Common Stock; (iii) declare, set aside or pay any
dividend, or other distribution in respect of, SBSO Common Stock; (iv) grant any
severance or termination pay (other than pursuant to policies of SBSO 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 and bonuses to its
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
realize 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.
SBSO 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 SBSO (an
"ACQUISITION TRANSACTION"). SBSO 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. This restriction, along with the Stock
Option Agreement described below (see "Stock Option for Shares of SBSO Common
Stock"), may be considered a deterrent to other potential acquisitions of
control of SBSO.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
At the Effective Time, as a result of the Merger, SBSO 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 SBSO will serve as a branch office of UNB.
STOCK OPTION FOR SHARES OF SBSO COMMON STOCK
In connection with the negotiation by United and SBSO of the Merger
Agreement, United and SBSO entered into the Stock Option Agreement on June 25,
1998. 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, SBSO granted United the Option,
exercisable only under certain limited and specifically defined circumstances,
to purchase up to 127,275 authorized but unissued shares of SBSO Common Stock,
representing approximately 16.6% of the shares of SBSO Common Stock which would
be outstanding immediately following the exercise of the Option, for an exercise
price of $31.25 per share. United does not have any voting rights with respect
to the shares of SBSO 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 SBSO Common
30
<PAGE>
Stock received pursuant to the exercise of the Option if such shares of SBSO
Common Stock were sold at prices exceeding $31.25 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 SBSO shall not
be considered a "group" merely because of their service on the Board of
Directors of SBSO and their ownership of SBSO Common Stock, (i) acquires
beneficial ownership (as such term is defined in Rule 13d-3 promulgated under
the Exchange Act) of at least 20% of the then outstanding shares of SBSO Common
Stock; (ii) enters into a letter of intent or an agreement with SBSO pursuant to
which such person or any affiliate of such person would (a) merge or
consolidate, or enter into any similar transaction, with SBSO, (b) acquire all
or a significant portion of the assets or liabilities of SBSO, or (c) acquire
beneficial ownership of securities representing, or the right to acquire the
beneficial ownership or to vote securities representing, 20% or more of the then
outstanding shares of SBSO 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 SBSO or any other
business combination involving SBSO, or (b) a transaction involving the transfer
of beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 20% or more of the
outstanding shares of SBSO Common Stock, and thereafter, if such Proposal has
not been publicly withdrawn (as defined below) at least 15 days prior to the
Meeting and SBSO's stockholders fail to approve the Merger by the vote required
by applicable law at the Meeting; or (iv) makes a bona fide proposal and
thereafter, but before such Proposal has been publicly withdrawn, SBSO 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.
The definition of "TRIGGERING EVENT" also includes the taking of any material
direct or indirect action by SBSO or any of its directors, officers or agents,
with the formal or informal approval or acquiescence of the SBSO Board of
Directors, with the intention of inviting, encouraging or soliciting any
proposal which has as its purpose a tender offer for the shares of SBSO Common
Stock, a merger, consolidation, plan of exchange, plan of acquisition or
reorganization of SBSO, or a sale of shares of SBSO Common Stock or any
significant portion of the assets or liabilities of SBSO. Under the Stock Option
Agreement, a significant portion means 25% of the assets or liabilities of SBSO.
"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 SBSO 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 SBSO to issue the SBSO 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 SBSO 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, SBSO shall
prepare and file a registration statement with the Commission covering the
Option and such number of shares of SBSO 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 SBSO 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.
31
<PAGE>
The ability of United to exercise the Option and to cause up to an
additional 127,275 shares of SBSO Common Stock to be issued may be considered a
deterrent to other potential acquirors of control of SBSO, as it is likely to
increase the cost of an acquisition of all of the shares of SBSO 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.
32
<PAGE>
RIGHTS OF DISSENTING SBSO STOCKHOLDERS
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") (which provides that federal law shall govern with
respect to this issue), any stockholder of SBSO has the right to dissent from
the Merger and to obtain payment of the value (determined as provided below) of
his SBSO Common Stock if the Merger is consummated.
ANY STOCKHOLDER OF SBSO 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, stockholders of SBSO who vote against the
proposed Merger at the Meeting or give notice of dissent in writing (addressed
to Frank A. Mustilli, Senior Vice President and Chief Financial Officer, State
Bank of South Orange, Valley and Third Streets, P.O. Box 384, South Orange, New
Jersey 07049) 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
SBSO 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 stockholder 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
stockholder who has requested payment, that stockholder 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 SBSO who votes
against the proposed Merger, or who gives notice in writing at or prior to the
Meeting (addressed to Frank A. Mustilli, Senior Vice President and Chief
Financial Officer, State Bank of South Orange, Valley and Third Streets, P.O.
Box 384, South Orange, New Jersey 07049) 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 Frank A. Mustilli, Senior Vice President and Chief
Financial Officer, State Bank of South Orange, Valley and Third Streets, P.O.
Box 384, South Orange, New Jersey 07049) at or prior to the Meeting. Regardless
of whether a SBSO 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. SBSO stockholders
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.
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<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information presents
the Pro Forma Combined Condensed Statements of Condition of United and SBSO at
June 30, 1998, 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 six months ended June 30, 1998 and the years ended December 31, 1997,
1996 and 1995 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 SBSO 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 SBSO 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.
The pro forma financial information does not give effect to anticipated
cost savings of the Merger, nor does it reflect one-time Merger related charges
which either have been or will be incurred in connection with the Merger.
34
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF CONDITION
JUNE 30, 1998
(UNAUDITED)
Pro Forma United and SBSO
United SBSO Adjustments(1) Combined
----------- ----------- -------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks .......................... $ 34,018 $ 3,693 $ -- $ 37,711
Federal Funds Sold ............................... 8,200 6,775 -- 14,975
Securities Available for Sale, at Market Value ... 567,667 8,059 -- 575,726
Securities Held to Maturity ...................... 43,804 -- -- 43,804
Trading Account Securities, at Market Value ...... 1,221 -- -- 1,221
Loans (Net of Unearned Income) ................... 654,687 49,695 -- 704,382
Less: Allowance for Possible Loan Losses ........ (7,069) (847) -- (7,916)
Other Assets ..................................... 78,188 2,861 -- 81,049
----------- ----------- ----------- -----------
Total Assets ............................... $ 1,380,716 $ 70,236 $ -- $ 1,450,952
=========== =========== =========== ===========
LIABILITIES
Deposits ......................................... $ 974,823 $ 63,747 $ -- $ 1,038,570
Other Borrowed Funds ............................. 254,384 -- -- 254,384
Other Liabilities ................................ 15,441 387 -- 15,828
----------- ----------- ----------- -----------
Total Liabilities .......................... 1,244,648 64,134 -- 1,308,782
----------- ----------- ----------- -----------
Company-Obligated Mandatorily Redeemable Preferred
Series B Capital Securities of a Subsidiary
Trust Holding Solely Junior Subordinated
Debentures of the Company .................. 20,000 -- -- 20,000
STOCKHOLDERS' EQUITY
Common Stock ..................................... 11,719 3,198 (2,203) 12,714
Additional Paid-In Capital ....................... 80,308 1,802 2,203 84,313
Retained Earnings ................................ 19,470 1,185 -- 20,655
Treasury Stock ................................... (1,352) -- -- (1,352)
Restricted Stock ................................. (64) -- -- (64)
Accumulated Other Comprehensive
Income (Loss) .............................. 5,987 (83) -- 5,904
----------- ----------- ----------- -----------
Total Stockholders' Equity ................. 116,068 6,102 -- 122,170
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity ....... $ 1,380,716 $ 70,236 $ -- $ 1,450,952
=========== =========== =========== ===========
- ----------
(1) The pro forma adjustments represent the difference between the stated value
of United and SBSO stock.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
Pro Forma United and
United SBSO Adjustments SBSO Combined
----------- ----------- -------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income ................. $ 48,119 $ 2,790 $ -- $ 50,909
Total Interest Expense ................ 21,039 1,135 -- 22,174
----------- ----------- -------------- -----------
Net Interest Income ................... 27,080 1,655 -- 28,735
Provision for Possible Loan Losses .... 1,700 96 -- 1,796
----------- ----------- -------------- -----------
Net Interest Income After Provision for
Possible Loan Losses ............ 25,380 1,559 -- 26,939
Total Non-Interest Income ............. 9,881 276 -- 10,157
Total Non-Interest Expense ............ 24,941 1,166 -- 26,107
----------- ----------- -------------- -----------
Income Before Income Taxes ............ 10,320 669 -- 10,989
Provision for Income Taxes ............ 2,840 265 -- 3,105
----------- ----------- -------------- -----------
NET INCOME ............................ $ 7,480 $ 404 $ -- $ 7,884
=========== =========== ============== ===========
EARNINGS PER COMMON SHARE: (1)
Basic ........................... $ 0.81 $ 0.63 $ 0.78
=========== =========== ===========
Diluted ......................... $ 0.79 $ 0.63 $ 0.77
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic ........................... 9,277,447 639,575 10,073,718
Diluted ......................... 9,439,675 639,575 10,235,946
</TABLE>
- ----------
(1) The historical earnings per share of United and SBSO have been restated to
give retroactive effect to stock dividends.
36
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
Pro Forma United and
United SBSO Adjustments SBSO Combined
----------- ----------- ----------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income ................. $ 88,577 $ 5,182 $ -- $ 93,759
Total Interest Expense ................ 36,700 2,241 -- 38,941
----------- ----------- ----------- -----------
Net Interest Income ................... 51,877 2,941 -- 54,818
Provision for Possible Loan Losses .... 3,600 232 -- 3,832
----------- ----------- ----------- -----------
Net Interest Income After Provision for
Possible Loan Losses ............ 48,277 2,709 -- 50,986
Total Non-Interest Income ............. 19,388 589 -- 19,977
Total Non-Interest Expense ............ 47,420 2,168 -- 49,588
----------- ----------- ----------- -----------
Income Before Income Taxes ............ 20,245 1,130 -- 21,375
Provision for Income Taxes ............ 6,365 471 -- 6,836
----------- ----------- ----------- -----------
NET INCOME ............................ $ 13,880 $ 659 $ -- $ 14,539
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE: (1)
Basic ........................... $ 1.50 $ 1.03 $ 1.44
=========== =========== ===========
Diluted ......................... $ 1.48 $ 1.03 $ 1.43
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic ........................... 9,266,432 639,575 10,062,703
Diluted ......................... 9,364,689 639,575 10,160,960
</TABLE>
- ----------
(1) The historical earnings per share of United and SBSO have been restated to
give retroactive effect to stock dividends.
37
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
Pro Forma United and
United SBSO Adjustments(2) SBSO Combined
-------------- -------------- --------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income ........................... $ 79,360 $ 4,691 $ -- $ 84,051
Total Interest Expense .......................... 30,130 2,051 -- 32,181
-------------- -------------- ----------- ---------------
Net Interest Income ............................. 49,230 2,640 -- 51,870
Provision for Possible Loan Losses .............. 3,049 192 -- 3,241
-------------- -------------- ------------ ---------------
Net Interest Income After Provision for
Possible Loan Losses ...................... 46,181 2,448 -- 48,629
Total Non-Interest Income ....................... 15,546 540 -- 16,086
Total Non-Interest Expense ...................... 43,102 1,949 -- 45,051
-------------- -------------- ------------ ---------------
Income Before Income Taxes ...................... 18,625 1,039 -- 19,664
Provision for Income Taxes ...................... 6,345 251 205 6,801
-------------- -------------- ------------ ---------------
NET INCOME ...................................... $ 12,280 $ 788 $ (205) $ 12,863
============== ============== =========== ===============
EARNINGS PER COMMON SHARE: (1)
Basic ..................................... $ 1.33 $ 1.23 $ 1.28
============== ============== ===============
Diluted ................................... $ 1.33 $ 1.23 $ 1.28
============== ============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic ..................................... 9,218,892 639,575 10,015,163
Diluted ................................... 9,263,719 639,575 10,059,990
</TABLE>
- ----------
(1) The historical earnings per share of United and SBSO have been restated to
give retroactive effect to stock dividends.
(2) The restatement of SBSO's historical 1996 and 1995 statements of income
relates to the reversal of tax benefits previously recognized by SBSO in
1996 and 1995 as a result of SBSO's reversal of its valuation allowance on
deferred tax assets. SBSO established a valuation allowance on its deferred
tax assets upon adoption of Statement of Financial Accounting Standards
("SFAS") No. 109 in 1994 due to uncertainties regarding SBSO's ability to
realize its deferred tax assets. Subsequently, as a result of improved
profitability in 1995 and 1996, the valuation allowance was reversed,
resulting in significant income tax benefits in both years.
The pro forma adjustment to the provision for income taxes is a reversal of
the tax benefits described above.
The valuation allowance that existed as of December 31, 1994 is not needed
on a pro forma basis. The evaluation of the need for a valuation allowance
is based on the combined results of United and SBSO. United files
consolidated tax returns with its subsidiaries, and therefore any losses
sustained by SBSO would be offset by profits of United and its other
subsidiaries. No valuation allowance would have been required as of
December 31, 1994 had the companies always been combined. Accordingly, the
pro forma financial statements include a pro forma adjustment to reflect
what the changes to the valuation allowance would have been had the
companies always been combined.
38
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
Pro Forma United and SBSO
United SBSO Adjustments(2) Combined
-------------- -------------- -------------- ------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Total Interest Income ................................ $ 77,552 $ 4,427 $ -- $ 81,979
Total Interest Expense ............................... 30,104 2,012 -- 32,116
-------------- -------------- ----------- ---------------
Net Interest Income .................................. 47,448 2,415 -- 49,863
Provision for Possible Loan Losses ................... 871 227 -- 1,098
-------------- -------------- ----------- ---------------
Net Interest Income After Provision for
Possible Loan Losses ........................... 46,577 2,188 -- 48,765
Total Non-Interest Income ............................ 14,653 505 -- 15,158
Total Non-Interest Expense ........................... 47,429 1,942 -- 49,371
-------------- -------------- ----------- ---------------
Income Before Income Taxes ........................... 13,801 751 -- 14,552
Provision for Income Taxes ........................... 4,295 -- 256 4,551
-------------- -------------- ----------- ---------------
NET INCOME ........................................... $ 9,506 $ 751 $ (256) $ 10,001
============== ============== =========== ===============
EARNINGS PER COMMON SHARE: (1)
Basic .......................................... $ 1.04 $ 1.17 $ 1.00
============== ============== ===============
Diluted ........................................ $ 1.03 $ 1.17 $ 1.00
============== ============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic .......................................... 9,168,516 639,575 9,964,787
Diluted ........................................ 9,202,572 639,575 9,998,843
</TABLE>
- ----------
(1) The historical earnings per share of United and SBSO have been restated to
give retroactive effect to stock dividends.
(2) The restatement of SBSO's historical 1996 and 1995 statements of income
relates to the reversal of tax benefits previously recognized by SBSO in
1996 and 1995 as a result of SBSO's reversal of its valuation allowance on
deferred tax assets. SBSO established a valuation allowance on its deferred
tax assets upon adoption of Statement of Financial Accounting Standards
("SFAS") No. 109 in 1994 due to uncertainties regarding SBSO's ability to
realize its deferred tax assets. Subsequently, as a result of improved
profitability in 1995 and 1996, the valuation allowance was reversed,
resulting in significant income tax benefits in both years.
The pro forma adjustment to the provision for income taxes is a reversal of
the tax benefits described above.
The valuation allowance that existed as of December 31, 1994 is not needed
on a pro forma basis. The evaluation of the need for a valuation allowance
is based on the combined results of United and SBSO. United files
consolidated tax returns with its subsidiaries, and therefore any losses
sustained by SBSO would be offset by profits of United and its other
subsidiaries. No valuation allowance would have been required as of
December 31, 1994 had the companies always been combined. Accordingly, the
pro forma financial statements include a pro forma adjustment to reflect
what the changes to the valuation allowance would have been had the
companies always been combined.
39
<PAGE>
SBSO MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SBSO's net income increased by $117,000 or 40.8%, to $404,000 for the six
months ended June 30, 1998 compared to $287,000 for the six months ended June
30, 1997. Net income per diluted share increased to $0.63 per share for the six
months ended June 30, 1998 compared to $0.45 for the six months ended June 30,
1997. SBSO's total assets decreased to $70.2 million as of June 30, 1998 as
compared to $73.8 million at December 31, 1997, primarily resulting from
decreases in securities and cash and due from banks.
Net income decreased $129,000 to $659,000 for the year ended December 31,
1997 from $788,000 for the year ended December 31, 1996. Net income per diluted
share decreased to $1.03 per share for the year ended December 31, 1997 as
compared to $1.23 per share for the year ended December 31, 1996. The decrease
in net income resulted from increases in the provision for income taxes, the
provision for loan losses, and other expenses partially offset by increases in
net interest income and other income. The increase in the provision for income
tax in 1997 resulted primarily from net operating loss carryforwards being fully
utilized in 1996. Net income and net income per diluted share for the year ended
December 31, 1995 were $751,000 and $1.17, respectively. The increased net
income for the year ended December 31, 1996 as compared to 1995 reflects
increased net interest income and other income, partially offset by an increase
in the provision for income taxes. SBSO's total assets grew to $73.8 million, an
increase of $1.6 million, or 2.2%, as compared to $72.2 million at December 31,
1996.
Return on average assets and average stockholders' equity for the six
months ended June 30, 1998, on an annualized basis, were 1.13% and 13.62%,
respectively, compared to 0.84% and 11.17%, respectively, for the six months
ended June 30, 1997.
Return on average assets and average stockholders' equity were 0.98% and
12.42%, respectively, for the year ended December 31, 1997, compared to 1.24%
and 17.61%, respectively, for the year ended December 31, 1996 and 1.28% and
21.05% respectively, for the year ended December 31, 1995. The decrease in the
return on average assets and average stockholders' equity in 1997 reflects the
decrease in net income.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income increased approximately $246,000, or 9.7%, to $2.8 million
for the six months ended June 30, 1998, as compared to $2.5 million for the six
months ended June 30, 1997. This increase was primarily due to an increase in
the average balance of interest earning assets from $62.7 million for the six
months ended June 30, 1997 to $65.7 million for the six months ended June 30,
1998, as well as an increase of 38 basis points in the average yield of such
assets. Interest income increased by $491,000, or 10.5%, to $5.2 million for the
year ended December 31, 1997, primarily as a result of an increase in the
average balance of interest earning assets from $58.1 million for the year ended
December 31, 1996 to $62.3 million for the year ended December 31, 1997, and an
increase of 23 basis points in the yield of such assets. Interest income
increased by $264,000, or 6.0%, to $4.7 million for the year ended December 31,
1996, primarily as a result of an increase in the average balance of interest
earning assets from $53.4 million in 1995 to $58.1 million in 1996.
Interest income on loans increased $360,000 to $2.3 million for the six
months ended June 30, 1998 as compared to $2.0 million for the six months ended
June 30, 1997. The increase in interest income on loans for the first six months
of 1998 was attributable to an increase of $6.8 million in the average balance
and an increase of 18 basis points in the average yield as compared to the same
period in 1997. The average balance increased during this period primarily as a
result of an increase in loan originations by the employment of an additional
loan officer. Contributing to the increase in the average yield was the
completion of the premium amortization on FMHA loans.
40
<PAGE>
Interest income on loans increased $428,000 to $4.1 million for the year ended
December 31, 1997, as compared to December 31, 1996, as a result of a $4.0
million increase in the average balance and an increase of 13 basis points in
average yield. The increase in the average balance is primarily attributable to
SBSO's continued marketing efforts to increase the size of the commercial and
industrial loan portfolio. The increase in average interest rates reflects a
moderate increase in market rates of interest. Interest income on loans
increased $347,000 to $3.7 million for the year ended December 31, 1996
reflecting increased average balances of $4.5 million from 1995 to 1996.
Interest income on taxable investment securities decreased $79,000, or
23.2%, to $262,000 for the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997, due to a $2.5 million decrease in the average
balance. The decrease in the average balance reflects a change in the mix of
interest earning assets to the loan portfolio. Interest income on taxable
investment securities increased $353,000, or 111.4%, to $670,000 for the year
ended December 31, 1997 from $317,000 for the year ended December 31, 1996,
primarily due to a $5.9 million increase in the average balance and an increase
of 39 basis points in average yield. The increase in the average balance
reflects a shift in the portfolio of interest-earning assets to investment
securities from lower-yielding federal funds sold. Interest income on taxable
investment securities decreased $314,000, or 49.8%, to $317,000 in 1996 from
$631,000 in 1995, due to a $4.8 million or 43.8% decrease in the average balance
of these securities. The decrease in the average balance was a result of
shifting of interest-earning assets from the investment portfolio to commercial
loans. In addition, the average yield of investment securities decreased 60
basis points, as a result of the lower interest rate environment.
Interest income on federal funds sold decreased $34,000 to $197,000 for the
six months ended June 30, 1998, from $231,000 for the six months ended June 30,
1997, primarily due to decreased average balances from $8.4 million in 1997 to
$7.1 million in 1998. Interest income on federal funds sold decreased by
$290,000 or 43.2%, to $381,000 in 1997 from $671,000 in 1996, due primarily to a
decrease in the average balance of $5.6 million, or 45.2%, to $6.8 million in
1997 from $12.4 million in 1996. The decrease in the average balance from 1996
to 1997 was a result of the shift of the portfolio to commercial loans. Interest
income on federal funds sold increased $231,000 or 52.5%, to $671,000 in 1996
from $440,000 in 1995, due to SBSO's decision to maintain liquidity by investing
in federal funds.
INTEREST EXPENSE
Interest paid on deposits was relatively unchanged for the six months ended
June 30, 1998 compared to the same period in 1997, at $1.1 million. Offsetting
an increase in the average balance of interest-bearing liabilities from $53.1
million for the six months ended June 30, 1997 to $53.7 million for the six
months ended June 30, 1998 was a decrease in the average cost of
interest-bearing liabilities to 4.25% in the 1998 period from 4.35% in the 1997
period.
Interest paid on deposits increased $190,000 to $2.2 million for the year
ended December 31, 1997 from $2.1 million for the year ended December 31, 1996.
This increase is attributable to an aggregate increase of $3.8 million in the
average balance of deposits including a $4.9 million increase in the average
balance of time deposits.
Interest paid on deposits remained relatively stable between 1995 and 1996.
While the aggregate average balances of interest bearing deposits increased $2.0
million during 1996, the average rate paid on those deposits decreased by 7
basis points, due to a declining rate environment. The increase in the average
balance included a $2.0 million increase in the average balance of savings
deposits.
NET INTEREST INCOME
Net interest income, typically the largest component of SBSO's income, is
the difference between interest and fees earned on loans and other interest
earning assets, and interest paid on deposits and other funding sources. The
following tables reflect the components of SBSO's net interest income, setting
forth for the periods presented herein (1) average assets, liabilities and
stockholders' equity, (2) interest income earned on interest-earning assets and
interest expense paid on interest-bearing liabilities, (3) average yields earned
on interest-earning assets and average rates paid on interest-bearing
liabilities, (4) SBSO's net interest spread (i.e., the average yield on
interest-
41
<PAGE>
earning assets less the average cost of interest-bearing liabilities) and (5)
SBSO's net yield on interest-earning assets. Average balances were computed
based on month-end balances. Management believes that the use of average monthly
balances instead of average daily balances does not have a material effect on
the information presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------- -----------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST(1) BALANCE EXPENSE COST(1)
------------ -------- -------- ---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans ....................................... $ 48,932 $ 2,331 9.61% $ 42,180 $ 1,972 9.43%
Taxable securities .......................... 9,624 262 5.49 12,147 341 5.66
Federal funds sold .......................... 7,135 197 5.57 8,384 231 5.56
-------- -------- ---------- --------
Total interest-earning assets ............ 65,691 2,790 8.56 62,711 2,544 8.18
-------- -------- ----- ---------- -------- -----
NON-INTEREST EARNING ASSETS:
Cash and due from banks .................. 3,238 3,141
Other .................................... 3,246 2,841
Allowance for loan loss .................. (840) (794)
-------- ----------
TOTAL ASSETS ................................... $ 71,335 $ 67,899
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits ......... $ 4,766 33 1.40 $ 4,048 29 1.44
Savings deposits ......................... 15,858 200 2.54 14,611 189 2.61
Time deposits ............................ 33,060 898 5.48 34,434 928 5.43
-------- -------- ---------- --------
Total interest-bearing liabilities ....... 53,684 1,131 4.25 53,093 1,146 4.35
-------- -------- ----- ---------- -------- -----
NON-INTEREST BEARING LIABILITIES:
Demand deposits .......................... 11,469 9,296
Other non-interest bearing liabilities ... 253 377
Stockholders' equity ..................... 5,929 5,133
------ --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY....... $ 71,335 $ 67,899
======== ==========
Net interest income/ Net interest spread(1) .... $ 1,659 4.31% $ 1,398 3.83%
======== ===== ======== =====
Net yield on interest-earning assets
(net interest margin)(1) ...................... 5.09% 4.50%
==== =====
</TABLE>
- ----------
(1) Yield, cost, spread and margin for the two six-month periods are all on an
annualized basis.
42
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------- -----------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
------------ ------------ --------- ----------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans ............................. $ 43,377 $4,131 9.52% $ 39,420 $ 3,703 9.39%
Taxable securities ................ 12,111 670 5.53 6,166 317 5.14
Federal funds sold ................ 6,837 381 5.57 12,478 671 5.38
---------- ----- --------- -------
Total interest-earning assets .... 62,325 5,182 8.31 58,064 4,691 8.08
---------- ----- ----- --------- ------- -------
NON-INTEREST EARNING ASSETS:
Cash and due from banks .......... 3,108 3,133
Other ............................ 2,851 2,851
Allowance for loan loss .......... (836) (655)
---------- ---------
TOTAL ASSETS ......................... $ 67,448 $ 63,393
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits . $ 4,329 62 1.43 $ 4,470 62 1.39
Savings deposits ................. 14,137 369 2.61 15,012 395 2.63
Time deposits .................... 33,152 1,810 5.45 28,296 1,594 5.63
---------- ------ --------- -------
Total interest-bearing liabilities 51,618 2,241 4.34 47,778 2,051 4.29
---------- ------ ----- --------- ------- -------
NON-INTEREST BEARING LIABILITIES:
Demand deposits .................. 10,131 9,834
Other non-interest bearing
liabilities ..................... 389 1,307
Stockholders' equity ............. 5,310 4,474
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .............................. $ 67,448 $ 63,393
========== =========
Net interest income/Net interest spread $2,941 3.97% $ 2,640 3.79%
====== ==== ======= =======
Net yield on interest-earning assets
(net interest margin) ................. 4.72% 4.55%
===== =======
</TABLE>
43
<PAGE>
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected SBSO's interest income and interest expense during the
periods indicated. Information is provided in each category with respect to (i)
changes attributable to changes in volume (changes in volume multiplied by prior
rate), (ii) changes attributable to changes in rate (changes in rate multiplied
by prior volume) and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to the volume and the changes due to rate.
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD ENDED FOR THE YEAR ENDED
JUNE 30, 1998 COMPARED TO DECEMBER 31, 1997 COMPARED TO
JUNE 30, 1997 DECEMBER 31, 1996
------------------------------------------- -------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
------------------------------ ------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME RATE NET VOLUME RATE NET
------------- ----------- ---------- ---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans .............................. $ 320 $ 39 $ 359 $ 396 $ 32 $ 428
Taxable securities .................... (69) (10) (79) 327 26 353
Federal funds sold .................... (34) -- (34) (313) 23 (290)
---------- --------- ---------- -------- -------- ---------
Total interest-income .............. 217 29 246 410 81 491
---------- --------- ---------- ---------- -------- ---------
INTEREST EXPENSE:
Interest-bearing liabilities:
Interest-bearing demand deposits ... 5 (1) 4 (2) 2 --
Savings deposits ................... 16 (5) 11 (23) (3) (26)
Time deposits ...................... (39) 9 (30) 265 (49) 216
---------- --------- ---------- ---------- -------- ---------
Total interest expense ............. (18) 3 (15) 240 (50) 190
---------- --------- ---------- ---------- -------- ---------
NET CHANGE IN NET INTEREST INCOME ........ $ 235 $ 26 $ 261 $ 170 $ 131 $ 301
========== ========= ========== ========== ========== =========
</TABLE>
Net interest income was $1.7 million for the six months ended June 30,
1998, as compared to $1.4 million for the six months ended June 30, 1997,
reflecting the increase in interest income.
Net interest income was $2.9 million for the year ended December 31, 1997,
as compared to $2.6 million for the year ended December 31, 1996, reflecting the
increase of $491,000 in interest income for the year, offset in part by the
increase of $190,000 in interest expense.
Net interest income increased $225,000 to $2.6 million for the year ended
December 31, 1996, from $2.4 million for the year ended December 31, 1995,
primarily reflecting increased interest income.
OTHER INCOME
Other income decreased $29,000, or 9.5%, to $276,000 for the first six
months of 1998 from $305,000 for the same period in 1997. This decrease was
primarily the result of a decrease of $34,000, or 11.1% in service charges on
deposit accounts.
Other income increased $49,000, or 9.1%, to $589,000 for the year ended
December 31, 1997 from $540,000 for the year ended December 31, 1996. This
increase was primarily attributable to an increase in service charges on deposit
accounts.
Other income increased $35,000, or 6.9%, to $540,000 for the year ended
December 31, 1996 from $505,000 for the year ended December 31, 1995. This
increase was primarily attributable to an increase in service charges on deposit
accounts.
44
<PAGE>
OTHER EXPENSE
Other expenses increased by $106,000, or 10.0%, to $1.2 million for the
first six months of 1998 from $1.1 million for the same period in 1997. Salaries
and benefits increased by $62,000, or 11.0%, due to increased staffing levels
and normal salary increases. Other changes included increased advertising
expense and legal fees, and decreases in data processing fees.
Other expenses for the year ended December 31, 1997 increased $219,000, or
11.2%, over 1996. Salaries and benefits, the largest component of other
expenses, increased by $128,000, or 12.6%, due to normal salary and benefit
increases and increased staffing, and an increase of $42,000 in furniture and
equipment expense.
Other expenses for the year ended December 31, 1996 remained relatively
stable, at $1.9 million, as compared to the year ended December 31, 1995.
PROVISION FOR LOAN LOSSES AND LOAN LOSS EXPERIENCE
During the first six months of 1998, SBSO provided $96,000 for the
allowance and had net charge-offs of $50,000 for an increase of $46,000 to the
allowance for possible loan losses leaving a balance of $847,000.
During 1997, SBSO provided $232,000 to the allowance for possible loan
losses and had net charge-offs of $183,000 for a $50,000 increase to the
allowance for possible loan losses, leaving a balance of $801,000. At December
31, 1996, the balance of the allowance for possible loan losses was $751,000, a
$190,000 increase from 1995, as SBSO provided $192,000 to the allowance for
possible loan losses and incurred net charge-offs of $2,000. See "- Credit
Losses."
INCOME TAXES
The components of income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
----------------------------------- -------------------------------
1998 1997 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Federal -- Current................. $ 243 $ 28 $ 325 $ 37
Federal -- Deferred................ (38) (8) 23 (12)
State.............................. 60 8 123 6
--------- -------- -------- --------
Total.............................. $ 265 $ 28 $ 471 $ 25
</TABLE>
The increase in current income taxes in 1997 resulted primarily from net
operating loss carryforwards being fully utilized in 1996. SBSO's effective
income tax rate was 39.6%, 47.3%, 41.6%, and 24.2%, for the six months ended
June 30, 1998 and 1997 and the years ended December 31, 1997 and 1996,
respectively. The increase in the effective tax rate from 1996 to 1997 is due to
the utilization of net operating loss carryforwards in 1996. The decrease in the
effective tax rate from June 30, 1997 to June 30, 1998 is due to a reversal of a
reserve for revenue agent examinations that was established during the six month
period ended June 30, 1997. For further information regarding tax matters, see
Note 7 of the Notes to SBSO's Financial Statements.
FINANCIAL CONDITION
GENERAL
SBSO's total assets decreased to $70.2 million as of June 30, 1998 as
compared to $73.8 million at December 31, 1997. SBSO's total assets increased to
$73.8 million at December 31, 1997, an increase of $1.6 million, or 2.3%, as
compared to $72.2 million at December 31, 1996. Stockholders' equity increased
to $5.7
45
<PAGE>
million at December 31, 1997, an increase of approximately $800,000, or 16.3%,
as compared to $4.9 million at December 31, 1996.
Investment securities decreased by $3.7 million, or 31.4%, from $11.8
million at December 31, 1997 to $8.1 million at June 30, 1998. Investment
securities increased from $11.1 million at December 31, 1996 to $11.8 million at
December 31, 1997. The investment securities contained net unrealized losses of
$159,000 at December 31, 1997, a decrease of $132,000 from the net unrealized
loss of $291,000 in the portfolio at December 31, 1996.
LOAN PORTFOLIO
Loans are the most significant component of SBSO's interest-earning assets.
Gross loans declined slightly to $49.8 million at June 30, 1998, compared to
$49.9 million at December 31, 1997. Gross loans increased $7.2 million or 16.8%
from $42.7 million at December 31, 1996 to $49.9 million at December 31, 1997,
primarily due to increased volume of commercial loans, lease financing loans,
and loans secured by residential properties.
The following table sets forth the classification of SBSO's loans by major
category as of the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -----------------------
1998 1997 1996
----------- --------- ----------
(In thousands)
<S> <C> <C> <C>
Loans secured by real estate --
Construction and land development................... $ 4,186 $ 3,466 $ 3,195
Residential properties.............................. 16,166 16,880 13,306
Residential farmland (guaranteed by the
Farmers Home Administration)..................... 2,214 2,359 2,511
Nonresidential properties........................... 8,176 9,118 9,327
Commercial and industrial loans......................... 6,046 4,938 3,836
Lease financing loans................................... 11,439 11,504 9,248
Loans to individuals.................................... 1,540 1,660 1,323
--------- --------- --------
$ 49,767 $ 49,925 $ 42,746
--------- --------- --------
Less - Unearned income.............................. (72) (79) (63)
--------- --------- --------
Loans, net ............................................. $ 49,695 $ 49,846 $ 42,683
========= ========= ========
</TABLE>
CREDIT RISK
Commercial loans are placed on a nonaccrual status when principal or
interest are in default for a period of ninety days or more except where there
exists sufficient collateral to cover the defaulted principal and interest
payments or management's knowledge of the specific circumstances warrant
continued accrual. Real estate mortgage loans are placed on nonaccrual status at
the time when foreclosure proceedings are commenced except where there exists
sufficient collateral to cover the defaulted principal and interest payments or
management's knowledge of the specific circumstances warrant continued accrual.
Installment loans are regularly charged off when principal and interest payments
are four months in arrears. Interest thereafter on such charged off installment
loans is taken into income when received.
46
<PAGE>
The following schedule sets forth certain information regarding SBSO's
nonaccrual, past due and renegotiated loans and other real estate owned as of
the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
--------------------- ----------------------
1998 1997 1997 1996
------- ---------- ------- ------
(In thousands)
<S> <C> <C> <C> <C>
Non-accrual loans (a) ....................................... $ -- $ 353 $ 123 $ 356
Past due loans (b) .......................................... 910 1 169 19
Renegotiated loans .......................................... -- -- -- --
-------- ------- ------- ------
Total nonaccrual, past due and renegotiated loans ..... 910 354 292 375
Other real estate owned ..................................... -- -- -- 142
-------- ------- ------- ------
Total ................................................. $ 910 $ 354 $ 292 $ 517
======== ======= ======= ======
</TABLE>
- ----------
(a) Generally represents loans as to which the payment of interest or
principal is in arrears for a period of more than ninety days. Current
policy requires that interest previously accrued on these loans and not
yet paid be reversed and charged against income during the current
period. Interest earned thereafter is only included in income to the
extent that it is received in cash.
(b) Represents loans as to which payments of interest or principal are
contractually past due ninety days or more but which are currently
accruing income at the contractually stated rates. A determination is
made to continue accruing income on such loans only when such loans are
believed to be fully collectible.
Loans accounted for on a nonaccrual basis amounted to $123,000 and $356,000
as of December 31, 1997 and 1996, respectively. Interest income that would have
been recorded in the financial statements had nonaccrual loans been performing
in accordance with the original contract terms is $13,000, $36,000 and $35,000
in 1997, 1996 and 1995, respectively. SBSO had no loans accounted for on a
nonaccrued basis as of June 30, 1998.
At December 31, 1997, there were no concentrations of loans exceeding 10%
of total loans outstanding. Loan concentrations are considered to exist when
there are amounts loaned to a multiple number of borrowers engaged in similar
activities which would cause them to be similarly impacted by economic or other
related conditions.
SBSO's policy concerning nonaccrual loans states that, except for loans
which are considered to be fully collectible by virtue of collateral held as
well as other relevant factors, loans are placed on a nonaccrual status when
payments are 90 days delinquent or more.
CREDIT LOSSES
Loans, or portions thereof, are typically charged off when it is determined
that a loss has occurred. Until such time, an allowance for possible loan losses
is maintained for estimated losses. The allowance for possible loan losses is
established through a provision for loan losses charged to expense. When
management believes there is sufficient doubt as to the ultimate collectability
of interest on any loan, the accrual of applicable interest is discontinued.
The following table sets forth the allowance for possible loan losses for
the periods indicated and the historical relationships among the amount of loans
outstanding, the provision for possible loan losses, the amount of loans
charged-off and the amount of loan recoveries:
47
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
----------------------- -----------------------
1998 1997 1997 1996
------------ --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance for Possible Loan Losses:
Balance at beginning of period..................................... $ 801 $ 751 $ 751 561
-------- -------- -------- --------
Charge-offs:
Commercial.................................................... 22 -- 28 --
Installment................................................... 28 -- 155 2
Real estate (home equity)..................................... -- -- -- --
-------- -------- -------- --------
Total Charge offs.................................................. 50 -- 183 2
-------- -------- -------- --------
Recoveries of charged-off loans:
Commercial.................................................... -- -- -- --
Installment................................................... -- 1 1 --
Real Estate (home equity)..................................... -- -- -- --
-------- -------- -------- --------
Total Recoveries................................................... -- 1 1 --
-------- -------- -------- --------
Net Charge-offs.................................................... 50 (1) 182 2
Provisions for possible loan losses
(charged to expense)............................................ 96 96 232 192
-------- -------- -------- --------
Balance of allowance at end of period.............................. $ 847 $ 848 $ 801 751
======== ======== ======== ========
Ratio of net charge-offs to average loans outstanding (1).......... 0.20% 0.00% 0.42% 0.01%
Allowance for possible loan losses as a percentage
of total loans (net of unearned income)......................... 1.70% 2.01% 1.61% 1.76%
</TABLE>
- ----------
(1) Interim ratios have been annualized for purposes of comparability with
year-end data.
The ratio of the allowance for loan losses to loans outstanding reflects
management's evaluation of the underlying credit risk inherent in the loan
portfolio. The principal risk elements in SBSO's loan portfolio relate to the
economic strength of its borrowers and guarantors, and the value of real estate
and other collateral underlying SBSO's loans. The determination of the
appropriate level of the allowance for loan losses is based on management's
evaluation of the risk characteristics of the loan portfolio considering such
factors as the financial condition of the borrowers, fair market value of
collateral, past due and delinquency levels, size and nature of the loan
portfolio, general economic conditions, charge-off experience and the level of
non-performing loans. Management believes that the allowance for loan losses at
June 30, 1998 is adequate. While management uses available information to
recognize possible losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, as an integral
part of the examination process, the FDIC and the New Jersey Banking Department
periodically review SBSO's allowance for possible loan losses. Such regulators
may require SBSO to recognize additions to the allowance based upon their
judgment and information available to them at the time of examination.
SBSO regards the majority of the allowance as a general allowance which is
available to absorb losses from all loans. However, for the purpose of complying
with disclosure requirements of the Securities and Exchange Commission, the
table below presents an allocation of the allowance among various loan
categories and sets forth the percentage of loans in each category to total
loans. The allocation of the allowance as shown in the table should neither be
interpreted as an indication of future charge-offs, nor as an indication that
charge-offs in future periods will necessarily occur in these amounts or in the
indicated proportions.
48
<PAGE>
The following table sets forth the allocation of the allowance for possible
loan losses at the dates indicated by category of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
JUNE 30, 1998 1997 1998
----------------------------- ------------------------------ ----------------------------
% of Loans in % of Loans in % of Loans in
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
-------- ------------- -------- ------------- -------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial ...................... $ 483 35.1% $ 504 32.9% $ 523 30.6%
Installment ..................... 342 3.1 273 3.3 209 3.1
Real Estate ..................... 22 61.8 24 63.8 19 66.3
-------- ------ ----- ----- -------- -----
TOTAL LOANS ..................... $ 847 100.0% $ 801 100.0% $ 751 100.0%
======== ====== ===== ===== ======== ======
</TABLE>
INVESTMENT SECURITIES
Investment securities decreased by $3.7 million, or 31.4% from $11.8
million at December 31, 1997 to $8.1 million at June 30, 1998. Investment
securities increased from $11.1 million at December 31, 1996 to $11.8 million at
December 31, 1997. Investment securities contained net unrealized losses of
$159,000 at December 31, 1997, a decrease of $132,000 from the net unrealized
loss of $291,000 in the investment securities portfolio at December 31, 1996.
As required by applicable accounting standards, SBSO has classified its
investment securities into the "available for sale" and "held to maturity"
categories pursuant to Statement No. 115 of the Financial Accounting Standards
Board "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"). All of SBSO's investment securities are classified as
"available for sale."
The following tables present the estimated fair values and unrealized gains
and losses on investment securities at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------
Gross
Amortized Unrealized Estimated
Cost Gains/Losses Market Value
--------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
SECURITIES AVAILABLE
FOR SALE
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies.............. $ 8,185 $ (126) $ 8,059
--------- ----------- -----------
Total................. $ 8,185 $ (126) $ 8,059
========= =========== ===========
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996
------------------------------------------ ----------------------------------------
Gross Gross Estimated
Amortized Unrealized Estimated Amortized Unrealized Market
Cost Gains/Losses Market Value Cost Gains/Losses Value
--------- ------------ ------------ --------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE
FOR SALE
U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies.............. $ 11,914 $ (159) $ 11,755 $ 11,417 $ (291) $ 11,126
------------ ------------ ---------- --------- ------------ --------
Total................. $ 11,914 $ (159) $ 11,755 $ 11,417 $ (291) $ 11,126
============ ============ ========== ========= ============ =========
</TABLE>
<PAGE>
The following table sets forth the maturity distribution and weighted
average yields of SBSO's investment securities as of June 30, 1998. No tax
equivalent adjustments have been made in the following table.
<TABLE>
<CAPTION>
WITHIN 1-5 5-10 OVER 10
1 YEAR YEARS YEARS YEARS TOTAL
----------- ----------- ------------ ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. Treasury securities and obligations
of U.S. government corporations and agencies
Book value.............................. $ 1,998 $ 5,034 $ 591 $ 562 $ 8,185
Yield................................... 5.99% 5.17% 5.32% 6.34% 5.46%
</TABLE>
49
<PAGE>
DEPOSITS
Total deposits decreased $4.1 million, or 6.0%, from $67.8 million at
December 31, 1997 to $63.7 million at June 30, 1998. The following table
provides information concerning deposit categories that were in excess of 10% of
average total deposits, at the dates included.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------
JUNE 30, 1998 1997 1996
------------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Non-interest bearing demand deposits:
Average amount............................. $11,469 $10,131 $ 9,834
Interest bearing demand deposits:
Average amount............................. $ 4,766 $ 4,329 $ 4,470
Average rate paid.......................... 1.40% 1.43% 1.39%
Savings deposits:
Average amount............................. $15,858 $14,137 $15,012
Average rate paid.......................... 2.54% 2.61% 2.63%
Time deposits:
Average amount............................. $33,060 $33,152 $28,296
Average rate paid.......................... 5.48% 5.45% 5.63%
</TABLE>
At June 30, 1998, time deposits in amounts of $100,000 and over matured as
follows (in thousands):
Three months or less .................................. $ 4,155
Over three months through six months .................. 3,051
Over six months through twelve months ................. 109
Over twelve months .................................... --
----------
Total ............................................... $ 7,315
==========
INTEREST RATE SENSITIVITY
SBSO analyzes its interest sensitivity position to manage the risks
associated with interest rate movements through the use of "gap analysis."
Interest rate risk arises from mismatches in the repricing of assets and
liabilities within a given period. Gap analysis is an approach used to quantify
these differences. A "positive" gap results when the amount of
interest-sensitive assets exceeds the amount of interest-sensitive liabilities
within a given period. A "negative" gap results when interest-sensitive
liabilities exceed interest-sensitive assets within a given period.
50
<PAGE>
The following table illustrates SBSO's interest rate gap position as of
June 30, 1998.
<TABLE>
<CAPTION>
Assets and Liabilities Maturing Repricing in:
--------------------------------------------------------------------
3 months 1 year More than
3 months through to than
or less 1 year 5 years 5 years Total
------------ ---------- ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities available for sale.................... $ 2,602 $ 4,577 $ 880 $ -- $ 8,059
Federal funds sold.......................................... 6,775 -- -- -- 6,775
Loans....................................................... 25,126 2,706 18,370 3,565 49,767
------------ --------- ---------- --------- ------------
Total................................................. $ 34,503 $ 7,283 $ 19,250 $ 3,565 $ 64,601
============ ========= ========== ========= ============
INTEREST-BEARING LIABILITIES:
Demand deposits............................................. $ 4,460 $ -- $ -- $ -- $ 4,460
Savings deposits............................................ 16,515 283 -- -- 16,798
Time deposits............................................... 8,059 16,833 3,826 -- 28,718
------------ --------- ---------- --------- ------------
Total................................................. $ 29,034 $ 17,116 $ 3,826 $ -- $ 49,976
============ ========= ========== ========= ============
Period gap.................................................. $ 5,469 $ (9,833) $ 15,424 $ 3,565 $ 14,625
============ ========= ========== ========= ============
Cumulative gap.............................................. $ 5,469 $ (4,364) $ 11,060 $ 14,625 $ 14,625
============ ========= ========== ========= ============
</TABLE>
51
<PAGE>
For many reasons, an interest sensitivity table is not a complete picture
of the possible effect of interest rate changes on SBSO's net interest income.
First, changes in the general level of interest rates will not affect all
categories of assets and liabilities equally or simultaneously. Second, the
table represents a one-day position; variations occur daily as SBSO adjusts its
interest sensitivity throughout the year. Third, assumptions must be made to
construct such a table. For example, there are several savings products
categorized as interest sensitive in the 30 day interval; however, they may be
adjusted less frequently than changes in the leading rate indicators. Fourth,
the re-pricing distribution of interest-sensitive assets may not be indicative
of the liquidity of those assets. Finally, since this table is based on
contractual maturities, it does not include estimates of early principal
payments on mortgage and installment loans.
In general, the net interest income of a financial institution will be
benefited if the institution has a negative gap during periods of declining
interest rates and a positive gap during periods of increasing interest rates.
Likewise, net interest income generally will be adversely affected if a
financial institution has a positive gap during periods of declining interest
rates or a negative gap during periods of increasing interest rates.
As of June 30, 1998, SBSO had a cumulative positive three months or less
gap of $5.5 million. Management of SBSO does not view this amount as
representing an unusually high risk potential, although no assurances can be
given that SBSO is not at risk from rate increases or decreases.
LIQUIDITY AND CAPITAL
Cash and cash equivalents are SBSO's most liquid assets. At June 30, 1998,
cash and cash equivalents totaled $10.5 million.
SBSO is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a material effect on SBSO's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, SBSO must meet specific capital guidelines that
involve quantitative measures of SBSO's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
SBSO's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require SBSO to maintain minimum amounts and ratios of total and Tier 1 capital
to risk weighted assets. Management believes that, as of June 30, 1998, SBSO met
all capital adequacy requirements to which it is subject.
As of June 30, 1998, SBSO met all regulatory requirements for
classification as a well capitalized institution. To be categorized as well
capitalized, banks must maintain minimum total risk based capital, Tier 1 risk
based capital, and Tier 1 leverage ratios. There are no conditions or events
which have occurred that management believes have changed the institution's
category. See "Selected Financial Data of SBSO," "Supervision and Regulation of
SBSO-Capital Requirements" and Note 13 to SBSO's Financial Statements.
YEAR 2000 COMPLIANCE
SBSO's operations are dependent on computers and computer systems, whether
internally maintained or outsourced under contract. SBSO has taken steps to
ensure that such systems will properly recognize information when the year
changes to 2000. Systems that do not properly recognize the correct year could
generate erroneous data or cause a system to fail. SBSO has also taken steps to
ensure that it is in compliance with federal bank regulatory directives in this
area. There can be no assurance, however, that SBSO will be able to effectively
implement program changes to all of its systems to ensure such compliance.
EFFECT OF INFLATION AND CHANGING PRICES
The SBSO financial statements and notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars
52
<PAGE>
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of SBSO's operations. Unlike industrial companies, nearly all of the assets
and liabilities of SBSO are monetary in nature. As a result, interest rates have
a greater impact on SBSO's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
BUSINESS OF SBSO
GENERAL
SBSO is a New Jersey chartered bank incorporated in 1987. At June 30, 1998,
SBSO had assets, deposits and stockholders' equity of $70.2 million, $63.7
million and $6.1 million, respectively.
SBSO is a full-service commercial bank located in South Orange, New Jersey.
It offers banking services for individuals and businesses generally provided by
community commercial banks of similar asset size. Such services include demand
deposits, savings and money market accounts, safe deposit boxes, secured and
unsecured personal and commercial loans and residential and commercial real
estate loans. An automated teller machine is located at SBSO's office.
SBSO's primary customers are small to medium-sized businesses and
professional practices and individuals. Deposits of SBSO are insured up to
applicable limits by the Bank Insurance Fund administered by the FDIC.
SBSO's principal executive offices are located at Valley and Third Street,
South Orange, New Jersey 07079, and its telephone number is (973) 762-2000.
COMPETITION
Competition in the banking and financial services industry in SBSO's market
area is intense. SBSO competes actively with national and state chartered banks
and other financial institutions including savings and loans associations,
savings banks and credit unions, most of which have assets, capital and lending
limits greater than SBSO and which offer a greater range of services than SBSO.
In addition, SBSO faces competition from less heavily regulated entities such as
brokerage institutions, money management firms, consumer finance, credit card
and insurance companies and various other types of financial service companies.
EMPLOYEES
SBSO had 18 full-time employees as of June 30, 1998. Management considers
relations with employees to be satisfactory.
PROPERTIES
SBSO owns its office at Valley & Third Streets, South Orange, New Jersey.
LEGAL PROCEEDINGS
SBSO is involved in legal proceedings from time to time, ordinarily in
connection with loan collection matters. Management of SBSO does not believe
that any pending legal proceedings will have a material adverse effect upon
SBSO's results of operations or financial condition.
53
<PAGE>
SUPERVISION AND REGULATION OF SBSO
SBSO
The operations of SBSO 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 SBSO's depositors and not for its
stockholders. In addition to these regular examinations, SBSO must furnish to
the Commissioner quarterly reports containing detailed statements 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 SBSO are also subject to the regulation of the FDIC,
which insures the deposits of SBSO 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 SBSO to pay dividends is subject to certain statutory and
regulatory restrictions. Under New Jersey banking law, SBSO 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.
INSURANCE OF DEPOSITS
SBSO's deposits are insured up to applicable limits by the FDIC.
Accordingly, SBSO is subject to deposit insurance assessments to maintain the
Bank Insurance Fund.
CAPITAL REQUIREMENTS
SBSO had stockholders' equity of $6.1 million at June 30, 1998, compared
with $5.7 million at December 31, 1997.
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 types of perpetual preferred stock, and a supplementary component
called Tier II, 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 I 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 I capital.
SBSO's ratios of Tier I and total capital to risk-weighted assets were 11.12%
and 12.37%, respectively, at June 30, 1998.
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 I
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 I capital equal to at least 3% of total assets. All other
banks are expected to maintain a minimum
54
<PAGE>
leverage capital ratio (i.e., Tier I 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. SBSO's leverage ratio was 8.68% at June 30, 1998. Federal banking
agencies are required to take "prompt corrective action" with respect to banks
that do not meet minimum capital requirements.
LEGISLATION AND REGULATORY ACTION
Proposals to change the laws and regulations governing the banking industry
are raised frequently in Congress and before the various bank regulatory
agencies. The likelihood and timing of any changes and the impact of such
changes upon SBSO are uncertain.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF SBSO
On the Record Date, there were 639,575 shares of SBSO Common Stock issued
and outstanding and no shares held in the treasury. Only stockholders of record
as of the Record Date shall be entitled to vote at the Meeting and each share is
entitled to one vote. As of the Record Date, SBSO's Board of Directors and
affiliated entities owned or controlled approximately 44.7% of the outstanding
shares of SBSO Common Stock. In connection with the execution of the Merger
Agreement, the directors of SBSO agreed to vote in favor of the Merger
Agreement. As of the Record Date, executive officers of SBSO who are not also
directors beneficially owned in the aggregate less than 1% of the issued and
outstanding shares of SBSO Common Stock.
The following table sets forth information with respect to the beneficial
ownership of SBSO Common Stock as of the Record Date, 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 current director of SBSO, and (ii)
all executive officers and directors of SBSO as a group. Except as otherwise
indicated, no person is known to SBSO to own beneficially more than 5% of the
outstanding SBSO Common Stock and each of the persons named below has sole
voting and investment power with respect to the SBSO Common Stock owned by them.
<TABLE>
<CAPTION>
OWNERSHIP OF PERCENT SHARES OF UNITED PERCENT OF UNITED
SBSO OF COMMON STOCK TO BE COMMON STOCK TO BE
NAME AND TITLE COMMON STOCK CLASS RECEIVED HELD POST MERGER
-------------- ------------ ------- ------------------ -----------------
<S> <C> <C> <C> <C>
Milton J. Wigder, Chairman ................. 2,500 * 3,112 *
Anthony J. Bartolotta, Director ............ 17,500 2.7% 21,787 *
James J. Young, President and Director ..... 5,200 * 6,474 *
Stuart M. Gladstone, Director .............. 1,800 * 2,241 *
Greg Manning, Director ..................... 26,000 4.1% 32,370 *
Salvatore C. Natoli, Director .............. 60,855 9.5% 75,764 *
Robert P. Wigder, Director(1) .............. 172,100 26.9% 214,264 2.1%
All executive officers and
directors of SBSO
(8 persons) .............................. 285,955 44.7% 356,012 3.5%
</TABLE>
- ----------
* Less than 1%.
(1) Mr. Wigder shares investment power and voting power with respect to 2,000 of
such shares.
55
<PAGE>
CERTAIN TRANSACTIONS OF SBSO
SBSO has had banking transactions in the ordinary course of its business
with directors, officers, principal stockholders 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 June 30, 1998,
SBSO's directors and executive officers were indebted to SBSO in the aggregate
amount of $2,009,000. None of these loans were delinquent. This indebtedness is
secured by mortgages and/or security interests in real or personal property
owned by these persons.
DESCRIPTION OF UNITED CAPITAL STOCK
The authorized capital stock of United consists of 16,000,000 shares of
United Common Stock and 1,000,000 shares of preferred stock ("PREFERRED STOCK").
As of June 30, 1998, there were 9,375,345 shares of United Common Stock issued
and outstanding, including 94,303 treasury shares, and there were no shares of
Preferred Stock outstanding.
COMMON STOCK
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 SBSO" 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 1998 without prior approval of the OCC of up to $15 million plus an
amount equal to UNB's net profits for 1998 to the date of such dividend
declaration.
United is also subject to 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
56
<PAGE>
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.
Minimum Price Provision
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.
PREFERRED STOCK
The United Board of Directors may issue from time to time shares of one or
more classes or series of preferred stock. Subject to the provisions of United's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series or class, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of preferred stock without any further action or vote by the
shareholders.
One of the effects of this undesignated preferred stock may be to enable
the Board of Directors to render more difficult or to discourage an attempt to
obtain control of United by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of United's management. The
issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
United Common Stock. For example, preferred stock issued by United may rank
prior to the United Common Stock as to dividend rights, liquidation preference
or both, may have full or limited voting rights and may be convertible into
shares of United Common Stock.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF UNITED AND SBSO
SBSO 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 SBSO stockholders are currently governed by New Jersey
banking law. At the Effective Time, each SBSO stockholder 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
57
<PAGE>
SBSO 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. SBSO's Certificate of Incorporation does not require a greater vote
than the vote 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. United's Certificate of Incorporation does not presently contain
any 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 preferences 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, limitations 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 stockholder voting rights of SBSO are vested in the holders of SBSO
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 SBSO
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. A vacancy on the
United Board of Directors may be filled by the affirmative vote of two-thirds of
the directors remaining in office. All appointees will assume the class in which
the vacancy occurs.
RIGHTS OF DISSENTING STOCKHOLDERS
Generally, stockholders of a New Jersey state chartered bank who dissent
from a conversion, merger or consolidation of the bank are entitled to appraisal
rights. The stockholders of SBSO have statutory rights of appraisal with respect
to the Merger. See "Rights Of Dissenting SBSO Stockholders."
58
<PAGE>
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 stockholders may be taken without a meeting if the stockholders
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. 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 and SBSO's Certificate of Incorporation, SBSO's Board
of Directors has the power to adopt, amend, or repeal the by-laws of SBSO,
subject to alteration or repeal by the stockholders at any meeting.
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, stockholders of SBSO do not have preemptive rights
with respect to authorized but unissued shares.
59
<PAGE>
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 SBSO through the
purchase of SBSO shares must receive the approval of the FDIC under the federal
Change in Bank Control Act.
MINIMUM PRICE PROVISION
SBSO does not have any protection similar to United's "minimum price"
provision discussed above. See "Description of United Capital Stock -- Common
Stock -- Minimum Price Provision."
CONSIDERATION OF ACQUISITION PROPOSALS
The NJBCA provides that in determining whether a proposal or offer to
acquire a corporation is in the best interest of the corporation, the board may,
in addition to considering the effects of any action on shareholders, consider
any of the following: (a) the effects of the proposed action on the
corporation's employees, suppliers, creditors and customers; (b) the effects on
the community in which the corporation operates and (c) the long-term as well as
short-term interests of the corporation and its shareholders, including the
possibility that those interests may best be served by the continued
independence of the corporation. The statute further provides that if, based on
those factors, the board determines that any such offer is not in the best
interest of the corporation, it may reject the offer. These provisions may make
it more difficult for a shareholder to challenge the United Board's rejection
of, and may facilitate the Board's rejection of, an offer to acquire United. The
Banking Act has no similar provision regarding acquisition transactions.
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 "Description of United
Capital Stock--Preferred 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 SBSO as of December 31, 1997 and
1996 and for each of the years in the three year period ended December 31, 1997
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
60
<PAGE>
The consolidated financial statements of United as of December 31, 1997 and
1996 and for the years then ended have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of United for the year 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.
61
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF SBSO
<S> <C>
Report of Independent Public Accountants................................................................. F - 1
Statements of Condition -- June 30, 1998, December 31, 1997 and 1996..................................... F - 2
Statements of Income for the six months ended June 30, 1998 and 1997 and the
years ended December 31, 1997, 1996 and 1995.................................................. F - 3
Statements of Changes in Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995 and the six months ended June 30, 1998.......................................... F - 4
Statements of Cash Flows for the six months ended June 30, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995.............................................................. F - 5
Notes to financial statements ........................................................................... F - 6
</TABLE>
62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
State Bank of South Orange:
We have audited the accompanying statements of condition of State Bank of South
Orange (a New Jersey chartered bank) as of December 31, 1997 and 1996, and the
related statements of income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of State Bank of South Orange as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSON LLP
Roseland, New Jersey
January 27, 1998 (except with respect
to the matter discussed in Note 15, as to
which the date is June 25, 1998)
F-1
<PAGE>
STATE BANK OF SOUTH ORANGE
STATEMENTS OF CONDITION -- JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
June 30, December 31
--------------------------
ASSETS 1998 1997 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS -- NONINTEREST BEARING $3,693,000 $4,236,000 $4,223,000
FEDERAL FUNDS SOLD (Note 1) 6,775,000 5,825,000 11,485,000
------------ ------------ ------------
Cash and cash equivalents 10,468,000 10,061,000 15,708,000
------------ ------------ ------------
TERM CERTIFICATE OF DEPOSIT - - 500,000
------------ ------------ ------------
SECURITIES (Notes 1 and 2) -- Available for sale,
at market value 8,059,000 11,755,000 11,126,000
------------ ---------- ------------
LOANS, net (Notes 1, 3, 4 and 5) 49,695,000 49,846,000 42,683,000
Less-
Allowance for possible loan losses (847,000) (801,000) (751,000)
------------ ------------ ------------
Net loans 48,848,000 49,045,000 41,932,000
------------ ----------- ------------
PREMISES AND EQUIPMENT, net (Notes 1 and 6) 1,951,000 1,998,000 2,053,000
------------ ------------ ------------
ACCRUED INTEREST RECEIVABLE 626,000 668,000 551,000
------------ ------------ ------------
OTHER ASSETS (Note 1) 284,000 320,000 333,000
------------ ------------ ------------
Total assets $70,236,000 $73,847,000 $72,203,000
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 1996
------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES:
Deposits-
Demand-
Noninterest bearing $13,771,000 $12,591,000 $11,184,000
Interest bearing 4,460,000 7,126,000 4,185,000
Savings 16,798,000 14,255,000 15,349,000
Time (Note 9) 28,718,000 33,865,000 35,912,000
------------ ------------ ------------
Total deposits 63,747,000 67,837,000 66,630,000
Accrued interest payable 208,000 217,000 416,000
Accrued expenses and other liabilities 179,000 116,000 226,000
------------ ------------ ------------
Total liabilities 64,134,000 68,170,000 67,272,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 1, 10 and 13):
Common stock, par value $5 per share;
800,000 shares authorized; 639,575
shares issued and outstanding 3,198,000 3,198,000 3,198,000
Additional paid-in capital 1,802,000 1,802,000 1,802,000
Retained earnings 1,185,000 781,000 122,000
Accumulated Other Comprehensive Loss
net of income taxes (83,000) (104,000) (191,000)
------------ ------------ ------------
Total stockholders' equity 6,102,000 5,677,000 4,931,000
------------ ------------ ------------
Total liabilities and stockholders' equity $70,236,000 $73,847,000 $72,203,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-2
<PAGE>
STATE BANK OF SOUTH ORANGE
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND 1997 AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
June 30 December 31
------------------------ -------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME (Note 1):
Interest on loans $2,332,000 $1,972,000 $4,131,000 $3,703,000 $3,356,000
Interest on securities
and interest bearing
deposits with banks 261,000 341,000 670,000 317,000 631,000
Interest on Federal
funds sold 197,000 231,000 381,000 671,000 440,000
----------- ----------- ----------- ----------- ----------
Total interest income 2,790,000 2,544,000 5,182,000 4,691,000 4,427,000
INTEREST EXPENSE 1,135,000 1,148,000 2,241,000 2,051,000 2,012,000
----------- ----------- ----------- ----------- ----------
Net interest income 1,655,000 1,396,000 2,941,000 2,640,000 2,415,000
PROVISION FOR POSSIBLE
LOAN LOSSES
(Notes 1 and 3) 96,000 96,000 232,000 192,000 227,000
----------- ----------- ----------- ----------- ----------
Net interest income
after provision for
possible loan losses 1,559,000 1,300,000 2,709,000 2,448,000 2,188,000
OTHER INCOME:
Service charges,
commissions and fees 271,000 305,000 589,000 536,000 494,000
Other income 5,000 - - 4,000 11,000
----------- ----------- ----------- ----------- ----------
Total other income 276,000 305,000 589,000 540,000 505,000
----------- ----------- ----------- ----------- ----------
OTHER EXPENSES:
Salaries and employee
benefits 624,000 562,000 1,142,000 1,014,000 970,000
Net occupancy expense 72,000 72,000 141,000 135,000 132,000
Other operating expenses 470,000 426,000 885,000 800,000 840,000
----------- ----------- ----------- ----------- ----------
Total other expenses 1,166,000 1,060,000 2,168,000 1,949,000 1,942,000
----------- ----------- ----------- ----------- ----------
Income before income
taxes 669,000 545,000 1,130,000 1,039,000 751,000
PROVISION FOR INCOME TAXES
(Notes 1 and 7) 265,000 258,000 471,000 251,000 -
----------- ----------- ----------- ----------- ----------
Net income $404,000 $287,000 $659,000 $788,000 $751,000
=========== =========== =========== =========== ==========
BASIC AND DILUTED INCOME
PER SHARE (Note 1) $.63 $.45 $1.03 $1.23 $1.17
=========== =========== =========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 639,575 639,575 639,575 639,575 639,575
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-3
<PAGE>
STATE BANK OF SOUTH ORANGE
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other
Common Stock Additional Retained Comprehensive Total
---------------------- Paid-in Earnings Income Comprehensive Stockholders'
Shares Value Capital (Deficit) (Loss) Income Equity
--------- ----------- ------------ ------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 639,575 $3,198,000 $1,802,000 ($1,417,000) ($123,000) $ - $3,460,000
Net income - 1995 - - - 751,000 - 751,000 751,000
Unrealized loss on
securities available for
sale, net of reclassification
adjustment (Note 8) - - - - (4,000) (4,000) (4,000)
--------- ----------- ------------ ----------- ---------- ---------- -----------
Comprehensive income - - - - - $ 747,000 -
=========
BALANCE, December 31, 1995 639,575 3,198,000 1,802,000 (666,000) (127,000) $ - 4,207,000
Net income - 1996 - - - 788,000 - 788,000 788,000
Unrealized loss on securities
available for sale, net of
reclassification adjustment
(Note 8) - - - - (64,000) (64,000) (64,000)
--------- ----------- ------------ ----------- ----------- ---------- -----------
Comprehensive income - - - - - $ 724,000 -
=========
BALANCE, December 31, 1996 639,575 3,198,000 1,802,000 122,000 (191,000) $ - 4,931,000
Net income - 1997 - - - 659,000 - 659,000 659,000
Unrealized gain on securities
available for sale, net of
reclassification adjustment
(Note 8) - - - - 87,000 87,000 87,000
--------- ----------- ------------ ----------- ----------- --------- -----------
Comprehensive income - - - - - $ 746,000 -
=========
BALANCE, December 31,1997 639,575 3,198,000 1,802,000 781,000 (104,000) $ - 5,677,000
Net income - for six months
ended June 30, 1998 (unaudited) - - - 404,000 - 404,000 404,000
Unrealized gain on securities
available for sale, net of
reclassification adjustment
(Note 8) (unaudited) - - - - 21,000 21,000 21,000
--------- ----------- ------------ ----------- ----------- --------- -----------
Comprehensive income
(unaudited) - - - - - $ 425,000 -
--------- ----------- ------------ ----------- ----------- ========= -----------
BALANCE, June 30, 1998
(unaudited) 639,575 $3,198,000 $1,802,000 $1,185,000 ($83,000) $6,102,000
========= =========== ============ =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-4
<PAGE>
STATE BANK OF SOUTH ORANGE
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
June 30 December 31
------------------------- --------------------------------------
1998 1997 1997 1996 1995
------------ ----------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $404,000 $287,000 $659,000 $788,000 $751,000
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for possible loan losses 96,000 96,000 232,000 192,000 227,000
Depreciation and amortization 72,000 65,000 133,000 122,000 113,000
Gain on sale of securities available for sale (5,000) - - - -
(Increase) decrease in accrued interest receivable 42,000 (167,000) (117,000) 64,000 (200,000)
Net amortization/accretion on investments (4,000) (54,000) (58,000) 4,000 5,000
Provision (benefit) for deferred income taxes (38,000) (18,000) 23,000 (162,000) -
(Increase) decrease in other assets 63,000 48,000 (197,000) 142,000 (11,000)
Increase (decrease) in accrued interest payable (9,000) (234,000) (199,000) (291,000) 482,000
Increase (decrease) in accrued expenses and other liabilities 63,000 (31,000) (110,000) 73,000 69,000
------------ ----------- ------------ ------------ -----------
Net cash provided by (used in) operating activities 684,000 (8,000) 366,000 932,000 1,436,000
------------ ----------- ------------ ------------ -----------
INVESTING ACTIVITIES:
(Purchase) maturity of term certificate of deposit - - 500,000 (500,000) -
Sales of securities available for sale 1,245,000 - - - -
Purchases of securities available for sale (1,018,000) (4,987,000) (7,344,000) (5,838,000) (269,000)
Proceeds from maturities and principal repayments
of securities available for sale 3,513,000 3,902,000 6,905,000 - 5,604,000
Purchases of securities held to maturity - - - - (3,001,000)
Maturities of securities held to maturity - - - 1,751,000 1,750,000
Net (increase) decrease in loans 101,000 441,000 (7,345,000) (4,426,000) (7,214,000)
Capital expenditures (28,000) (33,000) (78,000) (127,000) (27,000)
Decrease in other real estate - 142,000 142,000 13,000 20,000
------------ ----------- ------------ ------------ -----------
Net cash used in investing activities 3,813,000 (535,000) (7,220,000) (9,127,000) (3,137,000)
------------ ----------- ------------ ------------ -----------
FINANCING ACTIVITIES -- Net (decrease) increase in deposits (4,090,000) (6,190,000) 1,207,000 7,996,000 9,010,000
------------ ----------- ------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 407,000 (6,733,000) (5,647,000) (199,000) 7,309,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,061,000 15,708,000 15,708,000 15,907,000 8,598,000
------------ ----------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,468,000 $ 8,975,000 $10,061,000 $15,708,000 $15,907,000
============ =========== ============ ============ ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $1,144,000 $1,382,000 $2,440,000 $2,342,000 $1,530,000
Income taxes paid 210,000 478,000 831,000 7,000 -
============ =========== ============ ============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-5
<PAGE>
STATE BANK OF SOUTH ORANGE
NOTES TO FINANCIAL STATEMENTS
(data with regard to June 30, 1998 and 1997 and
for the six months then ended is unaudited)
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Description of Bank-
The State Bank of South Orange (the "Bank") is a New Jersey state
chartered commercial bank based in South Orange, New Jersey. The Bank
provides community banking services to a broad range of individual and
corporate customers in the greater South Orange area. The accounting and
reporting policies of the Bank conform to generally accepted accounting
principles and to general practice within the banking industry. The
following is a description of the more significant of those policies.
Use of Estimates in the
Preparation of Financial Statements-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Securities-
As required by applicable accounting standards, the Bank classifies its
securities as: (1) held to maturity, (2) available for sale and (3)
trading.
Securities for which the Bank has the ability and intent to hold until
maturity are classified as held to maturity. These securities are carried
at cost, adjusted for amortization of premiums and accretion of discounts
on a straight-line basis, which is not materially different from the
interest method.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability strategy, or that may be
sold in response to changes in interest rates, changes in prepayment risk,
increased capital requirements or other similar factors, are classified as
available for sale and are carried at their estimated fair value.
Differences between an available for sale security's amortized cost and
fair value is credited/charged directly to stockholders' equity, net of
income taxes.
The cost of securities sold is determined on a specific identification
basis. Gains and losses on sales of securities are recognized in the
statement of income on the date of sale.
F-6
<PAGE>
The Bank has no securities classified as held to maturity or trading as of
June 30, 1998, December 31, 1997 or 1996.
Allowance for Possible Loan Losses-
The Bank maintains the allowance for possible loan losses at a level
considered adequate to provide for potential loan losses. The allowance is
increased by provisions charged to expense and reduced by net charge-offs.
The level of the allowance is based on management's evaluation of
potential losses in the loan portfolio, including consideration of
appraised values of collateral, financial position of borrowers and
prevailing and anticipated economic conditions. Credit reviews of the loan
portfolio, designed to identify potential charges to the allowance, are
made on a periodic basis during the year by senior management.
Premises and Equipment-
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization is computed primarily on
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to operations as incurred.
Loans-
Interest on loans is credited to operations primarily based upon the
principal amount outstanding. When management believes there is sufficient
doubt as to the ultimate collectibility of interest on any loan, the
accrual of applicable interest is discontinued. Net loan origination fees
are deferred and amortized over the life of the related loan as a
component of interest income.
The Bank evaluates its loan portfolio to identify loans which are
impaired. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
Accounting standards require that the impairment of a loan be based on the
present value of expected future cash flows, net of estimated costs to
sell, discounted at the loan's effective interest rate. Impairment can
also be measured based on a loan's observable market price or the fair
value of collateral, if the loan is collateral dependent. If the measure
of the impaired loan is less than the recorded investment in the loan, the
Bank establishes a valuation allowance, or adjusts existing valuation
allowances, with a corresponding charge or credit to the provision for
possible loan losses.
Other Real Estate-
Other real estate includes loan collateral that has been formally
repossessed. All amounts have been transferred into and carried in other
real estate at the lower of the loan value or fair market value less
estimated costs to sell. Subsequent reductions to the fair value of the
collateral are charged to current operations. Costs of holding such
properties, such as maintenance and taxes, are charged to operations in
the current period. As of December 31, 1996 the Bank had $142,000 of other
real estate included in other assets. The Bank had no other real estate at
June 30, 1998 and December 31, 1997.
F-7
<PAGE>
Income Taxes-
The Bank provides for the recognition of deferred tax assets, net of an
applicable valuation allowance, related to net operating loss
carryforwards and certain temporary differences.
Temporary differences arise as a result of accounting for certain income
and expense items (primarily relating to the provision for possible loan
losses) in different time periods for financial statement purposes than
for income tax return purposes.
Cash and Cash Equivalents-
Cash and cash equivalents includes cash on hand, noninterest bearing
amounts due from banks and Federal funds sold. Generally, Federal funds
are sold for a one-day period.
Income Per Share-
Income per share is computed based on net income divided by the weighted
average number of shares outstanding. The Bank adopted Statement of
Financial Accounting Standards No 128, "Earnings Per Share" (SFAS 128)
during 1997. There was no effect on net income per share for any of the
periods presented as the weighted average shares outstanding were not
impacted by the adoption of SFAS 128. Basic and diluted income per share
are the same for all periods presented.
New Financial Accounting Standards-
The Financial Accounting Standards Board ("FASB") issued Statement No.
130, "Reporting Comprehensive Income," in June 1997. This statement is
effective for years beginning after December 15, 1997. Statement No. 130
requires entities that present a complete set of financial statements to
include the components of comprehensive income. Comprehensive income
consists of certain revenues, expenses, gains and losses that previously
were not reported on the statement of income, but rather as a component of
stockholders' equity. The Bank adopted Statement No. 130 effective January
1, 1998. All prior periods have been restated.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The statement becomes effective for fiscal
years beginning after December 15, 1997; earlier application is permitted.
The Bank adopted Statement No. 131 effective January 1, 1998 and has
determined that it does not have any reportable segments.
F-8
<PAGE>
(2) SECURITIES:
An analysis of the amortized cost and estimated market values of the Bank's
securities available for sale portfolio is as follows-
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
June 30, 1998
(unaudited)
- -----------------------------
U. S. Treasury Securities $2,996,000 $ 8,000 $ - $ 3,004,000
Obligations of U. S.
Government agencies 5,189,000 6,000 (140,000) 5,055,000
----------- --------- ---------- ------------
$8,185,000 $14,000 ($140,000) $ 8,059,000
=========== ========= ========== ============
December 31, 1997
- -----------------------------
U. S. Treasury Securities $3,990,000 $13,000 $ - $ 4,003,000
Obligations of U.S.
Government agencies 7,924,000 7,000 (179,000) 7,752,000
----------- --------- ---------- ------------
$11,914,000 $20,000 ($179,000) $11,755,000
=========== ========= ========== ============
December 31, 1996
- -----------------------------
U. S. Treasury Securities $4,842,000 $ 2,000 ($8,000) $ 4,836,000
Obligations of U. S.
Government agencies 6,575,000 1,000 (286,000) 6,290,000
----------- --------- ---------- ------------
$11,417,000 $ 3,000 ($294,000) $11,126,000
=========== ========= ========== ============
</TABLE>
Securities available for sale as of June 30, 1998, December 31, 1997 and
1996 have been recorded at their fair value with the net unrealized losses
of $83,000, $104,000 and $191,000 (net of income tax effect of $43,000,
$55,000 and $100,000, respectively) reflected as a decrease to
stockholders' equity.
The amortized cost and estimated market value of securities available for
sale at June 30, 1998, December 31, 1997, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
June 30, 1998 (unaudited)-
--------------------------
Due after one year through five years $7,032,000 $6,929,000
Due after five years through ten years 591,000 564,000
Due after ten years 562,000 566,000
------------ ------------
$8,185,000 $8,059,000
============ ============
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
December 31, 1997-
Due after one year through five years $9,595,000 $9,534,000
Due after five years through ten years 1,515,000 1,425,000
Due after ten years 804,000 796,000
------------ ------------
$11,914,000 $11,755,000
============ ============
</TABLE>
As of June 30, 1998 and December 31, 1997, securities having a book value
of $8,185,000 and $11,914,000, respectively, were pledged to secure public
deposits and for purposes as required by law.
(3) ALLOWANCE FOR
POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is based on estimates and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known.
An analysis of the allowance for possible loan losses for the years ended
December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 and
1997 is as follows-
<TABLE>
<CAPTION>
June 30
--------------------
1998 1997 December 31
--------- -------- --------------------------------
(unaudited) 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of $801,000 $751,000 $751,000 $561,000 $379,000
year
Provision charged to 96,000 96,000 232,000 192,000 227,000
expense
Loans charged-off (50,000) - (183,000) (2,000) (54,000)
Recoveries from loans
previously charged-off - 1,000 1,000 - 9,000
--------- --------- --------- --------- ---------
Balance, end of year $847,000 $848,000 $801,000 $751,000 $561,000
========= ========= ========= ========= =========
</TABLE>
Loans accounted for on a nonaccrual basis amounted to $123,000 and
$356,000 as of December 31, 1997 and 1996, respectively. Interest income
that would have been recorded in the financial statements had nonaccrual
loans been performing in accordance with the original contract terms is
$13,000, $36,000 and $35,000 in 1997, 1996 and 1995, respectively. The
Bank had no loans accounted for on a nonaccrued basis as of June 30, 1998.
As of December 31, 1997, the Bank's recorded investment in impaired loans
and the related valuation allowance was $123,000. This valuation allowance
is included in the allowance for possible loan losses reflected above. As
of June 30, 1998 the Bank had no impaired loans.
F-10
<PAGE>
(4) LOANS:
Loans outstanding by classification at June 30, 1998, December 31, 1997
and 1996 are as follows-
<TABLE>
<CAPTION>
June 30,
1998 December 31
-------------------------
(unaudited) 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Loans secured by real estate-
Construction and land development $4,186,000 $3,466,000 $3,195,000
Residential properties 16,166,000 16,880,000 13,306,000
Residential farmland (guaranteed by
the Farmers Home Administration) 2,214,000 2,359,000 2,511,000
Nonresidential properties 8,176,000 9,118,000 9,327,000
Commercial and industrial loans 6,046,000 4,938,000 3,836,000
Lease financing loans 11,439,000 11,504,000 9,248,000
Loans to individuals 1,540,000 1,660,000 1,323,000
------------ ------------ -----------
49,767,000 49,925,000 42,746,000
Less- Unearned income (72,000) (79,000) (63,000)
------------ ------------ -----------
Loans, net $49,695,000 $49,846,000 $42,683,000
============ ============ ===========
</TABLE>
(5) LOANS TO RELATED PARTIES:
Activity related to loans to directors, executive officers and their affiliated
interests during 1997 and for the six months ended June 30, 1998 (unaudited) is
as follows-
Balance, January 1, 1997 $2,151,000
Loans granted 211,000
Repayments of loans (50,000)
-----------
Balance, December 31, 1997 2,312,000
------------
Loans granted 61,000
Repayment of loans (364,000)
------------
Balance, June 30, 1998 (unaudited) $2,009,000
============
All such loans are current as to principal and interest payments as of
December 31, 1997.
F-11
<PAGE>
(6) PREMISES AND EQUIPMENT:
Premises and equipment consists of the following as of June 30, 1998
and December 31, 1997 and 1996-
<TABLE>
<CAPTION>
June 30,
1998 December 31
-------------------------
(unaudited) 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Land $824,000 $824,000 $824,000
Building 1,226,000 1,220,000 1,215,000
Furniture and equipment 330,000 745,000 671,000
------------ ------------ -----------
2,380,000 2,789,000 2,710,000
Less- Accumulated depreciation and
amortization 429,000 791,000 657,000
------------ ------------ -----------
$1,951,000 $1,998,000 $2,053,000
============ ============ ===========
</TABLE>
(7) INCOME TAXES:
The Bank accounts for taxes following the liability method. Where
differences exist between the timing of recognition of revenues and
expenses for tax and financial reporting purposes the Bank must make an
assessment, based on existing tax regulations, of tax payments that it will
be required to make upon future tax return reporting of revenues and
expenses currently reflected for financial reporting purposes. To the
extent that these estimated tax payments differ from the tax provision
computed by applying the prevailing statutory rate by the reported net
earnings, the Bank will adjust the provision so computed. Differences
between the tax provision computed as described above, and the taxes
currently payable are recorded as deferred taxes payable or as deferred tax
assets.
The components of the deferred tax asset (liability) reflected in other
assets as of December 31, 1997 and 1996 are as follows-
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Allowance for possible loan losses $154,000 $136,000
Depreciation (49,000) (52,000)
Unrealized loss on securities available for sale 55,000 100,000
Other 45,000 44,000
--------- ----------
$205,000 $228,000
========= ==========
</TABLE>
Where a deferred tax asset is computed, a valuation allowance is recorded
if it is determined more likely than not that the related tax benefit will
not be realized. In 1994, the Bank recorded a valuation allowance fully
offsetting its recorded deferred tax asset. This valuation allowance was
decreased by $256,000 in 1995, representing that portion of the deferred
tax asset estimated to be realizable as a result of then current operating
results. The remaining valuation allowance of $205,000 was reversed during
1996. These adjustments to the valuation allowance were reported as a
component of, and offset in, the provision for income taxes in each of the
respective years.
F-12
<PAGE>
The components of the provision (benefit) for income taxes are as follows-
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
--------------------- ------------------------------
1998 1997 1997 1996 1995
---------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Federal - Current $243,000 $218,000 $325,000 $357,000 $-
Federal - Deferred (38,000) (18,000) 23,000 (162,000) -
State 60,000 58,000 123,000 56,000 -
---------- ---------- --------- ---------- ---
Total $265,000 $258,000 $471,000 $251,000 $-
========== ========== ========= ========== ===
</TABLE>
The difference between the provision for Federal income taxes computed by
applying the Federal income tax rate of 34% and the effective tax rate for
1996 is primarily the result of the utilization of net operating loss
carryforwards and the reduction in the valuation allowance.
(8) OTHER COMPREHENSIVE INCOME:
The tax effect of other comprehensive income is as follows-
<TABLE>
<CAPTION>
Six Months Ended June 1998 Before-Tax Tax Net of Tax
(unaudited) Amount Effect Amount
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized gains on securities-
Unrealized holdings gains arising
during period $36,000 ($12,000) $24,000
Less- Reclassification adjustments
for gains realized in net income (5,000) 2,000 (3,000)
----------- ----------- -----------
Net unrealized gains 31,000 (10,000) 21,000
----------- ----------- -----------
Other comprehensive income $31,000 ($10,000) $21,000
=========== =========== ===========
Six Months Ended June 1997
(unaudited)
Unrealized gains on securities-
Unrealized holdings gains arising
during period $45,000 ($15,000) $30,000
Less - Reclassification adjustments
for gains realized in net income - - -
----------- ----------- -----------
Net unrealized gains 45,000 (15,000) 30,000
----------- ----------- -----------
Other comprehensive income $45,000 ($15,000) $30,000
=========== =========== ===========
F-13
<PAGE>
Year Ended December 31, 1997
Unrealized gains on securities-
Unrealized holdings gains arising
during period $132,000 ($45,000) $87,000
Less- Reclassification adjustments
for gains realized in net income - - -
----------- ----------- -----------
Net unrealized gains 132,000 (45,000) 87,000
----------- ----------- -----------
Other comprehensive income $132,000 ($45,000) $87,000
=========== =========== ===========
Year Ended December 31, 1996
Unrealized losses on securities-
Unrealized holdings losses arising
during period ($97,000) $33,000 ($64,000)
Less- Reclassification adjustments
for losses realized in net income - - -
----------- ----------- -----------
Net unrealized losses (97,000) 33,000 (64,000)
----------- ----------- -----------
Other comprehensive income ($97,000) $33,000) ($64,000)
=========== =========== ===========
Year Ended December 31, 1995
Unrealized losses on securities-
Unrealized holdings losses arising
during period ($6,000) $2,000 ($4,000)
Less- Reclassification adjustments
for losses realized in net income - - -
----------- ----------- -----------
Net unrealized losses (6,000) 2,000 (4,000)
----------- ----------- -----------
Other comprehensive income ($6,000) $2,000 ($4,000)
=========== =========== ===========
</TABLE>
F-14
<PAGE>
(9) DEPOSITS:
At June 30, 1998 (unaudited), scheduled maturities of time deposits are as
follows-
<TABLE>
<CAPTION>
Over Three Over One
Three Months Year Over
Months or Through through Three
Less Twelve Months Three Years Total
Years
---------- -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
$100,000 or more $4,155,000 $ 3,051,000 $ 109,000 $ - $ 7,315,000
Less than $100,000 3,621,000 14,065,000 3,589,000 128,000 21,403,000
---------- ----------- ---------- --------- -----------
$7,776,000 $17,116,000 $3,698,000 $128,000 $28,718,000
========== =========== ========== ========= ===========
At December 31, 1997, scheduled maturities of time deposits are as follows-
</TABLE>
<TABLE>
<CAPTION>
Over Three Over One
Three Months Year Over
Months or Through through Three
Less Twelve Months Three Years Total
Years
---------- -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
$100,000 or more $11,274,000 $ 2,564,000 $ - $ - $13,838,000
Less than $100,000 4,319,000 13,291,000 2,154,000 263,000 20,027,000
----------- ----------- ---------- --------- -----------
$15,593,000 $15,855,000 $2,154,000 $263,000 $33,865,000
=========== =========== ========== ========= ===========
</TABLE>
(10) STOCK OPTION PLAN:
The Bank has a stock option plan (the "Employee Plan") for employees of
the Bank. Under the terms of the Employee Plan, options to purchase up to
an aggregate of 20,000 shares of common stock may be granted. The stock
options under the Employee Plan are granted at prices and become
exercisable as determined by the discretion of the Board of Directors at
the date of grant. As of June 30, 1998 no options have been granted under
this plan.
(11) BENEFIT PLAN:
As of January 1, 1996, the Bank initiated a 401(k) plan for all employees
who complete six months of service and attain the age of 21. Under this
plan, the Bank will match 50% of the employee contributions up to a
maximum of the first 6% of compensation deferred. Bank contributions vest
at the following schedule-
Years of Service Percent Vested
---------------
Less than two 0%
Two but less than three 50
Four or more 100
Bank contributions were approximately $20,000 and $21,000 for the years
ended December 31, 1997 and 1996, respectively and $13,000 and $12,000 for
the six months ended June 30, 1998 and 1997 (unaudited), respectively.
F-15
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES:
Litigation-
The Bank may, in the ordinary course of business, become 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 present legal proceedings.
Commitments With Off-Balance Sheet Risk-
Commitments to extend credit are legally binding loan commitments with
set expiration dates. They are intended to be disbursed, subject to
certain conditions, upon request of the borrower. The Bank receives a
fee for providing a commitment. The Bank was committed to advance
$1,978,000 and $3,504,000 to its borrowers as of June 30, 1998 and
December 31, 1997, which generally expire within one year.
(13) CAPITAL REQUIREMENTS:
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also
subjected to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of June 30, 1998
and December 31, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
F-16
<PAGE>
The most recent notification from the regulatory authorities categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized the Bank
must maintain minimum total risk-based; Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
To Be
Well-Capitalized
For Capital Under Prompt
Actual Adequacy Purposes Corrective Action Provisions
--------------- ----------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998
(unaudited)-
Total capital (to Risk
Weighted Assets) $6,832,000 >= 12.37% $4,419,000 >= 8.00% $5,524,000 >= 10.00%
Tier I Capital (to Risk
Weighted Assets) 6,142,000 >= 11.12% 2,210,000 >= 4.00% 3,315,000 >= 6.00%
Tier I Capital (to
Average Assets) 6,142,000 >= 8.68% 2,831,000 >= 4.00% 3,539,000 >= 5.00%
As of December 31, 1997-
Total capital (to Risk
Weighted Assets $6,483,000 >= 11.55% $4,489,000 >= 8.00% $5,611,000 >= 10.00%
Tier I Capital (to Risk
Weighted Assets) 5,781,000 >= 10.30% 2,244,000 >= 4.00% 3,366,000 >= 6.00%
Tier I Capital (to
Average Assets) 5,781,000 >= 8.30% 2,786,000 >= 4.00% 3,483,000 >= 5.00%
As of December 31, 1996-
Total capital (to Risk
Weighted Assets) $5,732,000 >= 11.75% $3,904,000 >= 8.00% $4,880,000 >= 10.00%
Tier I Capital (to Risk
Weighted Assets) 5,122,000 >= 10.50% 1,952,000 >= 4.00% 2,928,000 >= 6.00%
Tier I Capital
(to Average Assets) 5,122,000 >= 8.11% 2,526,000 >= 4.00% 3,158,000 >= 5.00%
</TABLE>
F-17
<PAGE>
(14) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
---------------------------------------------
Fair value estimates are made at a discrete point in time based upon
relevant market information and information about the financial
instruments. Because no market exists for a portion of the Bank's
financial instruments, fair value estimates are based on judgments
regarding a number of factors. These estimates are subjective in nature
and involve some uncertainties. Changes in assumptions and methodologies
may have a material effect on these estimated fair values. In addition,
reasonable comparability between financial institutions may not be likely
due to a wide range of permitted valuation techniques and numerous
estimates which must be made. This lack of uniform valuation methodologies
also introduces a greater degree of subjectivity to these estimated fair
values.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash, Term Certificate of Deposits and Federal Funds Sold-
----------------------------------------------------------
For those short-term instruments, the carrying value is a resonable
estimate of fair value.
Securities-
-----------
For the held to maturity and available for sale portfolios, fair values
are based on quoted market prices or dealer quotes. If a quoted market
price is not available, fair value is estimated using quoted market prices
for similar securities.
Loans-
------
The fair value of loans is estimated by discounting the future cash flows
using current market rates.
Deposits-
---------
The fair value of demand deposits and savings accounts is the amount
payable on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated by discounting the future cash flows
using current market rates.
At December 31, 1997, the Bank had commitments to extend credit totaling
$3,504,000. The Bank does not charge a fee on these loan commitments and,
consequently, there is no basis to calculate a fair value.
The estimated fair value of the Bank's financial instruments as of
December 31, 1997 and 1996 is as follows-
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets-
Cash and Federal funds sold $ 10,061,000 $ 10,061,000 $ 15,708,000 $ 15,708,000
Term Certificate of Deposits - - 500,000 500,000
Securities available for sale 11,755,000 11,755,000 11,126,000 11,126,000
Loans, net of allowance
for possible loan losses 49,045,000 48,975,000 41,932,000 42,795,000
Financial liabilities-
Deposits-
Demand 19,717,000 19,717,000 15,369,000 15,369,000
Savings 14,255,000 14,255,000 15,349,000 15,349,000
Time 33,865,000 35,858,000 35,912,000 36,015,000
========== ========== ---------- ----------
</TABLE>
F-18
<PAGE>
(15) SUBSEQUENT EVENT - MERGER AGREEMENT:
On June 25, 1998, the Bank entered into an Agreement and Plan of Merger
(subsequently amended) with United National Bancorp, whereby each share of
common stock of the Bank would be exchanged for 1.245 shares of United
National Bancorp common stock, subject to certain adjustment provisions in
the Agreement. Upon closing of the transaction, the Bank will be merged
into United National Bancorp's subsidiary, United National Bank. The
proposed transaction is subject to approval by the Bank's shareholders and
certain regulatory authorities.
F-19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated June 25, 1998 (this
"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 State Bank of South
Orange, a commercial bank chartered under the laws of the State of New Jersey
("SBSO").
WHEREAS, United and UNB desire to acquire SBSO and SBSO's
Board of Directors has determined, based upon the terms and conditions
hereinafter set forth, that the acquisition described herein is in the best
interests of SBSO and its stockholders, the Boards of Directors of SBSO, United
and UNB have each duly adopted and approved this Agreement and the Board of
Directors of SBSO has directed that it be submitted to its shareholders for
approval; and
WHEREAS, the acquisition will be accomplished by merging SBSO
into UNB with UNB as the surviving bank, and SBSO shareholders receiving the
consideration hereinafter set forth; and
WHEREAS, simultaneously with the execution of this Agreement,
SBSO has executed and delivered to United a stock option agreement (the "Stock
Option Agreement") pursuant to which SBSO is issuing an option to United to
purchase certain shares of the authorized and unissued SBSO Common Stock (as
hereafter defined), subject to the terms and conditions set forth in the Stock
Option Agreement (the "United Stock Option").
NOW, THEREFORE, in consideration of the foregoing 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), SBSO 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 SBSO and UNB and thereupon and thereafter, all the property, rights,
powers and franchises of each of SBSO 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 SBSO 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
hereto, 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 in a manner that will not adversely affect the
shareholders of SBSO and upon the acceptance of such amendment by the Office of
the Comptroller of the Currency (the "OCC"), the Articles of Association of UNB
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) at the date and time (the "Effective Time")
specified in a notice to the OCC (the "OCC Notice") which will be filed by UNB
with the approval of SBSO, which approval shall not be unreasonably withheld or
delayed, such filing to occur immediately after the "Closing" (as hereinafter
defined) is consummated. A closing (the "Closing") shall take place at 10:00
a.m., on a day mutually agreed to by United and SBSO within ten (10) business
days following the "Determination Date" (as hereinafter defined), at the office
of Pitney, Hardin, Kipp & Szuch, Florham Park, New Jersey, or at such other
place, time or date as UNB and SBSO may mutually agree upon. The OCC Notice
shall specify as the Effective Time the close of business on the date of the
Closing unless a different Effective Time is agreed to by UNB and SBSO. The
"Determination Date" shall mean the first date on which all necessary regulatory
and governmental approvals and consents have been received, all statutory
waiting periods in respect thereof have expired, and all other 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) have been satisfied or waived.
1.7. Capital Stock. As of March 31, 1998, UNB had capital of
$7,830,007.50, divided into 3,132,003 shares of common stock, each of $2.50 par
value, $64,299,000 of surplus, and undivided profits of $53,634,000. As of March
31, 1998, SBSO had capital of $3,197,875, divided into 639,575 shares of common
stock, each of $5.00 par value, $1,802,355 of surplus, and $968,975 of undivided
profits. At the Effective Time, the amount of capital stock of UNB shall be
$11,027,882.50, divided into 4,411,153 shares of common stock, each of $2.50 par
value, and UNB shall have a surplus of $66,101,355 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 SBSO as stated in
the preceding two sentences, adjusted however, for earnings and expenses and
dividends declared and paid by UNB and SBSO between March 31, 1998 and the
Effective Time.
ARTICLE II
CONVERSION OF STATE BANK OF SOUTH ORANGE SHARES
2.1. Conversion of SBSO Common Stock. Each share of common
stock, par value $5.00 per share, of SBSO ("SBSO Common Stock"), issued and
outstanding immediately prior to the Effective Time (other than shares of SBSO
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 at the Effective Time as follows:
(a) Exchange Ratio. Subject to the provisions of this Section
2.1, each share of SBSO Common Stock issued and outstanding immediately prior to
the Effective Time (excluding shares of SBSO Common Stock retired pursuant to
Section 2.5 and Dissenting Shares) shall be converted at the Effective Time into
the right to receive 1.245 shares (the "Exchange Ratio") of common stock, $1.25
par value, of United ("United Common Stock").
(b) Fractional Shares; Average Closing Price. No fractional
shares of United Common Stock shall be issued pursuant to the Merger, and, in
lieu thereof, a cash payment shall be made based on the average of the "Closing
Prices" (as hereinafter defined) of United Common Stock during the first 10 of
the 15 consecutive trading days immediately preceding the date of the Closing
(the "Average Closing Price of United Common Stock"). The "Closing Price" on any
trading day shall mean the closing price of United Common Stock on such day as
supplied by the Nasdaq Stock Market, National Market System ("NASDAQ/NMS") and
published in The Wall Street Journal. A "trading day" shall mean any business
day on which United Common Stock is actually traded on NASDAQ/NMS.
(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.
(d) Cancellation of SBSO Certificates. After the Effective
Time, each such share of SBSO 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 SBSO Common Stock
outstanding immediately prior to the Effective Time (other than shares of SBSO
Common Stock retired pursuant to Section 2.5 and Dissenting Shares) shall
thereafter represent the right to receive the consideration described in
Sections 2.1(a) and 2.1(b) hereof. After the Effective Time, the holders of the
Certificates shall cease to have any rights with respect to such shares of SBSO
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.
2.2. Exchange of Shares.
(a) SBSO and United agree to appoint The Bank of New York, or
such other bank as United (with the consent of SBSO, which consent shall not be
unreasonably withheld) shall designate, as the Exchange Agent (the "Exchange
Agent") for purposes of effecting the conversion of SBSO Common Stock described
herein. All fees and expenses of the Exchange Agent shall be paid by United. At
the Effective Time, United shall deposit with the Exchange Agent, for the
benefit of the holders of SBSO Common Stock, the consideration to be furnished
to such holders pursuant to Section 2.1 hereof. As soon as practicable after the
Effective Time, the Exchange Agent shall mail, to each holder of record (a
"Record Holder") of shares of SBSO Common Stock outstanding immediately prior to
the Effective Time, a letter of transmittal (which shall specify that delivery
of the Certificates 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).
Such letter of transmittal and instructions shall be in the form and substance
of a letter of transmittal and instructions which shall have been submitted to,
and approved by, SBSO prior to the Effective Time. 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 lieu 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, as such term is defined in Section 2.3) 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.
(b) After the Effective Time, there shall be no transfers on
the stock transfer books of SBSO of the shares of SBSO 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 as provided in Section 2.1 hereof.
(c) If payment of the consideration as provided in 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.
2.3. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, any holder of SBSO 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
SBSO 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 SBSO Shares Retired. Each share of SBSO 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 SBSO shall be cancelled and retired at the Effective Time and no
capital stock of United, cash or other consideration shall be paid or delivered
in exchange therefor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STATE BANK OF SOUTH ORANGE
References herein to the "SBSO Disclosure Schedule" shall mean
all of the disclosure schedules required by this Article III, dated as of the
date hereof and referenced to the specific sections and subsections of Article
III of this Agreement, which have been delivered on the date hereof, by SBSO to
United and UNB. SBSO hereby represents and warrants to United and UNB as
follows:
3.1. Organization.
(a) SBSO is a New Jersey banking corporation whose deposits
are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC") to the fullest extent permitted by law. SBSO is duly
organized, validly existing and in good standing under the laws of the State of
New Jersey. SBSO 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 SBSO. The
SBSO Disclosure Schedule sets forth true and complete copies of the Certificate
of Incorporation and Bylaws of SBSO as in effect on the date hereof.
(b) SBSO has only one "Subsidiary" (as hereinafter defined),
which Subsidiary is identified in the SBSO Disclosure Schedule. The SBSO
Subsidiary is now, and at all times since its formation has been, inactive, and
SBSO has not previously had any active Subsidiaries. The term "Subsidiary", when
used in this Agreement with respect to SBSO, means any corporation, joint
venture, association, partnership, trust or other entity in which SBSO has,
directly or indirectly, at least a 50 percent interest or acts as a general
partner. Except as set forth in the SBSO Disclosure Schedule, SBSO 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 and real estate in
foreclosure.
3.2. Capitalization. The authorized capital stock of SBSO
consists of 800,000 shares of SBSO Common Stock. As of the date hereof, there
were 639,575 shares of SBSO Common Stock issued and outstanding and no shares of
SBSO Common Stock held in the treasury. As of the date hereof, there were no
shares of SBSO Common Stock issuable upon exercise of outstanding options
granted pursuant to any SBSO stock option plan. All issued and outstanding
shares of SBSO Common Stock have been duly authorized and validly issued, and
are fully paid and no assessment has been made on such shares. The authorized
but unissued shares of SBSO Common Stock are not subject to pre-emptive rights.
Except for the United Stock Option, SBSO does not have, nor is it 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 SBSO 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 SBSO, and subject to the
parties obtaining all necessary regulatory approvals, SBSO 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 SBSO. Except for the consents and approvals described in
paragraph (b) below, no other corporate proceedings on the part of SBSO are
necessary to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by SBSO and constitutes the valid
and binding obligation of SBSO, enforceable against SBSO in accordance with its
terms, except to the extent that enforcement may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, conservatorship, receivership or other
similar laws now or hereafter in effect relating to or affecting the enforcement
of creditors' rights generally or the rights of creditors of New Jersey
state-chartered banks, (ii) general equitable principles, and (iii) laws
relating to the safety and soundness of insured depository institutions and
except that no representation is made as to the effect or availability of
equitable remedies or injunctive relief.
(b) Neither the execution and delivery of this Agreement by
SBSO, nor the consummation by SBSO of the transactions contemplated hereby in
accordance with the terms hereof, or compliance by SBSO with any of the terms or
provisions hereof, will (i) violate any provision of SBSO'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 SBSO or any of its properties or assets, or (iii) except as set
forth in the SBSO 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 SBSO 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 SBSO 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 SBSO, or the ability of SBSO to consummate the
transactions contemplated hereby. Except for consents and approvals of or
filings or registrations with or notices to the FDIC, the Commissioner of
Banking of the State of New Jersey (the "Commissioner"), and the stockholders of
SBSO, no consents or approvals of or filings or registrations with or notices to
any public body or authority are necessary on behalf of SBSO in connection with
(x) the execution and delivery by SBSO of this Agreement and (y) the
consummation by SBSO of the transactions contemplated hereby.
3.4. Financial Statements.
(a) The SBSO Disclosure Schedule sets forth copies of the
statements of condition of SBSO as of December 31, 1996 and 1997, and the
related statements of income, stockholders' equity and cash flows for the
periods ended December 31 in each of the three years 1995 through 1997 (the
"SBSO Audited Statements"), in each case accompanied by the audit report of
Arthur Andersen, LLP, independent public accountants with respect to SBSO, and
the unaudited statement of condition as of March 31, 1998 and the related
unaudited statement of income of SBSO for the three months ended March 31, 1998,
as filed with the FDIC (the "SBSO Unaudited Statements" and, collectively with
the SBSO Audited Statements, the "SBSO Financial Statements"). The SBSO Audited
Statements (including the related notes) have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied during
the periods involved. The SBSO Unaudited Statements have been prepared in
accordance with FDIC accounting requirements ("RAP") applicable to such
statements consistently applied during the periods involved (except for the
notes associated with such unaudited statements, which notes are not required by
RAP). The SBSO Financial Statements fairly present the financial condition of
SBSO as of the respective dates set forth therein and fairly present the results
of the operations, and with respect to the SBSO Audited Statements the
stockholders' equity and cash flows, of SBSO for the respective periods set
forth therein.
(b) The books and records of SBSO 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 SBSO Audited Statements (including the notes thereto),
as of December 31, 1997 SBSO did not have any liabilities, whether absolute,
accrued, contingent or otherwise, which are material to the business,
operations, assets or financial condition of SBSO and which are required by GAAP
to be disclosed in the SBSO Audited Statements. Except as and to the extent
reflected, disclosed or reserved against in the SBSO Unaudited Statements
(including the notes thereto), as of March 31, 1998 SBSO did not have any
liabilities, whether absolute, accrued, contingent or otherwise, which are
material to the business, operations, assets or financial condition of SBSO and
which are required by RAP to be disclosed in the SBSO Unaudited Statements.
Since March 31, 1998 and to the date hereof, SBSO has not incurred any
liabilities except in the ordinary course of business and consistent with
prudent banking practice or except as specifically contemplated by this
Agreement.
3.5. Financial Advisor; Broker's and Other Fees. SBSO has
retained Ryan, Beck & Co., Inc. ("Ryan Beck") to render a fairness opinion in
connection with the Merger. Ryan Beck has rendered its fairness opinion on the
date hereof. Except for Ryan Beck, neither SBSO 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 SBSO
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 SBSO.
3.6. Absence of Certain Changes or Events.
(a) Except as set forth in the SBSO Disclosure Schedule, there
has not been any material adverse change in the business, operations, assets or
financial condition of SBSO since March 31, 1998 (including without limitation a
material adverse change arising from the institution of Legal Proceedings (as
defined in Section 3.7) or the occurrence of a default as described in Section
3.13(c)), and to SBSO's knowledge, no facts or conditions exist (other than
regional or national economic conditions which affect financial institutions
generally) which are reasonably likely to cause such a material adverse change
in the future.
(b) Except for the negotiation of the transactions
contemplated by this Agreement or as otherwise set forth in the SBSO Disclosure
Schedule, SBSO has not taken or permitted any of the actions set forth in
Section 5.2 hereof between March 31, 1998 and the date hereof and SBSO has
conducted its business only in the ordinary course, consistent with past
practice.
3.7. Legal Proceedings. Except as disclosed in the SBSO
Disclosure Schedule, as of the date of this Agreement SBSO is not a party to
any, and there are no pending or, to SBSO's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature ("Legal Proceedings") against SBSO or against any
present or former SBSO officer or director in their capacity as a SBSO officer
or director which are material to SBSO. Except as disclosed in the SBSO
Disclosure Schedule, as of the date of this Agreement SBSO is not a party to any
material order, judgment or decree entered against SBSO in any lawsuit or
proceeding.
3.8. Taxes and Tax Returns.
(a) SBSO 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. SBSO 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 SBSO through the Effective Time. Except
as set forth in the SBSO Disclosure Schedule, the federal income tax returns of
SBSO 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 SBSO
Disclosure Schedule, the applicable state income tax returns of SBSO have been
examined by the applicable authorities (or are closed to examination due to the
expiration of the statute of limitations) and no deficiencies were asserted as a
result of such examinations which have not been resolved and paid in full. To
the knowledge of SBSO, there are no audits or other administrative or court
proceedings presently pending, or claims asserted, for taxes or assessments upon
SBSO nor has SBSO 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 SBSO Disclosure Schedule, SBSO
(i) has not requested any extension of time within which to file any tax Return
which Return has not since been filed, (ii) is not a party to any agreement
providing for the allocation or sharing of taxes, (iii) is not 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 SBSO (nor does SBSO have any knowledge that
the IRS has proposed any such adjustment or change of accounting method) and
(iv) has not 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 disclosed in the SBSO Disclosure Schedule, SBSO
does not maintain or contribute to any "employee pension benefit plan", within
the meaning of Section 3(2)(A) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (the "SBSO Pension Plans"), "employee welfare benefit
plan", within the meaning of Section 3(1) of ERISA (the "SBSO Welfare Plans"),
or any stock option plan, stock purchase plan, deferred compensation plan,
severance plan, bonus plan, employment agreement or other similar plan, program
or arrangement. SBSO has not, since September 2, 1974, contributed to any
"Multiemployer Plan", within the meaning of Sections 3(37) and 4001(a)(3) of
ERISA. None of the SBSO Pension Plans are subject to Title IV of ERISA, nor has
SBSO sponsored an SBSO Pension Plan that was subject to Title IV of ERISA within
six years from the date hereof.
(b) SBSO has delivered to United in the SBSO Disclosure
Schedule a complete and accurate copy of each of the following with respect to
each of the SBSO Pension Plans and SBSO Welfare Plans: (i) plan document,
summary plan description, and summary of material modifications (if not
available, a detailed description of the foregoing); (ii) trust agreement or
insurance contract, if any; (iii) most recent IRS determination letter, if any;
(iv) most recent actuarial report, if any; and (v) most recent annual report on
Form 5500.
(c) All contributions required to be made to each SBSO Pension
Plan under the terms thereof, ERISA or other applicable law have been timely
made, and all amounts properly accrued to date as liabilities of SBSO which have
not been paid have been properly recorded on the books of SBSO.
(d) Except as disclosed on the SBSO Disclosure Schedule, each
of the SBSO Pension Plans, the SBSO Welfare Plans and each other plan and
arrangement identified on the SBSO Disclosure Schedule has been operated in
compliance in all material respects with the provisions of ERISA, the Code,
regulations, rulings and announcements promulgated or issued thereunder, and
other applicable governmental laws and regulations. Furthermore, the IRS has
issued a favorable determination letter, which takes into account the Tax Reform
Act of 1986 and subsequent legislation, with respect to each of the SBSO Pension
Plans that are intended to satisfy the requirements of Section 401(a) and/or (k)
of the Code, and SBSO is not aware of any fact or circumstance which would
disqualify any such plan, that could not be retroactively corrected (in
accordance with the procedures of the IRS).
(e) To the knowledge of SBSO, within the past two plan years,
no non-exempt prohibited transaction, within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any of the SBSO
Welfare Plans or SBSO Pension Plans.
(f) No SBSO Pension Plan or any trust created thereunder has
been terminated, nor have there been any "reportable events", within the meaning
of Section 4034(b) of ERISA, with respect to any of the SBSO Pension Plans.
(g) There are no pending, or, to the knowledge of SBSO,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the SBSO Pension Plans or the SBSO Welfare Plans,
any trusts related thereto or any other plan or arrangement identified in the
SBSO Disclosure Schedule.
(h) No SBSO Welfare Plan provides medical or death benefits
beyond an employee's retirement or other termination of service, other than
coverage mandated by law.
(i) Each SBSO Welfare Plan that provides health, life and/or
disability benefits is funded exclusively through insurance policies or
contracts.
(j) Except as hereafter agreed to by United in writing or as
disclosed on the SBSO Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of SBSO to severance pay, unemployment compensation or any similar
payment, or (ii) accelerate the time of payment, accelerate the vesting, or
increase the amount, of any compensation or benefits due to any current employee
or former employee under any SBSO Pension Plan or SBSO Welfare Plan.
3.10. Reports.
(a) The SBSO Disclosure Schedule lists, and SBSO has
previously delivered to United a complete copy of, each communication (other
than general advertising materials and press releases) mailed by SBSO to its
stockholders as a class since January 1, 1996, and each such communication, as
of its date, complied in all material respects with all applicable statutes,
rules and regulations and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
disclosures as of a later date shall be deemed to modify disclosures as of an
earlier date.
(b) SBSO has, since January 1, 1996, duly filed with the FDIC
in correct form the Call Reports required to be filed under applicable laws and
regulations, and SBSO promptly will deliver or make available to United accurate
and complete copies of such reports. The SBSO Disclosure Schedule lists all
examinations of SBSO conducted by either the FDIC or the New Jersey Department
of Banking since January 1, 1996 and the dates of any responses thereto
submitted by SBSO.
3.11. SBSO Information. The information relating to SBSO to be
contained in the Proxy Statement/Prospectus (as defined in Section 5.6(a)
hereof) to be delivered to stockholders of SBSO 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 SBSO, 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 SBSO 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. Except as set forth in
the SBSO Disclosure Schedule, SBSO holds all material licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business, and
has complied with and is not in default in any respect under any, applicable
law, statute, order, rule, regulation, policy and/or guideline of any federal,
state or local governmental authority relating to SBSO (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 SBSO) and SBSO has not 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 SBSO) of, any of the above. As of the date of
this Agreement, SBSO has not received any written notice from any persons
asserting that such person would object to the consummation of a merger of SBSO
with United or with any other entity due to the CRA performance of or rating of
SBSO.
3.13. Certain Contracts.
(a) Except for plans referenced in Section 3.9 hereof or
disclosed in the SBSO Disclosure Schedule, (i) SBSO is not a party to or bound
by any contract or understanding (whether written or, to its knowledge, oral)
with respect to the employment or termination of any present or former officers,
employees, directors or consultants. The SBSO Disclosure Schedule sets forth
true and correct copies of all written employment agreements or termination
agreements with officers, employees, directors, or consultants to which SBSO is
a party.
(b) Except as disclosed in the SBSO Disclosure Schedule, (i)
as of the date of this Agreement, SBSO is not a party to or bound by any
commitment, agreement or other instrument (excluding commitments and agreements
in connection with extensions of credit by SBSO) which contemplates the payment
of amounts in excess of $100,000, or which otherwise is material to the
operations, assets or financial condition of SBSO, (ii) no commitment, agreement
or other instrument to which SBSO is a party or by which it is bound limits the
freedom of SBSO to compete in any line of business or with any person, and (iii)
SBSO is not a party to any collective bargaining agreement.
(c) As of the date of this Agreement, except as disclosed in
the SBSO Disclosure Schedule, neither SBSO nor, to the knowledge of SBSO, 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) SBSO has 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 SBSO's balance sheet as of
December 31, 1997, 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, 1997), 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 SBSO and (iv) with respect to owned real property, if any, title
imperfections noted in title reports delivered to United prior to the date
hereof. SBSO, as lessee, has the right under valid and subsisting leases to
occupy, use, possess and control, in all material respects, all real property
leased by it, as presently occupied, used, possessed and controlled by it.
(b) The SBSO Disclosure Schedule lists all policies of
insurance and bonds covering business operations and insurable properties and
assets of SBSO, all risks insured against, and the amount thereof and
deductibles relating thereto. Except as set forth in the SBSO Disclosure
Schedule, as of the date hereof, SBSO has not, since January 1, 1995, received
any notice of cancellation or notice of a material amendment of any such
insurance policy or bond and it is not in default in any material respect under
such policy or bond, and, to SBSO'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 SBSO contain records
which, in all material respects, accurately record all meetings and other
corporate action of its stockholders and Board of Directors (including
committees of its Board of Directors).
3.16. Environmental Matters. Except as disclosed in the SBSO
Disclosure Schedule:
(a) SBSO has not received any written notice, citation, claim,
assessment, proposed assessment or demand for abatement alleging that SBSO
(either directly or as a trustee or fiduciary, or as a successor-in-interest in
connection with the enforcement of remedies to realize the value of properties
serving as collateral for outstanding loans) is responsible for the correction
or cleanup of any condition resulting from the violation of any law, ordinance
or other governmental regulation regarding environmental matters, which
correction or cleanup would be material to the business, operations, assets or
financial condition of SBSO. SBSO has no knowledge that any toxic or hazardous
substances or materials have been emitted, generated, disposed of or stored on
any real property owned or leased by SBSO, as OREO or otherwise, or owned or
controlled by SBSO as a trustee or fiduciary (collectively, "Properties"), 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
SBSO.
(b) SBSO has no knowledge that any of the Properties has been
operated in any manner in the three years prior to the date of this Agreement
that violated any applicable federal, state or local law or regulation governing
or pertaining to toxic or hazardous substances and materials, the violation of
which would have a material adverse effect on the business, operations, assets
or financial condition of SBSO.
(c) To the knowledge of SBSO, there are no underground storage
tanks on, in or under any of the Properties and no underground storage tanks
have been closed or removed from any of the Properties while the property was
owned, operated or controlled by SBSO.
3.17. Reserves. The allowance for possible loan and lease
losses in the March 31, 1998 SBSO 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. Year 2000 Compliance. SBSO has taken all reasonable
steps necessary to address the software, accounting and record keeping issues
raised in order for the data processing systems used in the business conducted
by SBSO to be Year 2000 compliant in accordance with applicable regulatory
guidelines, except as set forth in the SBSO Disclosure Schedule. SBSO does not
expect the future cost of addressing such issues to be material. SBSO has not
received a rating of less than satisfactory from any bank regulatory agency with
respect to Year 2000 compliance.
3.19. Agreements with Bank Regulators. Except as disclosed in
the SBSO Disclosure Schedule, SBSO is not a party to any agreement or memorandum
of understanding with, or a party to any commitment letter, board resolution
submitted to a regulatory authority or similar undertaking to, and is not
subject to any order or directive by, and is not a recipient of any
extraordinary supervisory letter from, any court, governmental authority or
other regulatory or administrative agency or commission, domestic or foreign
("Governmental Entity") which restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or reserve policies
or its management, except for those the existence of which has been disclosed in
writing to United by SBSO prior to the date of this Agreement, nor has SBSO been
advised by any Governmental Entity that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, except as disclosed
in writing to United by SBSO prior to the date of this Agreement. SBSO is not
required by Section 32 of the Federal Deposit Insurance Act to give prior notice
to a Federal banking agency of the proposed addition of an individual to its
board of directors or the employment of an individual as a senior executive
officer, except as disclosed in writing to United by SBSO prior to the date of
this Agreement.
3.20. Disclosure. No representation or warranty contained in
Article III of this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 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 and UNB to SBSO. United and UNB hereby represent and warrant to SBSO 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"). The United
Disclosure Schedule sets forth true and complete copies of the Certificate of
Incorporation of United.
(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 to the fullest extent permitted by law, by the Savings
Association Insurance Fund of the FDIC for certain deposits, and by the Bank
Insurance Fund of the FDIC for the remaining deposits. 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 16,000,000 shares of United Common Stock and 1,000,000 shares of
preferred stock ("Preferred Stock"). As of March 31, 1998, there were 9,373,592
shares of United Common Stock issued and outstanding, including 94,303 treasury
shares and 2,700 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 March 31, 1998, 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 March 31, 1998, except for 383,428 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 and the United
Director Option Plan, 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 repurchases of United Common Stock, prior to the Effective Time
shall be required to be disclosed or reported to SBSO 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 Boards of Directors of United
and UNB. Except for any shareholder approval that may be 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, except to the extent that
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, conservatorship, receivership or other similar laws now or hereafter
in effect relating to or affecting the enforcement of creditors' rights
generally or the rights of national banks or their holding companies, (ii)
general equitable principles, and (iii) laws relating to the safety and
soundness of insured depository institutions and except that no representation
is made as to the effect or availability of equitable remedies or injunctive
relief.
(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 or compliance by United or UNB with any of the
terms or provisions 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 Securities and Exchange Commission (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 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 SBSO copies of the
consolidated statements of financial condition of United as of December 31,
1995, 1996 and 1997, 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 1995 through 1997, 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, 1998, 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 Report 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 GAAP 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 cash flows (including the related notes, where
applicable) fairly present the results of the consolidated operations, changes
in stockholders' equity and 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 March 31, 1998 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 is material to the business, operations, assets
or financial condition of United or any of its Subsidiaries and which are
required by GAAP to be disclosed in the United Financial Statements. Since March
31, 1998, 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. Except as set forth in the
United Disclosure Schedule, 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
March 31, 1998 and to United's knowledge, no facts or conditions exist (other
than regional or national economic conditions which affect financial
institutions generally) which are reasonably 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 SBSO 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, with no personal liability attaching
to the ownership thereof.
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 pending or, to United's knowledge, threatened, Legal
Proceedings 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 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) Since January 1, 1996, United has filed all reports that
it was required to file with the SEC under the 1934 Act, all of which complied
in all material respects with all applicable requirements of the 1934 Act and
the rules and regulations adopted thereunder. As of their respective dates, each
such report, and each registration statement, proxy statement, form or other
document filed by United with the SEC since January 1, 1996, including without
limitation any financial statements or schedules included therein, 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, 1996, 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 SBSO 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, 1997, 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, 1997). 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 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 March 31, 1998 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. Year 2000 Compliance. United and the United Subsidiaries
have taken all reasonable steps necessary to address the software, accounting
and record keeping issues raised in order for the data processing systems used
in the business conducted by United and the United Subsidiaries to be Year 2000
compliant in accordance with applicable regulatory guidelines and United does
not expect the future cost of addressing such issues to be material. Neither
United nor any United Subsidiary has received a rating of less than satisfactory
from any bank regulatory agency with respect to Year 2000 compliance.
4.20 Agreements with Bank Regulators. Except as disclosed in
the United Disclosure Schedule, neither United nor any United Subsidiary is a
party to any agreement or memorandum of understanding with, or a party to any
commitment letter, board resolution submitted to a regulatory authority or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any Governmental Entity
which restricts materially the conduct of its business, or in any manner relates
to its capital adequacy, its credit or reserve policies or its management,
except for those the existence of which has been disclosed in writing to SBSO by
United prior to the date of this Agreement, nor has United been advised by any
Governmental Entity that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, extraordinary supervisory
letter, commitment letter or similar submission, except as disclosed in writing
to SBSO by United prior to the date of this Agreement. Neither United nor any
United Subsidiary is required by Section 32 of the Federal Deposit Insurance Act
to give prior notice to a Federal banking agency of the proposed addition of an
individual to its board of directors or the employment of an individual as a
senior executive officer, except as disclosed in writing to SBSO by United prior
to the date of this Agreement.
4.21. Disclosures. 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 SBSO 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 SBSO. During the period from
the date of this Agreement to the Effective Time, SBSO 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. SBSO
also shall use all reasonable 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 SBSO 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. SBSO 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 SBSO 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 shares of SBSO Common Stock (other than under the United
Stock Option) 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 SBSO 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 SBSO in effect on the date hereof and disclosed to
United in the SBSO 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. SBSO 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 SBSO (an "Acquisition Transaction"). Notwithstanding the foregoing,
SBSO may (i) enter into discussions or negotiations or provide information in
connection with an unsolicited possible Acquisition Transaction if the Board of
Directors of SBSO, 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. SBSO will immediately communicate to United
the terms of any proposal, whether written or oral, which is communicated
directly or indirectly to any member of the Board of Directors or any executive
officer of SBSO 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, SBSO 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 SBSO's business,
operations, properties, assets and financial condition and matters relating to
the completion of the transactions contemplated herein. Without limiting the
foregoing, promptly after granting any new loan or extension of credit, or any
renewal of an existing loan or extension of credit, in excess of $50,000, SBSO
will send to United a description thereof, and thereafter SBSO will promptly
send to United copies of such documents relating thereto as United shall
reasonably request. As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter (other than the last fiscal quarter
of each fiscal year) ending after the date of this Agreement, SBSO will deliver
to United SBSO's Call Reports filed with the FDIC and United will deliver to
SBSO 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, SBSO will deliver to United and United will
deliver to SBSO their respective year end financial statements and related
reports to shareholders and regulatory agencies.
5.5. Access to Properties and Records; Confidentiality.
(a) SBSO 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 SBSO and its Representatives, reasonable access
to their respective properties, and shall disclose and make available to United
and its Representatives or SBSO 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 SBSO 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 or, in the case of a document which is subject to an attorney-client
privilege, would compromise the right of the disclosing party to claim that
privilege. The parties will use all reasonable efforts to obtain waivers of any
such restriction (other than the attorney client privilege) and in any event
make appropriate substitute disclosure arrangements under circumstances in which
the restrictions of the preceding sentence apply. SBSO acknowledges that United
may be involved in discussions concerning other potential acquisitions and
United shall not be obligated to disclose such information to SBSO 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, shall be kept confidential 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 30 months 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 reasonable 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 under this Section 5.5, each party hereto shall
be entitled to specific performance and injunctive and other equitable relief
with respect to this Section 5.5. Each party hereto waives, and agrees to use
all reasonable efforts to cause its Representatives to waive, any requirement to
secure or post a bond in connection with any such relief.
5.6. Regulatory Matters.
(a) For the purposes of holding the meeting of SBSO
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 (i) 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 and (ii) SBSO of
a proxy statement with the FDIC satisfying all applicable requirements of
applicable state and federal laws, including the 1934 Act. (Such combined proxy
statement and prospectus in the form mailed by SBSO to the SBSO shareholders,
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, 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"). The Registration Statement shall not be filed by
United with the SEC without the approval of SBSO, acting through its attorneys,
which approval shall not be unreasonably withheld.
(b) United shall furnish information concerning United and the
Merger as is necessary in order to cause the Proxy Statement/Prospectus, insofar
as it relates to United and the Merger, to comply with Section 5.6(a) hereof.
United agrees to advise SBSO promptly if at any time prior to the SBSO
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 SBSO with the information needed to correct
such inaccuracy or omission. United shall not knowingly and intentionally take
any action which would cause the Proxy Statement/Prospectus to become incorrect
or incomplete in any material respect. United shall furnish SBSO with such
supplemental information as may be necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to United and the Merger, to comply
with Section 5.6(a) after the mailing thereof to SBSO shareholders.
(c) SBSO shall furnish United with such information concerning
SBSO as is necessary in order to cause the Proxy Statement/Prospectus and
Registration Statement, insofar as it relates to SBSO, to comply with Section
5.6(a) hereof. SBSO agrees promptly to advise United if, at any time prior to
the SBSO shareholder's meeting referred to in Section 5.7 hereof, information
provided by SBSO 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. SBSO shall not knowingly and
intentionally take any action which would cause the Proxy Statement/Prospectus
to become incorrect or incomplete in any material respect. SBSO 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 SBSO, to comply with Section 5.6(a) after the mailing thereof to SBSO
shareholders.
(d) United shall promptly make such filings as are necessary
in connection with the offering of the United Common Stock pursuant to the
Merger 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. SBSO shall promptly
furnish United with such information regarding the SBSO shareholders as United
requires to enable it to determine what filings are required hereunder. SBSO
authorizes United to utilize in such filings the information concerning SBSO
provided to United in connection with, or contained in, the Proxy Statement/
Prospectus. United shall furnish SBSO with drafts of all such filings, shall
provide SBSO the opportunity to comment thereon, and shall keep SBSO advised of
the status thereof. United shall as promptly as practicable file the
Registration Statement containing the Proxy Statement/Prospectus with the SEC,
and SBSO shall as promptly as practicable file the Proxy Statement/Prospectus
with the FDIC, and each of United and SBSO shall promptly notify the other of
all communications, oral or written, with the SEC and FDIC 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
all reasonable 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 and the State of New
Jersey. 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 45 days of the date hereof, so long as SBSO provides all information
necessary to complete the application within 30 days of the date hereof, or (ii)
within 15 days after all such information is provided, if SBSO does not provide
all such information within such 30 day period. United shall provide to SBSO
drafts of all filings and applications referred to in this Section 5.6(f) and
shall give SBSO 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.
(h) SBSO acknowledges that United is in or may be in the
process of acquiring other banks and financial institutions and that in
connection with such acquisitions, information concerning SBSO may be required
to be included in the registration statements, if any, for the sale of
securities of United or in SEC reports in connection with such acquisitions.
SBSO agrees to provide United with any information, certificates, documents or
other materials about SBSO as are reasonably necessary to be included in such
other SEC reports or registration statements, including registration statements
which may be filed by United prior to the Effective Time. SBSO shall use its
reasonable efforts to cause its attorneys and accountants to provide United and
any underwriters for United with any consents, comfort letters, opinion letters,
reports or information which are necessary to complete the registration
statements and applications for any such acquisition or issuance of securities.
United shall promptly reimburse SBSO for reasonable expenses thus incurred by
SBSO should this Agreement be terminated for any reason. United shall not file
with the SEC any registration statement or amendment thereto or supplement
thereof containing information regarding SBSO unless SBSO shall have consented
in writing to such filing, which consent shall not be unreasonably delayed or
withheld.
(i) Between the date of this Agreement and the Effective Time,
SBSO shall cooperate with United to reasonably conform (as of the Effective
Time) SBSO's policies and procedures regarding applicable regulatory matters, to
those of United as United may reasonably identify to SBSO from time to time.
5.7. Approval of Stockholders. SBSO will (a) take all steps
reasonably necessary duly to call, give notice of, convene and hold a meeting of
the stockholders of SBSO as soon as reasonably practicable for the purpose of
securing the approval by such stockholders of this Agreement, (b) subject to the
fiduciary responsibilities of the Board of Directors of SBSO to the stockholders
of SBSO, recommend to the stockholders of SBSO the approval of this Agreement
and the transactions contemplated hereby and use all reasonable 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 SBSO Disclosure Schedule, in connection therewith, it is anticipated that
each director of SBSO shall vote his or her shares of SBSO 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 all reasonable 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 all
reasonable 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 Proceedings
(other than Legal Proceedings 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 all
reasonable efforts to discuss with the other party in advance.
5.10. Failure to Fulfill Conditions. In the event that United
or SBSO reasonably determines that a material condition to its obligation to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to February 28, 1999 (the "Cutoff Date"), 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, SBSO and United
will promptly inform the other of any facts applicable to SBSO 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. 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.
(a) For a period of six years after the Effective Time, United
shall indemnify, defend and hold harmless each person who is now, or has been at
any time prior to the date hereof or who becomes prior to the Effective Time, a
director or officer of SBSO (collectively, the "Indemnitees") against any and
all claims, damages, liabilities, losses, costs, charges, expenses (including,
without limitation, reasonable costs of investigation, and the reasonable fees
and disbursements of legal counsel and other advisers and experts as incurred),
judgments, fines, penalties and amounts paid in settlement, asserted against,
incurred by or imposed upon any Indemnitee by reason of the fact that he or she
is or was a director or officer of SBSO or acted as a director or officer of a
third party at the request of SBSO, in connection with, arising out of or
relating to any threatened, pending or completed claim, action, suit or
proceeding (whether civil, criminal, administrative or investigative),
including, without limitation, any and all claims, actions, suits, proceedings
or investigations by or on behalf of or in the right of or against SBSO or any
of its affiliates, or by any former or present shareholder of SBSO (each a
"Claim" and collectively, "Claims"), including, without limitation, any Claim
which is based upon, arises out of or in any way relates to the Merger, the
Proxy Statement-Prospectus, this Agreement, any of the transactions contemplated
by this Agreement, the Indemnitee's service as a member of the Board of
Directors of SBSO or any committee thereof, the events leading up to the
execution of this Agreement, any statement, announcement, recommendation or
solicitation made in connection therewith or related thereto (or the absence of
any of the foregoing) and any breach of any duty in connection with any of the
foregoing, in each case to the fullest extent which SBSO would have been
permitted under any applicable law and its Certificate of Incorporation and
By-Laws had the Merger not occurred (and United shall also advance expenses as
incurred to the fullest extent so permitted).
(b) From and after the Effective Time, United shall assume and
honor any obligation of SBSO immediately prior to the Effective Time with
respect to the indemnification of the Indemnitees arising out of the Certificate
of Incorporation or By-Laws of SBSO or arising out of any written
indemnification agreements between SBSO and such persons disclosed in the SBSO
Disclosure Schedule, as if such obligations were pursuant to a contract or
arrangement between United and such Indemnitees.
(c) In the event United or any of its successors or assigns
(i) reorganizes or consolidates with or merges into or enters into another
business combination transaction with any other person or entity and is not the
resulting, continuing or surviving corporation or entity of such consolidation,
merger or transaction, or (ii) liquidates, dissolves or transfers all or
substantially all of its properties and assets to any person or entity, then,
and in each such case, proper provision shall be made so that the successors and
assigns of United assume the obligations set forth in this Section 5.12.
(d) United shall cause SBSO's officers and directors to be
covered, for a period of six years after the Effective Time, under (i) United's
then current officers' and directors' liability insurance policy or (ii) an
extension of SBSO's existing officers' and directors' liability insurance
policy. However, United shall only be required to insure such persons upon terms
and for coverages substantially similar to SBSO's existing officers' and
directors' liability insurance.
(e) Any Indemnitee wishing to claim indemnification under this
Section 5.12 shall promptly notify United upon learning of any Claim, but the
failure to so notify shall not relieve United of any liability it may have to
such Indemnitee if such failure does not materially prejudice United. In the
event of any Claim (whether arising before or after the Effective Time) as to
which indemnification under this Section 5.12 is applicable, (x) United shall
have the right to assume the defense thereof and United shall not be liable to
such Indemnitees for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof,
except that if United elects not to assume such defense, or counsel for the
Indemnitees advises that there are issues which raise conflicts of interest
between United and the Indemnitees, the Indemnitees may retain counsel
satisfactory to them, and United shall pay the reasonable fees and expenses of
such counsel for the Indemnitees as statements therefor are received; provided,
however, that United shall be obligated pursuant to this Section 5.12(e) to pay
for only one firm of counsel for all Indemnitees in any jurisdiction with
respect to a matter unless the use of one counsel for multiple Indemnitees would
present such counsel with a conflict of interest that is not waivable by the
Indemnitees, and (y) the Indemnitees will cooperate in the defense of any such
matter. United shall not be liable for settlement of any claim, action or
proceeding hereunder unless such settlement is effected with its prior written
consent. Notwithstanding anything to the contrary in this Section 5.12, United
shall not have any obligation hereunder to any Indemnitee when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that the indemnification of such Indemnitee
in the manner contemplated hereby is prohibited by applicable law or public
policy.
5.13. Pooling and Tax-Free Reorganization Treatment. Neither
United nor SBSO 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 SBSO acknowledge that United expects the
transaction to be accounted for as a "pooling" transaction.
5.14. Affiliates.
(a) Promptly, but in any event within two weeks, after the
execution and delivery of this Agreement, (i) SBSO shall deliver to United (x) a
letter identifying all persons who, to the knowledge of SBSO, may be deemed to
be "affiliates" of SBSO under Rule 145 of the 1933 Act, including without
limitation all directors and executive officers of SBSO and (y) a letter
identifying all persons who, to the knowledge of SBSO, may be deemed to be
"affiliates" of SBSO as that term is used for purposes of qualifying for
"pooling of interests" accounting treatment; and (ii) United shall identify to
SBSO 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 SBSO (under
either Rule 145 of the 1933 Act or the applicable accounting treatment rules)
shall execute a letter substantially in the form of Schedule 5.14 annexed 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 substantially in the form of Schedule
5.14-1 annexed hereto 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. United agrees to publish, or file
a Form 8-K, Form 10-K or Form 10-Q containing financial results covering at
least 30 days of post-Merger combined operations of United and SBSO as soon as
practicable (but in no event later than 30 days) following the close of the
first calendar month ending 30 days after the Effective Time, in form and
substance sufficient to remove the restrictions set forth in paragraph "B" of
Schedule 5.14.
(c) With a view to making available to affiliates of SBSO who
receive shares of United Common Stock in the Merger the benefits of Rule 144
promulgated under the 1934 Act and any other rule or regulation of the SEC that
may at any time permit a holder of shares of United Common Stock to sell such
shares to the public without registration, United agrees, for a period of three
years following the Effective Time, to file with the SEC in a timely manner all
reports and other documents required of United under the 1933 Act and the 1934
Act and the rules and regulations thereunder.
5.15. Compliance with the Industrial Site Recovery Act. SBSO,
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 ("NJDEP") stating that none of the facilities located
in New Jersey owned or operated by SBSO (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 NJDEP 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 NJDEP
advising that the requirements of ISRA have been satisfied with respect to each
Facility subject to ISRA. In the event SBSO obtains a Remediation Agreement,
SBSO will post or have posted an appropriate Remediation Funding Source or will
have obtained the NJDEP's approval to self-guaranty any Remediation Funding
Source required under any such Remediation Agreement.
5.16. Transaction Expenses of SBSO.
(a) For planning purposes, SBSO shall, within 30 days from the
date hereof, provide United with its estimated budget of transaction-related
expenses reasonably anticipated to be payable by SBSO in connection with this
transaction based on facts and circumstances currently known, including the fees
and expenses of counsel, accountants, investment bankers and other
professionals. SBSO shall promptly notify United if or when it determines that
it will expect to exceed its budget; provided, however, that it is understood
that SBSO' exceeding such budget, in and of itself, shall not constitute a
breach of this Agreement. SBSO has previously disclosed to United the method by
which the fees of its investment bankers and counsel in connection with this
transaction are to be determined.
(b) Promptly, but in any event within 30 days, after the
execution of this Agreement, SBSO shall ask all of its attorneys and other
professionals to render current and correct invoices for all unbilled time and
disbursements. SBSO shall accrue and/or pay all of such amounts as soon as
possible.
(c) SBSO shall request that its professionals render monthly
invoices within 30 days after the end of each month. SBSO shall notify United
monthly of all out-of-pocket expenses which SBSO has incurred in connection with
this transaction.
(d) United, in reasonable consultation with SBSO, shall make
all arrangements with respect to the printing and mailing of the Proxy
Statement/Prospectus.
Section 5.17. Employees Following consummation of the Merger,
United shall make available to all employees and officers of SBSO who become
employed by UNB coverage under the benefit plans generally available to UNB's
employees and officers (including pension and health and hospitalization) on the
terms and conditions available to UNB's employees and officers. SBSO employees
will be given credit under United's or UNB's medical, life, vacation, sick
leave, disability and other welfare plans for prior service with SBSO, and
SBSO's employees will be granted credit for prior service with SBSO, for
purposes of eligibility and vesting under United's or UNB's pension and 401(k)
plans; provided, that SBSO employees will not be given credit under United's or
UNB's severance policy for prior service with SBSO.
Section 5.18. Change in Control Contracts. At the Closing
United and UNB will assume and, following the Closing, United and UNB will honor
the three existing written change in control contracts with officers of SBSO
that are included in the SBSO Disclosure Schedule.
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 SBSO 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; the Proxy
Statement-Prospectus shall have been approved for use in connection with the
Merger by the FDIC; 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 Commissioner, the FDIC or 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 SBSO 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 Legal Proceeding shall be
pending or threatened by any governmental body in which it is sought to restrain
or prohibit the Merger and no Legal 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 SBSO determines in
good faith, based upon the advice of their respective counsel, makes it
inadvisable to proceed with the Merger because any such Legal 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 SBSO shall have received an
opinion, satisfactory to United and SBSO, of Pitney, Hardin, Kipp & Szuch,
counsel for United, issued in reliance on tax representation letters from United
and SBSO that are customary and reasonable under the circumstances, 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, SBSO or UNB or to the
shareholders of SBSO who exchange their shares of SBSO for United Common Stock
(except to the extent that cash is received in lieu of fractional shares of
United Common Stock).
(e) Pooling of Interests. The Merger shall be qualified to be
treated by United as a pooling-of-interests for accounting purposes and United
shall have received a letter from KPMG Peat Marwick LLP to the effect that the
Merger will qualify for pooling-of-interests accounting treatment if closed and
consummated in accordance with this Agreement.
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 SBSO. The representations and warranties of SBSO contained in this Agreement,
other than representations and warranties which are expressly stated to be made
as of the date hereof or as of any other particular date, shall be true and
correct in all material respects on the Closing Date as though made on and as of
the Closing Date. SBSO 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 SBSO 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 SBSO 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) Certificates. SBSO 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 SBSO Under this
Agreement. The obligations of SBSO 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 and UNB contained in
this Agreement, other than representations and warranties which are expressly
stated to be made as of the date hereof or as of any other particular date,
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) Fairness Opinion. SBSO shall have received an updated
opinion from Ryan Beck as of the date the Proxy Statement/Prospectus is mailed
to SBSO's stockholders, to the effect that, in its opinion, the Exchange Ratio
is fair to the stockholders of SBSO.
(c) Certificates. United shall have furnished SBSO 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 SBSO 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 SBSO:
(a) By mutual written consent of the parties hereto;
(b) By United or SBSO (i) if the Effective Time shall not have
occurred on or prior to the Cutoff Date unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this Agreement to
perform or observe its agreements set forth herein to be performed or observed
by such party at or before the Effective Time, or (ii) if a vote of the
stockholders of SBSO 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;
(c) By United or SBSO 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 SBSO if any such
application is approved with conditions which materially impair the value of
SBSO, taken as a whole, to United;
(d) By United if (i) there shall have occurred a material
adverse change in the business, operations, assets, or financial condition of
SBSO from that disclosed by SBSO on the date of this Agreement, or (ii) there
was a material breach in any representation, warranty, covenant, agreement or
obligation of SBSO hereunder and such breach shall not have been remedied within
30 days after receipt by SBSO of notice in writing from United to SBSO
specifying the nature of such breach and requesting that it be remedied;
(e) By SBSO 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 (which material adverse change
may result from, among other things, an acquisition or proposed acquisition of
another entity by United or UNB, or a change in the business, operations, assets
or financial condition of any such entity; provided, however, that in either
such case materiality is to be measured by the effect upon United and SBSO on a
combined basis); or (ii) there was a material breach in any representation,
warranty, covenant, agreement or obligation of United or UNB hereunder and such
breach shall not have been remedied within 30 days after receipt by United of
notice in writing from SBSO to United specifying the nature of such breach and
requesting that it be remedied;
(f) By United if any condition to Closing specified in Section
6.1 or Section 6.2 is not satisfied and is not capable of being satisfied by the
Cutoff Date; or
(g) By SBSO if any condition to Closing specified in Section
6.1 or Section 6.3 is not satisfied and is not capable of being satisfied by the
Cutoff Date; or
(h) By SBSO, if the Average Closing Price of United Common
Stock, calculated as though the Closing Date were to be the fifth business day
following the Determination Date (the "Determination Price"), is less than
$25.00 per share (as adjusted, in the manner provided in Section 2.1(c), for any
capital change after the date hereof). Notwithstanding the foregoing, SBSO must
give written notice to United of SBSO's election to exercise its termination
right pursuant to this subsection (h), if at all, on or before the close of
business on the fifth business day following the Determination Date.
Notwithstanding the foregoing, United may, at its option, eliminate SBSO's right
to terminate pursuant to this subsection (h), and nullify any then outstanding
termination notice which may have been given by SBSO pursuant to this subsection
(h), by United's giving irrevocable written notice to SBSO, on or before the
close of business on the third business day following the Determination Date,
that United is increasing the consideration to be received by the holders of
SBSO Common Stock hereunder by increasing the Exchange Ratio to a number
(rounded to three decimal places) such that each share of SBSO Common Stock is
exchanged in the Merger for shares of United Common Stock having a value, based
upon the Determination Price, equal to the value that would have been received
if the Determination Price had been $25.00. In order to calculate such increase
in the Exchange Ratio, the Exchange Ratio shall be multiplied by a fraction, the
numerator of which is $25.00 and the denominator of which is the Determination
Price. If United gives notice of an increased Exchange Ratio in accordance with
this subsection (h), then no termination or purported termination by SBSO
pursuant to this subsection (h) shall be effective, and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange Ratio
shall have been so modified), and any references in this Agreement to "Exchange
Ratio" shall thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this subsection (h); or
(i) By SBSO, if SBSO's Board of Directors shall have approved
an Acquisition Transaction after determining, upon advice of counsel, that such
approval was necessary in the exercise of its fiduciary duties.
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement by either United or SBSO pursuant to Section
7.1 hereof, this Agreement (except the provisions of Sections 5.5(b) and 8.1
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
material 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 SBSO and, if required, the adoption of this
Agreement by the stockholders of United, but, after any such adoption, no
amendment shall be made which, under applicable New Jersey law, cannot be made
without the approval of the stockholders of SBSO or United, as the case may be.
This Agreement may not be amended except by an instrument in writing signed on
behalf of United, UNB and SBSO.
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. Subject to the provisions of Section 5.6(h)
hereof, 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; provided, however, that United and SBSO shall share equally the filing
fee in connection with the expenses relating to printing and mailing the Proxy
Statement-Prospectus.
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 promptly thereafter
by overnight courier, messenger or by registered or certified mail, postage
prepaid, as follows:
If to United or UNB:
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
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 SBSO:
State Bank of South Orange
Valley and Third Streets, P.O. Box 384
South Orange, New Jersey 07049
Attn.: James J. Young, President and
Chief Executive Officer
With a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Attn.: Peter Ehrenberg, 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 or otherwise transmitted.
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 SBSO with respect to Section 5.12
hereof and other than the three officers with change in control contracts
covered by Section 5.18.
8.4. Entire Agreement. This Agreement, which includes the
Disclosure Schedules and other 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.
8.8. No Survival. The representations and warranties set forth
in Articles III and IV hereof shall not survive the consummation of the Closing,
but shall expire as of the Effective Time.
8.9. Knowledge. For purposes of this Agreement, information
shall be deemed known to a party hereto if it is actually know by one or more of
such party's executive officers.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, United, UNB and SBSO 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
R. LYNN STRAW, JR. THOMAS C. GREGOR
By: _______________________________ By: _____________________________
R. Lynn Straw, Jr., Secretary Thomas C. Gregor
Chairman, President and CEO
ATTEST: STATE BANK OF SOUTH ORANGE
ROBERT WIGDER JAMES J. YOUNG
By: ____________________________ By: ____________________________
Robert Wigder, Assistant Secretary James J. Young
President and CEO
ATTEST: UNITED NATIONAL BANK
R. LYNN STRAW, JR. THOMAS C. GREGOR
By: ____________________________ By: ____________________________
R. Lynn Straw, Jr., Cashier Thomas C. Gregor
Chairman, President and CEO
<PAGE>
CERTIFICATE OF STATE BANK OF SOUTH ORANGE ("SBSO") DIRECTORS
Reference is made to the Agreement and Plan of Merger, dated
June 25, 1998 (the "Agreement"), among United National Bancorp, United National
Bank and SBSO. Capitalized terms used herein have the meanings given to them in
the Agreement.
Each of the following persons, being all of the directors of
SBSO, agrees to vote or cause to be voted all shares of SBSO Common Stock which
are held by such person, or over which such person exercises full voting
control, in favor of the Merger.
MILTON J. WIGDER
- --------------------------
Milton J. Wigder
STUART M. GLADSTONE
- --------------------------
Stuart M. Gladstone
ANTHONY J. BARTOLOTTA
- --------------------------
Anthony J. Bartolotta
ROBERT P. WIGDER
- --------------------------
Robert P. Wigder
SALVATORE C. NATOLI
- --------------------------
Salvatore C. Natoli
GREG MANNING
- --------------------------
Greg Manning
JAMES J. YOUNG
- --------------------------
James J. Young
<PAGE>
SCHEDULE 5.14
FORM OF STATE BANK OF SOUTH ORANGE AFFILIATE LETTER
June __, 1998
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
Gentlemen:
I am delivering this letter to you in connection with the
proposed merger (the "Merger") of State Bank of South Orange, a New Jersey
chartered commercial banking corporation (the "Company"), with and into United
National Bank, a national banking association, pursuant to the Agreement and
Plan of Merger dated June 25, 1998 (the "Agreement") among the Company, United
National Bancorp ("United"), and United National Bank. I currently own shares of
the Company's common stock, par value $5.00 per share ("SBSO Common Stock"). As
a result of the Merger, I will receive shares of United's common stock, $1.25
par value ("United Common Stock"), in exchange for my SBSO Common Stock.
I have been advised that as of the date of this letter I may
be deemed to be an "affiliate" of the Company, as the term "affiliate" is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations promulgated under the Securities Act of 1933, as amended (the "1933
Act"), by the Securities and Exchange Commission ("SEC") and as the term
"affiliate" is used for purposes of the SEC's rules and regulations applicable
to the determination of whether a merger can be accounted for as a "pooling of
interests" as specified in the SEC's Accounting Series Release 135, as amended
by Staff Accounting Bulletins Nos. 65 and 76 ("ASR 135").
I represent to and agree with United that:
A. Transfer Review Restrictions. During the period beginning
on the date hereof and ending 30 days prior to the consummation of the Merger, I
shall not sell, transfer or otherwise dispose of ("transfer") any SBSO Common
Stock owned by me, and I shall not permit any relative who shares my home, or
any person or entity who or which I control, from transferring any SBSO Common
Stock owned by such person or entity, without notifying United in advance of the
proposed transfer and giving United a reasonable opportunity to review the
transfer before it is consummated. United, if advised to do so by its
independent public accountants, may instruct me not to make or permit the
transfer because it may interfere with the "pooling of interests" treatment of
the Merger. I shall abide by any such instructions.
B. Transfer Restrictions During Merger Consummation Period.
Other than with United's prior written consent, I shall not transfer any SBSO
Common Stock owned by me, and I shall not permit any relative who shares my
home, or any person or entity who or which I control, to transfer any SBSO
Common Stock owned by such person or entity during the period beginning 30 days
prior to the consummation of the Merger and ending immediately after financial
results covering at least 30 days of post-Merger combined operations have been
published by means of the filing of a Form 10-Q, Form 10-K or Form 8-K under the
Securities Exchange Act of 1934, as amended, the issuance of a quarterly or
year-end earnings report, or any other public issuance which satisfies the
requirements of ASR 135. For purposes of this paragraph only, "SBSO Common
Stock" includes United Common Stock into which my SBSO Common Stock is
converted.
C. Compliance with Rule 145. I have been advised that the
issuance of United Common Stock to me pursuant to the Merger will be registered
with the SEC under the 1933 Act on a Registration Statement on Form S-4.
However, I have also been advised that, since I may be deemed to be an affiliate
of the Company at the time the Merger is submitted for a vote of the Company's
stockholders, any transfer by me of United Common Stock is restricted under Rule
145 promulgated by the SEC under the 1933 Act. I may not transfer United Common
Stock unless (i) such transfer is made in conformity with the volume and other
limitations of Rule 145 promulgated by the SEC under the 1933 Act, to the extent
that such limitations are applicable to me, (ii) in the opinion of United's
counsel or counsel reasonably acceptable to United, such transfer is otherwise
exempt from registration under the 1933 Act or (iii) such transfer is registered
under the 1933 Act.
D. Stop Transfer Instructions; Legend on Certificates. I also
understand that stop transfer instructions will be given to United's transfer
agents with respect to the United Common Stock and that there will be placed on
the certificates of the United Common Stock issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED JUNE 25,
1998 BETWEEN THE REGISTERED HOLDER HEREOF AND UNITED NATIONAL BANCORP,
A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF UNITED
NATIONAL BANCORP."
E. Consultation with Counsel. I have carefully read this
letter and the Agreement and discussed the requirements of such documents and
other applicable limitations upon my ability to transfer United Common Stock to
the extent I felt necessary with my counsel or counsel for the Company.
Execution of this letter is not an admission on my part that I
am an "affiliate" of the Company as described in the second paragraph of this
letter, or a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter. This letter shall
terminate concurrently with any termination of the Agreement in accordance with
its terms.
Very truly yours,
-----------------------------
Name:
Accepted this _____ day of
June, 1998 by
UNITED NATIONAL BANCORP
By: _________________________
<PAGE>
SCHEDULE 5.14-1
FORM OF UNITED NATIONAL BANCORP AFFILIATE LETTER
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
Gentlemen:
I am delivering this letter to you in connection with the
proposed merger (the "Merger") of State Bank of South Orange, a commercial bank
chartered under the laws of the State of New Jersey ("SBSO"), with and into
United National Bank, a national banking association ("UNB"), pursuant to the
Agreement and Plan of Merger dated as of June 25, 1998 (the "Agreement") among
United National Bancorp, a corporation chartered under the laws of the State of
New Jersey ("United"), UNB and SBSO. I currently own shares of United's common
stock, $1.25 par value per share ("United Common Stock").
I have been advised that as of the date of this letter I may
be deemed to be an "affiliate" of United, as the term "affiliate" is used for
purposes of the rules and regulations of the Securities and Exchange Commission
(the "Commission") applicable to the determination of whether a merger can be
accounted for as a "pooling of interests" as specified in the Commission's
Accounting Series Release 135, as amended by Staff Accounting Bulletins Nos. 65
and 76 ("ASR 135").
I represent and covenant with United and SBSO that:
A. Transfer Restrictions Prior to Merger Consummation. During
the period beginning on the date hereof and ending 30 days prior to the
consummation of the Merger, I shall not sell, transfer or otherwise dispose of
("transfer") any United Common Stock owned by me, and I shall not permit any
relative who shares my home, or any person or entity who or which I control,
from transferring any United Common Stock owned by such person or entity,
without notifying United in advance of the proposed transfer and giving United a
reasonable opportunity to object to the transfer before it is consummated.
United, upon advice of its independent public accountants, may instruct me not
to make or permit the transfer because it may interfere with the "pooling of
interests" treatment of the Merger. I shall abide by any such instructions.
B. Transfer Restrictions During Merger Consummation Period.
Other than with United's prior written consent, I shall not transfer any United
Common Stock owned by me, and I shall not permit any relative who shares my
home, or any person or entity who or which I control, to transfer any United
Common Stock owned by such person or entity during the period beginning 30 days
prior to the consummation of the Merger and ending immediately after financial
results covering at least 30 days of post-Merger combined operations have been
published by means of the filing of a Form 10-Q, Form 10-K or Form 8-K under the
Securities Exchange Act of 1934, as amended, the issuance of a quarterly or
year-end earnings report, or any other public issuance which satisfies the
requirements of ASR 135.
C. Consultation with Counsel. I have carefully read this
letter and the Agreement and discussed the requirements of such documents and
other applicable limitations upon my ability to transfer United Common Stock to
the extent I felt necessary with my counsel or counsel for United.
Execution of this letter is not an admission on my part that I
am an "affiliate" of United as described in the second paragraph of this letter,
or a waiver of any rights I may have to object to any claim that I am such an
affiliate on or after the date of this letter. This letter shall terminate
concurrently with any termination of the Agreement in accordance with its terms.
Very truly yours,
-----------------------------
Name:
Accepted this ___ day of
____________, 1998 by
UNITED NATIONAL BANCORP
By: ___________________________
Name:
Title:
<PAGE>
SCHEDULE 1.3
ARTICLES OF ASSOCIATION
OF
UNITED NATIONAL BANK1
NAME
FIRST. The title of the Association shall be "United National
Bank".
MAIN OFFICE
SECOND. The main office of the Association shall be at
______________, _________________, __________ County, New Jersey. The general
business of the Association shall be conducted at its legally established
branches.
DIRECTORS
THIRD. The Board of Directors of this Association shall
consist of not less than five nor more than twenty-five shareholders. At any
meeting of the shareholders held for the purpose of electing Directors, or
changing the number thereof, the number of Directors may be determined by a
majority of the votes cast by the shareholders in person or by proxy. A majority
of the Board of Directors shall be necessary to constitute a quorum for the
transaction of business at any Directors' meeting.
The Board of Directors of the Association may be increased by
two between annual meetings of shareholders and vacancies on the Board may be
filled between annual meetings of the shareholders by a majority vote of the
full Board, but in no event shall the number of Directors exceed the total
number of twenty-five or such greater amount as may from time to time be
permitted by the laws of the United States. Any Director so elected by the Board
must comply with the provisions of law with respect to the ownership of shares
of the Association.
ANNUAL MEETING OF DIRECTORS
FOURTH. The regular annual meeting of the shareholders of this
Association shall be held at its main office or other convenient place duly
authorized by the Board of Directors on such day of the year as is specified
therefor in the By-Laws.
CAPITAL
FIFTH. The amount of authorized capital stock of this
Association shall be $20,000,000.00 divided into 8,000,000 shares of common
stock of the par value per share of $2.50 but said capital stock may be
increased or decreased from time to time in accordance with the provisions of
the laws of the United States.
If the capital stock is increased by the sale of additional
shares thereof, each shareholder shall be entitled to subscribe for such
additional shares in proportion to the number of shares of said capital stock
owned by him at the time the increase is authorized by the shareholders, unless
another time subsequent to the date of the shareholders' meeting is specified in
a resolution adopted by the shareholders at the time the increase is authorized.
The Board of Directors shall have the power to prescribe a reasonable period of
time within which the preemptive rights to subscribe to the new shares of
capital stock must be exercised.
If the capital stock is increased by a stock dividend, each
shareholder shall be entitled to his proportionate amount of such increase in
accordance with the number of shares of capital stock owned by him at the time
the increase is authorized by the shareholders, unless another time subsequent
to the date of the shareholders' meeting is specified in a resolution adopted by
the shareholders at the time the increase is authorized.
OFFICERS
SIXTH. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board, unless the
Board appoints another director to be Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents, at least one of whom
shall be authorized, in the absence of the President, to perform all acts and
duties pertaining to the office of the President; to appoint a Cashier and such
other officers and employees as may be required to transact the business of this
Association; to fix the salaries to be paid to such officers or employees and
appoint others to take their place.
The Board of Directors shall have the power to define the
duties of the officers and employees of this Association and to require adequate
bonds from them for the faithful performance of their duties; to make all
By-laws that may be lawful for the general regulation of the business of this
Association and the management of its affairs, and generally to do and perform
all acts that may be lawful for a Board of Directors to do and perform.
CHANGE OF MAIN OFFICE; BRANCHES
SEVENTH. The Board of Directors shall have the power to change
the location of the main office of this Association to any other place within
the limits of the State of New Jersey, without the approval of the shareholders
of this Association but subject to the approval of the Comptroller of the
Currency; and shall have the power to change the location of any branch or
branches of this Association to any other location, without the approval of the
shareholders of this Association but subject to the approval of the Comptroller
of the Currency.
EXISTENCE
EIGHTH. The corporate existence of this Association shall
continue until terminated in accordance with the laws of the United States.
SPECIAL MEETINGS OF SHAREHOLDERS; NOTICE OF MEETINGS
NINTH. The Board of Directors of this Association, or any
three or more shareholders owning, in the aggregate, not less than 10 per centum
(10%) of the stock of this Association, may call a special meeting of the
shareholders at any time.
Unless otherwise provided by the laws of the United States, a
notice of the time, place and purpose of every regular annual, and every special
meeting of the shareholders shall be given by first class mail, postage prepaid,
mailed at least ten days prior to the date of such meeting to each shareholder
of record at his address as shown upon the books of this Association.
INDEMNIFICATION
TENTH. Indemnification or reimbursement may be given to an
officer or director, as authorized by the Board of Directors, for expenses
incurred in any legal action where the officer or director is not adjudged to be
guilty of gross negligence, willful misconduct or criminal acts in the
performance of his duties to the Association.
AMENDMENT
ELEVENTH. Subject to the provisions of the laws of the United
States, these Articles of Association may be amended at any meeting of the
shareholders for which adequate notice has been given, by the affirmative vote
of the owners of a majority of the stock of this Association, voting in person
or by proxy.
1 Articles of Association of Harley National Bank as they will exist on the
Effective Date. The Articles may be amended prior to the Effective Date.
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") dated June 25, 1998,
is by and between United National Bancorp, a New Jersey corporation and
registered bank holding company ("United"), and State Bank of South Orange, a
commercial bank organized under the laws of New Jersey ("SBSO").
BACKGROUND
1. United, United National Bank ("UNB"), and SBSO, as of the
date hereof, have executed a definitive agreement and plan of merger (the
"Merger Agreement") pursuant to which United will acquire SBSO through a merger
of SBSO with and into UNB (the "Merger").
2. During the negotiation of the Merger Agreement, United and
UNB advised SBSO that they would not execute the Merger Agreement unless SBSO
executed this Agreement.
3. As an inducement to United to enter into the Merger
Agreement and in consideration for such entry, SBSO has agreed to grant to
United an option to purchase authorized but unissued shares of common stock of
SBSO 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 SBSO,
intending to be legally bound hereby, agree:
1. Grant of Option. SBSO hereby grants to United the option to
purchase 127,275 shares of the common stock, $5.00 par value (the "Common
Stock"), of SBSO at a price of $31.25 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, subject to the termination provisions of Section
19 of this Agreement.
The term "Triggering Event" means the occurrence of any of the
following events:
A person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) other than 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 20% of the then
outstanding shares of Common Stock;
b. enters into a letter of intent or an agreement, whether
oral or written, with SBSO pursuant to which such person or any affiliate of
such person would (i) merge or consolidate, or enter into any similar
transaction, with SBSO, (ii) acquire all or a significant portion of the assets
or liabilities of SBSO, or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities
representing 20% or more of the then outstanding shares of Common Stock;
c. makes a filing with any bank or thrift regulatory authority
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 SBSO or any other business combination involving SBSO, or (ii)
a transaction involving the transfer of beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities
representing, 20% or more of the outstanding shares of Common Stock, and
thereafter, if such Proposal has not been Publicly Withdrawn (as such term is
hereinafter defined) at least 15 days prior to the meeting of stockholders of
SBSO called to vote on the Merger and SBSO' stockholders fail to approve the
Merger by the vote required by applicable law at the meeting of stockholders
called for such purpose; or
d. makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, SBSO willfully takes any action in any
manner which would materially interfere with its ability to consummate the
Merger or materially reduce the value of the transaction to United.
The term "Triggering Event" also means the taking of any
material direct or indirect action by SBSO or any of its directors, officers or
agents, with the formal or informal approval or acquiescence of the SBSO Board
of Directors, with the intention of inviting, encouraging or soliciting any
proposal which has as its purpose a tender offer for the shares of Common Stock,
a merger, consolidation, plan of exchange, plan of acquisition or reorganization
of SBSO, or a sale of a significant number of shares of Common Stock or any
significant portion of its assets or liabilities.
The term "significant portion" means 25% of the assets or
liabilities of SBSO. The term "significant number" means 20% of the outstanding
shares of SBSO.
"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 SBSO 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 SBSO to issue the shares of Common Stock
covered by the Option (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.
SBSO 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 SBSO shall not be a condition to the right of United to exercise the
Option. SBSO will not take any action which would have the effect of preventing
or disabling SBSO 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 after a
Triggering Event has occurred and prior to the termination of this Agreement,
United shall send a written notice to SBSO (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 (not less than three days after such
notice is sent to SBSO) 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 SBSO of the aggregate price for the
Option Shares so purchased by wire transfer of immediately available funds to an
account designated by SBSO, (b) SBSO 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 SBSO, 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 State Bank of South Orange, 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, SBSO 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 SBSO 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, SBSO 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 SBSO 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 SBSO and blue sky fees and expenses shall be paid by SBSO.
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, SBSO 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 SBSO
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 SBSO 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 SBSO 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
SBSO for any legal or other expense reasonably incurred by SBSO 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 SBSO
with another entity, or in the event any sale of all or substantially all of the
assets of SBSO 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 SBSO 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
SBSO 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 SBSO. SBSO hereby
represents and warrants to United as follows:
a. Due Authorization. SBSO has full corporate power
and authority to execute, deliver and perform this Agreement and all corporate
action necessary for the execution, delivery and performance of this Agreement
has been duly taken by SBSO.
b. Authorized Shares. SBSO 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 SBSO or any agreement,
instrument, judgment, decree, statute, rule or order applicable to SBSO.
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 SBSO 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
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 Chief Executive Officer
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 SBSO:
State Bank of South Orange
Valley and Third Streets, P.O. Box 384
South Orange, New Jersey 07049
Attn.: James J. Young, President and
Chief Executive Officer
With a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn.: Peter Ehrenberg, 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.
STATE BANK OF SOUTH ORANGE
JAMES J. YOUNG
By:------------------------------------------
James J. Young, President and CEO
UNITED NATIONAL BANCORP
THOMAS C. GREGOR
By:------------------------------------------
Thomas C. Gregor
Chairman, President and
Chief Executive Officer
<PAGE>
APPENDIX C
August ___, 1998
The Board of Directors
State Bank of South Orange
Valley and Third Street
South Orange, NJ 07079
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of State Bank of South Orange
("State Bank") of the Exchange Ratio (as defined below) to be paid to
shareholders of State Bank pursuant to the terms of that certain Agreement and
Plan of Merger dated June 25, 1998 (the "Agreement") by and among State Bank,
United National Bancorp, Bridgewater, New Jersey ("United") and its wholly owned
subsidiary, United National Bank ("United National Bank").
Pursuant to the Agreement, State Bank shall merge with and into United National
Bank (the "Merger"), and each share of State Bank's issued and outstanding
common stock will be converted into and become the right to receive 1.245
shares, subject to certain adjustments as set forth in the Agreement (the
"Exchange Ratio"), of common stock of United. We have assumed that the Merger
will qualify as a tax free transaction for the stockholders of State Bank and be
accounted for by United as a pooling-of-interests transaction.
Ryan, Beck & Co., as a customary part of its investment banking business, is
engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of the Merger, we have met separately with members of
senior management of United and State Bank to discuss their respective
operations, historical financial statements, strategic plans and future
prospects. We have reviewed and analyzed material prepared in connection with
the Merger, including but not limited to the following: (i) the Agreement and
related documents; (ii) the Proxy Statement/Prospectus used to solicit the
shareholder vote of State Bank; (iii) United's Annual Reports to Shareholders
and Annual Reports on Form 10-K for the years ended December 31, 1997, 1996, and
1995, and United's Quarterly Reports on Form 10-Q for the periods ended June 30,
1998, March 31, 1998, September 30, 1997 and June 30, 1997; (iv) State Bank's
Annual Reports to Shareholders for the years ended December 31, 1997, 1996, and
1995 and State Bank's quarterly Call Reports for each of the quarters included
in such periods as well as for the periods June 30, 1998 and March 31, 1998; (v)
the historical stock prices and trading volume of United's common stock; (vi)
the publicly available financial data of commercial banking organizations which
Ryan, Beck deemed generally comparable to United; (vii) the publicly available
financial data of commercial banking organizations which Ryan, Beck deemed
generally comparable to State Bank; (viii) the terms of recent acquisitions of
commercial banking organizations which Ryan, Beck deemed generally comparable in
whole or in part to State Bank; and (ix) the potential pro-forma impact of the
Merger on United's financial
C-1
<PAGE>
condition, operating results and per share figures. We also conducted or
reviewed such other studies, analyses, inquiries and examinations as we deemed
appropriate. Ryan, Beck as part of its review of the Merger considered the
future prospects of State Bank in the event it remained independent.
While we have taken care in our investigation and analyses, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us by the respective institutions or which was publicly
available and have not assumed any responsibility for independently verifying
such information. We have also relied upon the managements of State Bank and
United as to the reasonableness and achievability of the financial and operating
forecasts and projections (and the assumptions and bases therefor) provided to
us and in certain instances we have made certain adjustments to such financial
and operating forecasts which in our judgment were appropriate under the
circumstances. In addition, we have assumed with your consent that such
forecasts and projections reflect the best currently available estimates and
judgments of the respective managements. We are not experts in the evaluation of
allowances for loan losses. Therefore, we have not assumed any responsibility
for making an independent valuation of the adequacy of the allowances for loan
losses set forth in the balance sheets of State Bank and United at June 30,
1998, and we assumed such allowances were adequate and comply fully with
applicable law, regulatory policy and sound banking practice as of the date of
such financial statements. We also assumed that the Merger in all respects is,
and will be consummated in compliance with all laws and regulations applicable
to State Bank and United. We have not made or obtained any independent
evaluations or appraisals of the assets and liabilities of either State Bank or
United or their respective subsidiaries, nor have we reviewed any individual
loan files of State Bank or United or their respective subsidiaries.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors as we have deemed appropriate
in the circumstances. In rendering our opinion, we have assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger to State Bank. Our opinion is necessarily
based on economic, market and other conditions and projections as they exist and
can be evaluated on the date hereof. Ryan, Beck did not express any opinion as
to the price or range of prices at which United Common Stock might trade
subsequent to the Merger.
We have been retained by the Board of Directors of State Bank as an independent
contractor to act as financial advisor to State Bank with respect to the Merger
and will receive a fee for our services. Ryan, Beck has had an investment
banking relationship with United. Ryan, Beck was a co-manager of a 10.01%
Capital Securities offering by UNB Capital Trust I, completed in March 1997.
Ryan, Beck's research department follows United and Ryan, Beck is a market maker
in United stock. Ryan, Beck has had no previous investment banking relationship
with State Bank.
Our opinion is directed to the Board of Directors of State Bank and does not
constitute a recommendation to any shareholder of State Bank as to how such
shareholder should vote at any shareholder meeting held in connection with the
Merger.
C-2
<PAGE>
Based upon and subject to the foregoing it is our opinion as investment bankers
that the Exchange Ratio in the Merger as provided and described in the Agreement
is fair to the holders of State Bank common stock from a financial point of
view.
Very truly yours,
RYAN, BECK & CO., INC.
C-3
<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 approved 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.
D-1
<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.
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
II-1
<PAGE>
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 June 25, 1998, by and
among United National Bancorp, United National Bank and State
Bank of South Orange, included as Appendix A to the Proxy
Statement-Prospectus.
2(b)* Stock Option Agreement, dated June 25, 1998, by and among
United National Bancorp and State Bank of South Orange,
included as Appendix B to the 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.
23(a) Consent of KPMG Peat Marwick LLP with respect to United
National Bancorp.
23(b) Consent of Arthur Andersen LLP with respect to United
National Bancorp.
23(c) Consent of Arthur Andersen LLP with respect to State Bank
of South Orange.
23(d)* Consent of Pitney, Hardin, Kipp & Szuch (included in
Exhibits 5 and 8 hereto).
23(e)** Consent of Ryan, Beck & Co., Inc.
24** Power of Attorney of Officers and Directors of United
National Bancorp.
27 Financial Data Schedule.
99(a) Form of Proxy Card to be utilized by the Board of Directors
of State Bank of South Orange.
- ------------
* Included elsewhere in this registration statement.
** To be filed by amendment.
B. Report, Opinion or Appraisals
Form of Fairness Opinion of Ryan, Beck & Co., Inc. is included as
Appendix C to the Proxy Statement-Prospectus.
ITEM 22. UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
II-2
<PAGE>
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) 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.
(c) To remove from registration by means of a post effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. 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.
3. 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.
4. 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.
5. 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
II-3
<PAGE>
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.
6. 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.
7. 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Bridgewater, State of
New Jersey, on August __, 1998.
UNITED NATIONAL BANCORP
By: /s/ THOMAS C. GREGOR
-------------------------------
Thomas C. Gregor, Chairman,
President and Chief Executive
Officer
Signature Title Date
--------- ----- ----
THOMAS C. GREGOR
- ---------------------------- Chairman, President and August __, 1998
Thomas C. Gregor Chief Executive Officer
DONALD W. MALWITZ
- ---------------------------- Vice President and August __, 1998
Donald W. Malwitz Treasurer (Principal
Financial Officer)
GEORGE W. BLANK
- ---------------------------- Director August 7, 1998
George W. Blank
DONALD A. BUCKLEY
- ---------------------------- Director August __, 1998
Donald A. Buckley
C. DOUGLAS CHERRY
- ---------------------------- Director August 7, 1998
C. Douglas Cherry
II-4
<PAGE>
Signature Title Date
--------- ----- ----
CHARLES E. HANCE
- ---------------------------- Director August 7, 1998
Charles E. Hance
JOHN R. KOPICKI
- ---------------------------- Director August 7, 1998
John R. Kopicki
- ---------------------------- Director August __, 1998
Antonia S. Marotta
JOHN W. MCGOWAN III
- ---------------------------- Director August 7, 1998
John W. McGowan III
PATRICIA A. MCKIERNAN
- ---------------------------- Director August 6, 1998
Patricia A. McKiernan
CHARLES N. POND, JR.
- ---------------------------- Director August 7, 1998
Charles N. Pond, Jr.
- ---------------------------- Director August __, 1998
Paul K. Ross
DAVID R. WALKER
- ---------------------------- Director August 10, 1998
David R. Walker
- ---------------------------- Director August __, 1998
Ronald E. West
GEORGE J. WICKARD
- ---------------------------- Director August 7, 1998
George J. Wickard
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ---------- -----------
2(a)* Agreement and Plan of Merger, dated June 25, 1998, by and
among United National Bancorp, United National Bank and State
Bank of South Orange, included as Appendix A to the Proxy
Statement-Prospectus.
2(b)* Stock Option Agreement, dated June 25, 1998, by and among
United National Bancorp and State Bank of South Orange,
included as Appendix B to the 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.
23(a) Consent of KPMG Peat Marwick LLP with respect to United
National Bancorp.
23(b) Consent of Arthur Andersen LLP with respect to United
National Bancorp.
23(c) Consent of Arthur Andersen LLP with respect to State Bank
of South Orange.
23(d)* Consent of Pitney, Hardin, Kipp & Szuch (included in
Exhibits 5 and 8 hereto).
23(e)** Consent of Ryan, Beck & Co., Inc.
24** Power of Attorney of Officers and Directors of United
National Bancorp.
27 Financial Data Schedule.
99(a) Form of Proxy Card to be utilized by the Board of Directors
of State Bank of South Orange.
- -------------
* Included elsewhere in this registration statement.
** To be filed by amendment.
EXHIBIT 5
PITNEY, HARDIN, KIPP & SZUCH
P.O. BOX 1945
MORRISTOWN, NEW JERSEY 07962-1945
August 12, 1998
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
We have acted as counsel to United National Bancorp ("United") in
connection with its proposed issuance of common stock, $1.25 par value per share
(the "Common Stock"), pursuant to the Agreement and Plan of Merger dated June
25, 1998, by and United, United National Bank and State Bank of South Orange.
The Common Stock is being registered pursuant to a Registration Statement on
Form S-4 (the "Registration Statement") being filed with the Securities and
Exchange Commission on the date hereof.
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of the Certificate of Incorporation and By-laws of United as
currently in effect, relevant resolutions of the Board of Directors of United,
and such other documents as we have deemed necessary or appropriate in order to
express the opinion set forth in this letter.
Based on the foregoing and assuming that the Registration Statement has
been declared effective under the Securities Act of 1933, as amended, we are of
the opinion that when issued as described in the Registration Statement,
including the Prospectus relating to the Common Stock (the "Prospectus"), the
Common Stock will be legally issued, fully paid and non-assessable.
We hereby 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 Prospectus.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 8
OPINION OF PITNEY, HARDIN, KIPP & SZUCH
AS TO FEDERAL INCOME TAX CONSEQUENCES
August 11, 1998
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
State Bank of South Orange
Valley and Third Streets
P.O. Box 384
South Orange, NJ 07049
Attn.: James J. Young, President
and Chief Executive Officer
We have acted as counsel for United National Bancorp ("United"), a New
Jersey corporation and registered bank holding company, and United National Bank
("UNB"), a national banking association wholly-owned by United, in connection
with the proposed merger (the "Merger") of State Bank of South Orange ("SBSO"),
a bank chartered under the laws of New Jersey, with and into UNB. The Merger
will be effected pursuant to that certain Agreement and Plan of Merger dated
June 25, 1998 (the "Merger Agreement") among United, UNB, and SBSO.
Capitalized terms used but not defined herein shall have the meanings
specified in the Proxy Statement-Prospectus pertaining to the Merger.
We have assumed with your consent that:
(a) the Merger will be effected in accordance with the Merger
Agreement, and
(b) the representations contained in the letters of representation
from United and SBSO to us dated August 6, 1998 and August 11, 1998,
respectively, will be true at the Effective Time.
On the basis of the foregoing, and our consideration of such other matters
of fact and law as we have deemed necessary or appropriate, it is our opinion,
under presently applicable federal income tax law, that the Merger will
constitute a reorganization under Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and that:
(i) no gain or loss will be recognized for federal income tax purposes
by United, UNB or SBSO in connection with the Merger;
(ii) no gain or loss will be recognized for federal income tax
purposes by SBSO stockholders upon the exchange in the Merger of shares of
SBSO Common Stock solely for United Common Stock (except with respect to
cash received in lieu of a fractional share interest in United Common
Stock);
(iii) the basis of United Common Stock received in the Merger by SBSO
stockholders (including the basis of any fractional share interest in
stock) will be the same as the basis of the shares of SBSO Common Stock
surrendered in exchange therefor;
<PAGE>
(iv) the holding period of United Common Stock received in the Merger
by SBSO stockholders (including the holding period of any fractional share
interest in stock) will include the holding period during which the shares
of SBSO Common Stock surrendered in exchange therefor were held by the SBSO
stockholder, provided such shares of SBSO Common Stock were held as capital
assets; and
(v) cash received by a holder of SBSO Common Stock in lieu of a
fractional share interest in United Common Stock will be treated as
received in exchange for such fractional share interest and, provided the
fractional share would have constituted a capital asset in the hands of
such holder, the holder should in general recognize capital gain or loss in
an amount equal to the difference between the amount of cash received and
the portion of the adjusted tax basis in the SBSO Common Stock allocable to
the fractional share interest.
The tax consequences described above may not be applicable to SBSO
stockholders that acquired the stock of SBSO pursuant to the exercise of an
employee stock option or right or otherwise as compensation, that hold SBSO
Common Stock as part of a "straddle" or "conversion transaction," or that are
insurance companies, securities dealers, financial institutions or foreign
persons.
We hereby consent to the reference to us under the heading "THE PROPOSED
MERGER -- Federal Income Tax Consequences" in the Proxy Statement-Prospectus
pertaining to the Merger and to the filing of this opinion as an exhibit to the
related Registration Statement on Form S-4 filed with the Securities and
Exchange Commission. In giving this consent, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
EXHIBIT 23(A)
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
United National Bancorp:
We consent to incorporation by reference in the registration statement
filed on Form S-4, dated August 12, 1998, of our report dated January 14, 1998,
relating to the consolidated balance sheets of United National Bancorp and
subsidiaries as of December 31,1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended, which report is included in the December 31, 1997 Annual
Report on Form 10-K of United National Bancorp, incorporated by reference in the
registration statement and to the reference to our firm under the heading
"Experts" in the registration statement.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
August 12, 1998
EXHIBIT 23(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
United National Bancorp:
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-4 of our report dated
January 12, 1996 incorporated by reference in United National Bancorp's Annual
Report on Form 10-K and to all references to our firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
August 7, 1998
EXHIBIT 23(C)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
State Bank of South Orange:
As independent public accountants, we hereby consent to the inclusion in
this Registration Statement on Form S-4 of our report dated January 27, 1998 and
to all references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
August 7, 1998
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas C. Gregor, his attorney-in-fact, with
power of substitution, for him in any and all capacities, to sign any and all
amendments (whether pre- or post-effective), to this Registration Statement on
Form S-4 of United National Bank (SEC File Number 333-_______) and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
THOMAS C. GREGOR
- ---------------------------- Chairman, President and August __, 1998
Thomas C. Gregor Chief Executive Officer
DONALD W. MALWITZ
- ---------------------------- Vice President and August __, 1998
Donald W. Malwitz Treasurer (Principal
Financial Officer)
GEORGE W. BLANK
- ---------------------------- Director August 7, 1998
George W. Blank
DONALD A. BUCKLEY
- ---------------------------- Director August __, 1998
Donald A. Buckley
C. DOUGLAS CHERRY
- ---------------------------- Director August 7, 1998
C. Douglas Cherry
CHARLES E. HANCE
- ---------------------------- Director August 7, 1998
Charles E. Hance
JOHN R. KOPICKI
- ---------------------------- Director August 7, 1998
John R. Kopicki
- ---------------------------- Director August __, 1998
Antonia S. Marotta
<PAGE>
- ---------------------------- Director August __, 1998
John W. McGowan III
- ---------------------------- Director August __, 1998
Patricia A. McKiernan
- ---------------------------- Director August __, 1998
Charles N. Pond, Jr.
- ---------------------------- Director August __, 1998
Paul K. Ross
- ---------------------------- Director August __, 1998
David R. Walker
- ---------------------------- Director August __, 1998
Ronald E. West
- ---------------------------- Director August __, 1998
George J. Wickard
EXHIBIT 99(A)
PROXY SOLICITED BY MANAGEMENT
OF
STATE BANK OF SOUTH ORANGE
For Special Meeting of Stockholders
on
September __, 1998
KNOW ALL MEN BY THESE PRESENTS: That the undersigned stockholder of State
Bank of South Orange 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 State Bank of South
Orange ("SBSO") to be held on Tuesday, September __, 1998 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 SBSO with and into United National
Bank ("UNB") pursuant to the Agreement and Plan of Merger dated as of June 25,
1998 among SBSO, 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 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.)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule Contains Summary Financial Information Extracted from SEC Form
10-Q and is Qaulified in its Entirety by Reference to Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 34,018
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,200
<TRADING-ASSETS> 1,221
<INVESTMENTS-HELD-FOR-SALE> 567,667
<INVESTMENTS-CARRYING> 43,804
<INVESTMENTS-MARKET> 43,814
<LOANS> 654,687
<ALLOWANCE> 7,069
<TOTAL-ASSETS> 1,380,716
<DEPOSITS> 974,823
<SHORT-TERM> 134,404
<LIABILITIES-OTHER> 15,441
<LONG-TERM> 119,980
0
0
<COMMON> 11,719
<OTHER-SE> 104,349
<TOTAL-LIABILITIES-AND-EQUITY> 1,380,716
<INTEREST-LOAN> 28,712
<INTEREST-INVEST> 19,041
<INTEREST-OTHER> 353
<INTEREST-TOTAL> 48,119
<INTEREST-DEPOSIT> 15,078
<INTEREST-EXPENSE> 21,039
<INTEREST-INCOME-NET> 27,080
<LOAN-LOSSES> 1,700
<SECURITIES-GAINS> 379
<EXPENSE-OTHER> 24,941
<INCOME-PRETAX> 10,320
<INCOME-PRE-EXTRAORDINARY> 10,320
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,480
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.79
<YIELD-ACTUAL> 4.59
<LOANS-NON> 5,086
<LOANS-PAST> 1,568
<LOANS-TROUBLED> 47
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,633
<CHARGE-OFFS> 2,755
<RECOVERIES> 491
<ALLOWANCE-CLOSE> 7,069
<ALLOWANCE-DOMESTIC> 7,069
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
