As filed with the Securities and Exchange Commission on December 19, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM S-4
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REGISTRATION STATEMENT+
Under
THE SECURITIES ACT OF 1933
LAKELAND BANCORP, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 6712
- ------------------------------- ----------------------------
(State or other jurisdiction of (Primary Standard Industrial
(incorporation or organization) Classification Code Number)
22-2953275
----------------------
(I.R.S. employer
identification number)
250 OAK RIDGE ROAD, OAK RIDGE, NEW JERSEY 07438
(973) 697-2000
---------------------------------------------------
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
ARTHUR L. ZANDE
EXECUTIVE VICE PRESIDENT
LAKELAND BANCORP, INC.
250 OAK RIDGE ROAD, OAK RIDGE, NEW JERSEY 07438
(973) 697-2000
------------------------------------------------------------
(Name and address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copy to:
PETER H. EHRENBERG, ESQ.
LAURA R. KUNTZ, ESQ.
LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN, P.A.
65 LIVINGSTON AVENUE
ROSELAND, NEW JERSEY 07068
(973) 992-8700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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 statement number of the earlier effective
registration statement for the same offering [ ]...............
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]...............
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
Proposed Proposed
Title of Securities Amount to be Maximum Offering Maximum Aggregate Amount of
to be Registered Registered Price per Share (2) Offering Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $2.50 per share 828,615 shares(1) $24.50 $20,301,068 $5,989
=========================================================================================================
</TABLE>
1 Represents the maximum number of shares of the Registrant's Common Stock
issuable to shareholders of Metropolitan State Bank, after applying the
maximum Exchange Number set forth in the merger agreement described herein;
plus an indeterminate number of additional shares of the Registrant's
Common Stock which may be issuable pursuant to the anti-dilution provisions
of such merger agreement.
2 Based, pursuant to Rules 457(c) and 457(f)(1), on the closing bid price of
the Common Stock of Metropolitan State Bank on December 17, 1997, a date
within 5 business days of the date on which this Registration Statement was
initially filed. (There was no asked price on such date)
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 SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
METROPOLITAN STATE BANK
__________, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Metropolitan State Bank ("MSB"), which will be held at Don Pepe's Steak House,
U.S. Highway No. 46, Pine Brook, New Jersey on ________________, 1998 at _____
p.m., local time (the "Meeting").
The Meeting represents an historic occasion for MSB. At the Meeting, you
will be asked to consider and vote upon a proposal to approve an Agreement and
Plan of Reorganization (the "Merger Agreement") pursuant to which MSB will merge
(the "Merger") with a newly formed bank subsidiary ("New Bank") of Lakeland
Bancorp, Inc. ("Lakeland"). Pursuant to the Merger Agreement, New Bank will
merge with and into MSB, and MSB's shareholders will be entitled to receive a
number of shares of Lakeland's Common Stock (the "Lakeland Common Stock") in
exchange for each share of MSB Common Stock which they own on the effective date
of the Merger, as described in the attached Proxy Statement-Prospectus. The
Merger Agreement provides that if the Market Value (as defined in the Merger
Agreement) of the Lakeland Common Stock is between $22.50 and $31.00 per share,
MSB's shareholders will be entitled to receive for each share of MSB Common
Stock that they own at the time of the Merger a number of shares of Lakeland
Common Stock (the "Exchange Number") determined by dividing $26.20 by such
Market Value. In the event that the Market Value of the Lakeland Common Stock is
less than $22.50 per share, the Merger Agreement provides that the Exchange
Number will be 1.164. In the event that the Market Value of the Lakeland Common
Stock is greater than $31.00 per share, the Merger Agreement provides `that the
Exchange Number will be 0.845. Both Lakeland and MSB have the right to terminate
the Merger in the event that the Market Value of the Lakeland Common Stock is
less than $22.50 per share. Consummation of the Merger is subject to certain
conditions, including the approval of the Merger by various regulatory agencies
and approval of MSB's shareholders as described below.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
The enclosed Notice of Special Meeting of Shareholders and Proxy
Statement-Prospectus describe the Merger and provide specific information
concerning the Meeting. Please read the Proxy Statement-Prospectus carefully and
consider the information contained therein. Your vote is of great importance, as
the approval of MSB's shareholders of the Merger Agreement is required to
consummate the Merger.
It is very important that your shares be represented at the Meeting,
regardless of whether you plan to attend in person. The affirmative vote of
two-thirds of the outstanding shares of MSB's Common Stock will be required to
approve the Merger Agreement. Consequently, the failure of a shareholder to vote
will have the same effect as a vote against the proposal. Therefore, I urge you
to execute, date and return the enclosed proxy card in the enclosed postage-paid
envelope as soon as possible to ensure that your shares will be voted at the
Meeting. You should not send in certificates for your MSB shares at this time.
At a later date you will receive specific instructions regarding the exchange of
your MSB shares.
On behalf of the Board of Directors, I urge you to vote FOR approval of
the Merger Agreement.
Sincerely,
Paul P. Lubertazzi, Chairman,
President and CEO
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
METROPOLITAN STATE BANK
NOTICE IS HEREBY GIVEN that, pursuant to the call of its directors, a
Special Meeting of Shareholders of Metropolitan State Bank ("MSB") will be held
at Don Pepe's Steak House, U.S. Highway No. 46, Pine Brook, New Jersey on
___________________, 1998 at _______ p.m., local time, for the purpose of
considering and voting upon the following matters:
1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization, dated September 16, 1997 (the "Merger Agreement"),
attached as Appendix A to the accompanying Proxy Statement-Prospectus,
providing for the merger (the "Merger") of MSB and a newly formed
subsidiary bank ("New Bank") of Lakeland Bancorp, Inc. ("Lakeland").
Pursuant to the Merger Agreement, New Bank will merge with and into MSB
and the shareholders of MSB will be entitled to receive a number of shares
of Lakeland's Common Stock (the "Lakeland Common Stock") in exchange for
each share of MSB's Common Stock which they own on the effective date of
the Merger. The Merger Agreement provides that if the Market Value (as
defined in the Merger Agreement) of the Lakeland Common Stock is between
$22.50 and $31.00 per share, MSB's shareholders will be entitled to
receive for each share of MSB Common Stock that they own at the time of
the Merger a number of shares of Lakeland Common Stock (the "Exchange
Number") determined by dividing $26.20 by such Market Value. In the event
that the Market Value of the Lakeland Common Stock is less than $22.50 per
share, the Merger Agreement provides that the Exchange Number will be
1.164. In the event that the Market Value of the Lakeland Common Stock is
greater than $31.00 per share, the Merger Agreement provides that the
Exchange Number will be 0.845. Both Lakeland and MSB have the right to
terminate the Merger in the event that the Market Value of the Lakeland
Common Stock is less than $22.50 per share.
2. To consider and act upon other matters that may properly come
before the Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on ____________,
1998 as the date for determining the shareholders of record entitled to receive
notice of, and to vote at, the Special Meeting.
Holders of MSB's Common Stock have the right to dissent from the vote on
the Merger Agreement and to receive payment of the value of their shares upon
compliance with the applicable provisions of N.J.S.A. 17:9A-140, the text of
which is included as Appendix C to the Proxy Statement-Prospectus that is
attached to this Notice of Special Meeting. For a summary of the dissenters'
rights of MSB's shareholders, see "THE MERGER--Rights of Dissenting
Shareholders" in the Proxy Statement-Prospectus.
BY ORDER OF THE BOARD OF DIRECTORS
By: LOUIS E. LUDDECKE,
Secretary
Montville, New Jersey
_____________, 1998
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU INTEND TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND THE
MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED BY YOU AT
ANY TIME PRIOR TO ITS EXERCISE.
<PAGE>
PROXY STATEMENT
METROPOLITAN STATE BANK
-----------------------
PROSPECTUS
LAKELAND BANCORP, INC.
COMMON STOCK, PAR VALUE $2.50 PER SHARE
----------------------
This Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $5.00 per share ("MSB Common Stock"), of Metropolitan
State Bank ("MSB"), in connection with the solicitation of proxies by the Board
of Directors of MSB for use at a Special Meeting of MSB's shareholders to be
held at Don Pepe's Steak House, U.S. Highway No. 46, Pine Brook, New Jersey on
____________, 1998 at _____ p.m., local time, and any adjournments or
postponements thereof (the "Meeting").
At the Meeting, the shareholders of record of MSB Common Stock as of the
close of business on _______________, 1998 will consider and vote upon a
proposal to approve an Agreement and Plan of Reorganization, dated September 16,
1997 (the "Merger Agreement"), by and between Lakeland Bancorp, Inc., a New
Jersey corporation ("Lakeland"), and MSB. Pursuant to the Merger Agreement, (i)
Lakeland will cause a new state-chartered bank to be organized ("New Bank") as a
subsidiary of Lakeland, (ii) New Bank will merge with and into MSB (the
"Merger") and (iii) MSB's shareholders will be entitled to receive a number of
shares of Lakeland's Common Stock, par value $2.50 per share (the "Lakeland
Common Stock"), in exchange for each share of MSB Common Stock which they own on
the effective date of the Merger. The Merger Agreement provides that if the
Market Value (as defined in the Merger Agreement) of the Lakeland Common Stock
is between $22.50 and $31.00 per share, MSB's shareholders will be entitled to
receive for each share of MSB Common Stock that they own at the time of the
Merger a number of shares of Lakeland Common Stock (the "Exchange Number")
determined by dividing $26.20 by such Market Value. In the event that the Market
Value of the Lakeland Common Stock is less than $22.50 per share, the Merger
Agreement provides that the Exchange Number will be 1.164. In the event that the
Market Value of the Lakeland Common Stock is greater than $31.00 per share, the
Merger Agreement provides that the Exchange Number will be 0.845. Both Lakeland
and MSB have the right to terminate the Merger in the event that the Market
Value of the Lakeland Common Stock is less than $22.50 per share.
For a description of the Merger Agreement, which is included in its
entirety as Appendix A to this Proxy Statement-Prospectus, see "THE MERGER".
This Proxy Statement-Prospectus and the accompanying proxy card are first being
mailed to shareholders of MSB on or about _________, 1998.
See "RISK FACTORS" beginning on page 9 for a discussion of certain risk factors
that should be considered by MSB shareholders.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
----------------------
The date of this Proxy Statement-Prospectus is ____________, 1998.
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<PAGE>
This Proxy Statement-Prospectus also constitutes a prospectus of Lakeland
with respect to the shares of Lakeland Common Stock issuable pursuant to the
Merger.
Lakeland Common Stock is quoted in the over-the-counter market. The
closing bid price of the Lakeland Common Stock on _____________, 1998 was
$_______ per share.
AVAILABLE INFORMATION
Lakeland is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Copies of such reports, proxy statements and other
information can be obtained, upon payment of prescribed fees, from the SEC at
the Public Reference Room, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. In addition, such reports, proxy statements and other information
can be inspected and copied at the SEC's facilities referred to above and at the
SEC's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661. The SEC maintains an Internet web site that contains such reports, proxy
statements and other information regarding issuers (including Lakeland) filed
electronically with the SEC. The address of that site is http://www.sec.gov.
Lakeland has filed with the SEC a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act"), with respect to the shares of
Lakeland Common Stock issuable pursuant to the Merger. This Proxy
Statement-Prospectus does not contain all the information set forth in the
Registration Statement, in accordance with the rules and regulations of the SEC,
and reference hereby is made to such omitted information. Such additional
information may be obtained from the SEC's principal office in Washington, D.C.,
as described above, and is also available at the SEC's Internet web site
described above.
Statements contained in this Proxy Statement-Prospectus or in any document
incorporated by reference in this Proxy Statement-Prospectus, as to the contents
of any document referred to herein or therein, are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by Lakeland (File No. 33-27312)
are hereby incorporated by reference in this Proxy Statement-Prospectus and made
a part hereof:
1. Lakeland's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. Lakeland's Proxy Statement pertaining to its 1997 Annual Meeting
of Shareholders;
3. Lakeland's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
4. The description of the Lakeland Common Stock set forth in any
Registration Statement filed by Lakeland pursuant to Section 12 of the
Exchange Act, and any amendment or report filed for the purpose of
updating any such description; and
5. Lakeland's Current Report on Form 8-K filed with the SEC on
September 22, 1997, as amended by a Form 8-K/A1 filed on September 23,
1997.
All documents filed by Lakeland pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the Meeting shall be deemed
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<PAGE>
incorporated by reference in this Proxy Statement-Prospectus and a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference will be deemed to
be modified or superseded for the purpose of this Proxy Statement-Prospectus to
the extent that a statement contained herein or in the other subsequently filed
document which also is, or is deemed to be, incorporated by reference modifies
or supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement-Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO LAKELAND WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS, OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST MADE TO LAKELAND BANCORP, INC., 250 OAK RIDGE ROAD, OAK
RIDGE, NEW JERSEY 07438, ATTENTION: ARTHUR L. ZANDE, EXECUTIVE VICE PRESIDENT
(TELEPHONE: 973-697-2000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY ____________, 1998.
All information contained or incorporated in this Proxy
Statement-Prospectus with respect to Lakeland, Lakeland Bank and the New Bank
was supplied by Lakeland and all information contained in this Proxy
Statement-Prospectus with respect to MSB was supplied by MSB. Although neither
Lakeland nor MSB 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 Lakeland nor MSB can warrant the accuracy or
completeness of such information or statements as they relate to the other
entity or its subsidiaries.
No person is authorized to give any information or to make any
representations other than as contained herein and, if given or made, such
information or representations must not be relied upon as having been
authorized. This Proxy Statement-Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this document nor any
distribution of securities made hereunder shall under any circumstances create
an implication that there has been no change in the affairs of Lakeland or MSB
since the date hereof or that the information herein is correct as of any time
subsequent to the date hereof.
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<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 2
SUMMARY.................................................................... 5
RISK FACTORS............................................................... 9
MARKET PRICE AND DIVIDEND DATA............................................. 10
ACTUAL AND PRO FORMA PER SHARE DATA........................................ 12
SELECTED FINANCIAL DATA.................................................... 14
SUMMARY SELECTED PRO FORMA DATA............................................ 17
INTRODUCTION
General.............................................................. 18
Parties to the Merger................................................ 18
THE MEETING
The Meeting.......................................................... 19
Vote Required........................................................ 19
Recommendation of the MSB Board...................................... 20
THE MERGER.................................................................
Background of and Reasons for the Merger............................. 20
Opinion of MSB's Financial Advisor................................... 22
Conversion of MSB's Shares........................................... 25
MSB Stock Options.................................................... 26
No Fractional Shares................................................. 26
Delivery of Shares................................................... 26
Federal Income Tax Consequences...................................... 27
Effect of the Merger................................................. 29
Effective Time....................................................... 29
Conditions to Consummation of the Merger............................. 29
Regulatory Approvals................................................. 30
Conduct of MSB's Business Pending the Merger......................... 30
Fee in the Event of Another Transaction.............................. 31
Termination, Waiver and Amendment.................................... 31
Management and Operation of MSB Following the Merger................. 32
Interests of Certain Persons in the Merger........................... 32
Accounting Treatment of the Merger................................... 35
Rights of Dissenting Shareholders.................................... 35
PRO FORMA COMBINED FINANCIAL INFORMATION................................... 36
BUSINESS OF MSB............................................................ 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
MSB'S FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................ 45
DESCRIPTION OF LAKELAND'S CAPITAL STOCK.................................... 65
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
UNDER THE NEW JERSEY BANKING ACT AND THE
NEW JERSEY BUSINESS CORPORATION ACT................................... 67
OTHER MATTERS.............................................................. 70
LEGAL OPINION.............................................................. 70
EXPERTS.................................................................... 70
INDEX TO MSB'S CONSOLIDATED FINANCIAL STATEMENTS........................... 71
APPENDICES:
Appendix A: Agreement and Plan of Reorganization....................A-1
Appendix B: Opinion of Capital Consultants of Princeton, Inc........B-1
Appendix C: N.J.S.A. 17:9A-140 through 17:9A-145....................C-1
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<PAGE>
SUMMARY
The following summary is not intended to be a complete description of all
material facts regarding Lakeland, MSB or the matters to be considered at the
Meeting and is qualified in all respects by the information appearing elsewhere
or incorporated by reference in this Proxy Statement-Prospectus, the Appendices
hereto and the documents referred to herein.
On October 15, 1997, Lakeland paid a 5% stock dividend to shareholders of
record on October 1, 1997 (the "Stock Dividend"). All share and per share data
concerning Lakeland Common Stock set forth herein have been retroactively
adjusted to reflect all stock dividends paid by Lakeland through the date of
this Proxy Statement-Prospectus, including the Stock Dividend, as though the
payment of such dividends occurred prior to the date as to which such
information relates.
PARTIES TO THE MERGER
Lakeland. Lakeland is a bank holding company whose principal operating
subsidiary is Lakeland Bank, formerly named Lakeland State Bank (the "Bank"), a
New Jersey-chartered commercial bank. The corporate headquarters of Lakeland and
the Bank are located at 250 Oak Ridge Road, Oak Ridge, New Jersey 07438. The
telephone number of Lakeland and the Bank is (973) 697-2000. Incorporated in
1969, the Bank is a full service commercial bank which offers a wide range of
consumer and commercial services. The Bank currently operates 13 branches in
Morris, Passaic and Sussex counties in New Jersey. The deposits of the Bank are
insured by the Federal Deposit Insurance Corporation (the "FDIC"). As of
September 30, 1997, Lakeland had consolidated assets, deposits and shareholders'
equity of $399.2 million, $357.9 million and $40.3 million, respectively.
MSB. MSB is a New Jersey-chartered commercial bank incorporated in 1987.
The main office of MSB is located at 166 Changebridge Road, Montville, New
Jersey 07045. The telephone number of MSB is (973) 882-0800. MSB conducts
business in New Jersey through its main office and one branch office located in
Morris and Essex counties, respectively. As of September 30, 1997, MSB had
consolidated assets, deposits and shareholders' equity of $94.4 million, $81.9
million and $7.4 million, respectively.
EFFECT OF THE MERGER; EXCHANGE OF STOCK
Pursuant to the Merger Agreement, Lakeland will establish a new
state-chartered bank to be organized under the laws of the State of New Jersey
("New Bank"), as a subsidiary of Lakeland, and New Bank will merge with and into
MSB. At the effective time of the Merger, each outstanding share of MSB Common
Stock will be converted into a number of shares of Lakeland Common Stock. The
Merger Agreement provides that if the Market Value (as defined in the Merger
Agreement) of the Lakeland Common Stock is between $22.50 and $31.00 per share,
MSB's shareholders will be entitled to receive for each share of MSB Common
Stock that they own at the time of the Merger a number of shares of Lakeland
Common Stock (the "Exchange Number") determined by dividing $26.20 by such
Market Value. For example, if the Market Value of the Lakeland Common Stock is
$27.50, the Exchange Number would be 0.953. In the event that the Market Value
of the Lakeland Common Stock is less than $22.50 per share, the Merger Agreement
provides that the Exchange Number will be 1.164. In the event that the Market
Value of the Lakeland Common Stock is greater than $31.00 per share, the Merger
Agreement provides that the Exchange Number will be 0.845. Both Lakeland and MSB
have the right to terminate the Merger in the event that the Market Value of the
Lakeland Common Stock is less than $22.50 per share.
MEETING OF SHAREHOLDERS
The Meeting will be held at Don Pepe's Steak House, U.S. Highway No. 46,
Pine Brook, New Jersey, on _______________________, 1998 at _____ p.m., local
time. At the Meeting, the holders of
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<PAGE>
MSB Common Stock will consider and vote upon (i) a proposal to approve the
Merger Agreement and (ii) such other matters as may properly be brought before
the Meeting.
VOTES REQUIRED; RECORD DATE
Only holders of record of shares of MSB Common Stock at the close of
business on _______, 1998 (the "Record Date") will be entitled to vote at the
Meeting. The affirmative vote of the holders of two-thirds of the outstanding
shares of MSB Common Stock will be required to approve the Merger Agreement.
Therefore, a failure by a holder of MSB Common Stock to return a properly
executed proxy card or to vote in person at the Meeting will have the same
effect as a vote against the Merger Agreement. Abstentions and broker non-votes
will have the same effect as votes against the Merger Agreement. As of the
Record Date, there were 711,868 shares of MSB Common Stock outstanding and
entitled to be voted.
The directors and executive officers of MSB and their affiliates
beneficially owned, as of December 1, 1997, 175,245 shares (or approximately
24.62% of the outstanding shares) of MSB Common Stock. As of December 1, 1997,
neither Lakeland, the Bank nor any of the directors and executive officers of
Lakeland or their affiliates beneficially owned any shares of MSB Common Stock
directly or, with respect to the Bank, in a fiduciary capacity. The directors
and executive officers of MSB intend to vote their shares in favor of the
Merger. See "THE MEETING--Vote Required."
RECOMMENDATION OF THE MSB BOARD OF DIRECTORS.
MSB's Board of Directors (the "MSB Board") believes that the Merger is in
the best interests of MSB's shareholders. ACCORDINGLY, MSB'S BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT MSB'S SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. See "THE MERGER--Background of and
Reasons for the Merger."
For information regarding the interests of certain officers and directors
of MSB in the Merger, see "THE MERGER--Interests of Certain Persons in the
Merger."
OPINIONS OF FINANCIAL ADVISOR
Capital Consultants of Princeton, Inc. ("Capital Consultants") has served
as the financial advisor to MSB in connection with the Merger and has rendered
an opinion to the MSB Board that, as of September 15, 1997 (the date on which
the Merger Agreement was originally approved by the MSB Board), the
consideration to be received in the Merger is fair to the holders of MSB Common
Stock from a financial point of view. Capital Consultants has delivered an
opinion dated as of the date of this Proxy Statement-Prospectus to the same
effect. For additional information, see "THE MERGER--Opinion of MSB's Financial
Advisor." The opinion of Capital Consultants dated as of the date of this Proxy
Statement-Prospectus is attached as Appendix B to this Proxy
Statement-Prospectus. Shareholders are urged to read such opinion in its
entirety for a description of the procedures followed, matters considered and
limitations on the review undertaken in connection therewith.
EFFECTIVE TIME
The Merger will become effective at the date and time (the "Effective
Time") specified in a certification to be filed by MSB and the New Bank with the
Department of Banking of the State of New Jersey (the "Department") and
submitted after consummation of the closing (the "Closing") described herein.
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of the shareholder approval solicited hereby, receipt of necessary
regulatory approvals, receipt of opinions of
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<PAGE>
counsel regarding certain matters, including certain tax aspects of the Merger,
and satisfaction of other customary closing conditions.
Lakeland received from the Department approval of the charter of the New
Bank and of the Merger on _______, 1998. In addition to the approval of the
Department, the approval of the FDIC and the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") are necessary to consummate the
Merger. There can be no assurance that such regulatory approvals will be
obtained, and, if obtained, there can be no assurance as to the date of any such
approval. Furthermore, there can be no assurance that any such approvals will
not contain a condition or requirement that causes such approvals to fail to
satisfy the conditions set forth in the Merger Agreement and described under
"THE MERGER--Conditions to Consummation of the Merger."
See "THE MERGER-Conditions to Consummation of the Merger," "--Regulatory
Approvals," and "--Conduct of MSB's Business Pending the Merger."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated, and the Merger abandoned, prior to
the Effective Time, either before or after its approval by MSB's shareholders
(i) by the mutual consent of Lakeland and MSB; (ii) by either Lakeland or MSB
individually under certain specified circumstances, including the failure of the
Merger to become effective by April 30, 1998, unless the failure to consummate
the Merger by such time is due to the breach of a covenant contained in the
Merger Agreement by the party seeking to terminate; (iii) by MSB if MSB's Board
shall have approved another transaction (which is not contemplated) through the
exercise of its fiduciary obligations; (iv) by Lakeland or MSB if the Market
Value of the Lakeland Common Stock is less than $22.50 per share; and (v) by
either party if holders of more than 9 1/2% of the outstanding shares of MSB
Common Stock file a written notice of dissent to the Merger in accordance with
applicable law. See "THE MERGER - Termination, Waiver and Amendment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of MSB's management and the MSB Board may be deemed to
have interests in the Merger in addition to their interests, if any, as
shareholders of MSB generally. These include, among other things, provisions in
the Merger Agreement relating to indemnification and benefits. See "THE MERGER -
Interests of Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is conditioned upon receipt of an opinion of Lakeland's counsel
to the effect, among other things, that the Merger will constitute a tax-free
reorganization as defined in Section 368(a)(1) of the Internal Revenue Code of
1986, as amended. For information regarding certain federal income tax matters,
see "THE MERGER - Federal Income Tax Consequences."
ACCOUNTING TREATMENT
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, the consolidated assets, liabilities and shareholders' equity of MSB
will be included in the consolidated assets, liabilities and shareholders'
equity of Lakeland. See "PRO FORMA COMBINED FINANCIAL INFORMATION" and "THE
MERGER - Accounting Treatment of the Merger."
FEE IN THE EVENT OF ANOTHER TRANSACTION
The Merger Agreement provides that if certain events occur, MSB or any
successor in interest shall be obligated to pay Lakeland a termination fee (the
"Termination Fee") equal to $500,000, plus any legal fees and expenses incurred
by Lakeland in enforcing its right to obtain the Termination Fee. The
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<PAGE>
Termination Fee is payable if, within 24 months after the termination of the
Merger Agreement in certain circumstances, a merger or similar transaction
involving MSB and a party unrelated to Lakeland occurs. The Termination Fee also
is payable immediately in the event that MSB terminates the Merger Agreement
through the exercise of its fiduciary obligations upon its receipt of an
unsolicited offer from an unrelated party to pursue another transaction. The
Termination Fee will likely make it more costly for another party to acquire
MSB. The obligation of a successor in interest to MSB to pay the Termination Fee
may be considered a deterrent to other potential acquisitions of control of MSB
because it is likely to increase the cost of any such acquisition. See "THE
MERGER--Fee in the Event of Another Transaction."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, shareholders of MSB (except dissenting
shareholders) will become shareholders of Lakeland. The rights of shareholders
of Lakeland are determined by the New Jersey Business Corporation Act (the
"BCA") and by Lakeland's certificate of incorporation and by-laws. The rights of
shareholders of Lakeland differ from the rights of shareholders of MSB with
respect to certain important matters, including certain voting requirements. For
a summary of these differences, see "COMPARISON OF THE RIGHTS OF SHAREHOLDERS
UNDER THE NEW JERSEY BANKING ACT AND THE NEW JERSEY BUSINESS CORPORATION ACT."
DISSENTERS' RIGHTS
Under applicable law, holders of MSB Common Stock who comply with
applicable notice requirements and follow certain other procedures will have the
right to dissent from the Merger and be paid cash for the value of their shares
of MSB Common Stock. In order for a holder of MSB Common Stock to perfect
dissenters' rights, such holder must serve a written notice of dissent from the
Merger at the principal office of MSB not later than the third day prior to the
date of the Meeting and must not vote to approve the Merger at the Meeting. In
addition, within thirty days after the Effective Time, each such holder must
make a written request to MSB, in its capacity as the surviving bank (the
"Surviving Bank"), for the value of his or her shares. The value of such
holder's shares will be determined as of the Effective Time. Any deviation from
such procedures may result in the forfeiture of dissenters' rights. Accordingly,
the holders of MSB Common Stock wishing to dissent from the Merger Agreement are
urged to read carefully "THE MERGER--Rights of Dissenting Shareholders" and
Appendix C attached to this Proxy Statement--Prospectus and to consult with
their own legal advisors.
RISK FACTORS
An investment in the Lakeland Common Stock involves a high degree of risk.
See "RISK FACTORS".
-8-
<PAGE>
RISK FACTORS
An investment in the Lakeland Common Stock offered hereby involves a high
degree of risk. In addition, this Proxy Statement-Prospectus contains
forward-looking statements which involve risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth under "Summary," "Risk Factors," "Management's Discussion and Analysis of
MSB's Financial Condition and Results of Operations," and "Business of MSB," as
well as in this Proxy Statement-Prospectus generally. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and elsewhere in this Proxy Statement-Prospectus. Accordingly, MSB
shareholders should consider carefully the following risk factors, in addition
to the other information concerning Lakeland and its business contained or
incorporated by reference in this Proxy Statement-Prospectus, before deciding to
invest in the Lakeland Common Stock by approving the Merger Agreement.
LACK OF AN ACTIVE TRADING MARKET. The Lakeland Common Stock is not traded
on a stock exchange. Moreover, as an over-the-counter stock, Lakeland Common
Stock is not quoted on the National Association of Securities Dealers Automated
Quotation System (Nasdaq) or actively traded by any market makers. The bid
prices set forth herein under "MARKET PRICE AND DIVIDEND DATA" merely reflect
bid prices submitted to Lakeland by Ryan, Beck & Co. in its capacity as a market
maker and do not necessarily reflect prices at which actual sales were made.
Ryan, Beck & Co. has rendered advisory services to Lakeland in connection with
the Merger. No assurance can be given that an active trading market in the
Lakeland Common Stock will develop in the future. In the absence of an active
trading market, an acquisition of the Lakeland Common Stock may constitute an
illiquid investment. The closing bid price for a share of Lakeland Common Stock
on ___________, 1998 was $____. No assurance can be given that the Lakeland
Common Stock will not trade below such price in the future.
RISKS OF INTEGRATION. Lakeland has not consummated another acquisition
comparable to the proposed acquisition of MSB. The success of Lakeland following
consummation of the Merger will depend, in part, on the extent to which Lakeland
is able to integrate MSB into Lakeland, including its ability to centralize
certain administrative functions, eliminate unnecessary duplication of other
functions and otherwise integrate MSB into a cohesive, efficient enterprise. No
assurance can be given that Lakeland will be able to accomplish this integration
successfully or manage effectively the combined enterprise.
NO GUARANTEED EXCHANGE NUMBER. The number of shares of Lakeland Common
Stock into which each share of MSB Common Stock will be converted at the
Effective Time of the Merger will be determined based on the Market Value of the
Lakeland Common Stock. The Merger Agreement provides that the term "Market
Value" means generally the average of the bid prices of a share of Lakeland
Common Stock during a 20 day period ending on the day on which Lakeland receives
Federal Reserve Board approval for the Merger. The Merger Agreement provides
that if the Market Value is between $22.50 and $31.00 per share, MSB's
stockholders will be entitled to receive for each share of MSB Common Stock that
they own at the time of the Merger a number of shares of Lakeland Common Stock
(the "Exchange Number") determined by dividing $26.20 by such Market Value. In
the event that the Market Value of the Lakeland Common Stock is less than $22.50
per share, the Merger Agreement provides that the Exchange Number will be 1.164.
In the event that the Market Value of the Lakeland Common Stock is greater than
$31.00 per share, the Merger Agreement provides that the Exchange Number will be
0.845. Both Lakeland and MSB have the right to terminate the Merger in the event
that the Market Value of the Lakeland Common Stock is less than $22.50 per
share.
No assurance can be given as to the Market Value of the Lakeland Common
Stock at the time the Exchange Number will be determined. An assumed Exchange
Number of 0.953 is included in certain of the disclosures contained in this
Proxy Statement-Prospectus for illustrative purposes. Such assumed Exchange
Number has been calculated by using $27.50, the closing bid price of a share of
Lakeland Common Stock on ________, 1998, as the Market Value of the Lakeland
Common Stock. The Market Value of the Lakeland Common Stock at the time the
Exchange Number is actually determined
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<PAGE>
may be higher or lower than $27.50. Accordingly, no assurance can be given as to
what the actual Exchange Number will be, or, if the Market Value of the Lakeland
Common Stock is less than $22.50, that the Merger Agreement will not be
terminated. Since, if the Market Value of the Lakeland Common Stock is less than
$22.50 and the Merger Agreement is not terminated, the Exchange Number will be
1.164, MSB's shareholders will receive, in such event, less than $26.20 per
share for each share of MSB Common Stock that they own at the time of the
Merger.
LACK OF SUBSTANTIAL QUALITY LOAN DEMAND. The Bank has experienced periods
in which its capacity and desire to make loans has exceeded the demand for
quality loans. The Bank has sought to avoid reducing its underwriting standards
or aggressively expanding the types of loans that it makes. Instead, the Bank
has responded to the lack of sufficient quality loan demand by reducing its
funding costs and expanding its investment portfolio and, in the shorter term,
the volume of federal funds sold. Although Lakeland's management believes that
it would be in the best interests of the Bank to expand its loan portfolio with
quality loans, no assurances can be given that future demand will be sufficient
to take advantage of the Bank's lending capacity.
COMPETITION. The market for banking and bank related services is highly
competitive. Lakeland and the Bank compete with other providers of financial
services such as other bank holding companies, commercial and savings banks,
savings and loan associations, credit unions, money market and mutual funds,
mortgage companies, and a growing list of other local, regional and national
companies which offer competitive financial services. Mergers between financial
institutions within New Jersey and in neighboring states have added competitive
pressure. Competition is expected to intensify as a consequence of interstate
banking laws now in effect or that may be in effect in the future. Lakeland and
the Bank compete by seeking to offer quality products and convenient services at
competitive prices. In order to maintain and enhance its competitive position,
Lakeland regularly reviews its products, locations and services. No assurance
can be given that Lakeland will be able to compete successfully in the future.
REGULATORY APPROVALS. Consummation of the Merger is subject, among other
things, to prior receipt of all necessary regulatory approvals. Lakeland has
received the required approvals from the New Jersey Department of Banking. In
addition to the approval of the Department, Lakeland must obtain regulatory
approvals from the FDIC and the Federal Reserve Board. No assurance can be given
that such approvals will be obtained.
MARKET PRICE AND DIVIDEND DATA
The Lakeland Common Stock and the MSB Common Stock are traded in the
over-the-counter market, although Lakeland and MSB do not regard that market to
be an established public trading market with respect to the Lakeland Common
Stock and the MSB Common Stock, respectively. The following table sets forth,
for the indicated periods, (i) the high and low bid prices per share of the
Lakeland Common Stock as reported by Ryan, Beck & Co., a market maker of the
Lakeland Common Stock which has rendered advisory services to Lakeland in
connection with the Merger, (ii) the high and low bid prices per share (for
1995) and the high and low closing bid prices per share (for 1996 and 1997) of
the MSB Common Stock, as reported by the National Quotation Bureau, LLC, and
(iii) the equivalent price per share of MSB Common Stock (a "MSB Common Share")
based on an assumed Exchange Number of 0.953.
The assumed Exchange Number of 0.953 which is included in this Proxy
Statement-Prospectus for illustrative purposes has been calculated by using
$27.50, the closing bid price of a share of Lakeland Common Stock on _____,
1998, as the Market Value of the Lakeland Common Stock. The Market Value of the
Lakeland Common Stock at the time the Exchange Number is actually determined may
be higher or lower than $27.50. See "THE MERGER-Conversion of MSB's Shares".
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<PAGE>
<TABLE>
<CAPTION>
EQUIVALENT PRICE PER
LAKELAND MSB MSB COMMON SHARE
-------- --- --------------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1995 QUARTER ENDED:
March 31...................... $14.25 $13.375 $ 9.00 $ 7.25 $13.58 $12.75
June 30....................... 14.875 14.25 9.25 7.875 14.18 13.58
September 30.................. 16.25 14.875 10.375 9.25 15.49 14.18
December 31................... 17.75 16.25 10.25 9.50 16.92 15.49
1996 QUARTER ENDED:
March 31...................... 20.125 17.75 10.25 10.25 19.18 16.92
June 30....................... 21.00 20.125 10.50 10.25 20.01 19.18
September 30.................. 21.875 21.00 11.50 10.50 20.85 20.01
December 31................... 22.875 21.875 12.50 11.50 21.80 20.85
1997 QUARTER ENDED:
March 31...................... 24.00 22.875 15.75 12.25 22.87 21.80
June 30....................... 24.75 22.875 16.50 15.50 23.59 21.80
September 30.................. 27.00 24.75 23.00 16.00 25.73 23.59
December 31 (through
December 17) ............... 27.50 26.50 24.50 23.00 26.21 25.25
</TABLE>
The prices listed above reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not necessarily represent actual
transactions. As of December 1, 1997, MSB had 392 holders of record.
The following table sets forth the reported closing bid price per share of
Lakeland Common Stock, the reported closing bid price per share of MSB Common
Stock and the equivalent price per MSB Common Share on (i) September 15, 1997,
the last business day preceding public announcement of the signing of the Merger
Agreement; and (ii) ____________, 1998, a date shortly prior to the mailing of
this Proxy Statement-Prospectus:
Equivalent
Lakeland MSB Price Per
Common Common MSB
Stock Stock Common Share
-------- ------ ------------
September 15, 1997............... $25.75 $19.00 $24.54
____________, 1998...............
The equivalent price per MSB Common Share at each specified date and for
each period represents the last reported bid price of a share of Lakeland Common
Stock on such date or for such period multiplied by an assumed Exchange Number
of 0.953.
MSB shareholders are advised to obtain current market quotations for the
Lakeland Common Stock. The market price of Lakeland Common Stock at the time the
Exchange Number is determined may be higher or lower than the market price at
the time the Merger Agreement was executed, at the date of mailing of this Proxy
Statement-Prospectus or at the time of the Meeting.
The holders of Lakeland Common Stock are entitled to receive dividends when
and if declared by Lakeland's Board of Directors out of funds legally available
therefor. Lakeland has paid regular cash dividends since its inception in 1989
and the Bank paid cash dividends to shareholders from 1977 until Lakeland was
incorporated. Although Lakeland currently intends to continue to pay cash
dividends on Lakeland Common Stock, there can be no assurance that Lakeland's
dividend policy will remain unchanged after the Merger. The policy of the
Federal Reserve Board provides that a bank holding
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<PAGE>
company is expected to act as a source of financial strength to its subsidiary
banks and to commit resources to support such subsidiary banks in circumstances
in which it might not do so absent such policy. Such policy may serve to limit
Lakeland's ability to pay dividends. In addition, the payment of dividends by
the Bank and, following the Merger, by the Surviving Bank, to Lakeland is
regulated. Under the New Jersey Banking Act of 1948, as amended (the "Banking
Act"), a bank may pay dividends only if, upon payment of each such dividend, the
capital stock of such bank will not be impaired and such bank will have a
surplus of not less than fifty percent of its capital stock or the payment of
such dividend will not reduce the surplus of such bank. The FDIC has the
authority to prohibit a state-chartered bank from engaging in conduct which, in
the FDIC's opinion, constitutes an unsafe or unsound banking practice. Under
certain circumstances, the FDIC could claim that the payment of a dividend or
other distribution by a bank to its sole shareholder constitutes an unsafe or
unsound practice. See "DESCRIPTION OF LAKELAND'S CAPITAL STOCK - Description of
Lakeland Common Stock - Dividend Rights."
Adjusted for all stock dividends declared through the date of this Proxy
Statement-Prospectus, Lakeland declared the following per share cash dividends
on the Lakeland Common Stock for the periods indicated below:
1995 1996 1997
---- ---- ----
First Quarter............................. $ .112 $ .121 $ .138
Second Quarter............................ .112 .121 .138
Third Quarter............................. .112 .121 .138
Fourth Quarter............................ .120 .124 .145
------ ------ ------
Total............................ $ .456 $ .487 $ .559
====== ====== ======
MSB has not paid any cash dividends since September 1, 1993. Due to the
proposed Merger and the terms of the Merger Agreement, MSB does not anticipate
declaring a dividend prior to the Merger.
ACTUAL AND PRO FORMA PER SHARE DATA
The following table sets forth per share data relating to dividends, net
income and book value of Lakeland Common Stock and MSB Common Stock, both on an
actual (historical) basis and on a pro forma combined basis. The actual per
share data has been derived from the consolidated financial statements of
Lakeland incorporated by reference herein and the consolidated financial
statements of MSB presented elsewhere herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "INDEX TO MSB'S CONSOLIDATED FINANCIAL STATEMENTS."
The pro forma dividend and book value per share data and the pro forma net
income per share data for the nine months ended September 30, 1997 and 1996 and
the years ended December 31, 1996, 1995 and 1994 have been derived from the pro
forma combined condensed financial statements (appearing elsewhere herein) of
Lakeland and MSB and give effect to the Merger, accounted for as a pooling of
interests. Pro forma per share amounts have been determined based on the
assumptions set forth in the pro forma combined condensed unaudited financial
statements presented elsewhere herein, including the assumption that 647,132
shares of Lakeland Common Stock will be issued in the Merger.
The actual, pro forma and pro forma equivalent per share data included in
the table below should be read in conjunction with the consolidated financial
statements of Lakeland and MSB, the pro forma combined condensed financial
statements of Lakeland and MSB, and the related notes accompanying such
consolidated financial statements, all of which are either incorporated by
reference herein or appear elsewhere herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "INDEX TO MSB'S CONSOLIDATED FINANCIAL STATEMENTS" and
"PRO FORMA COMBINED FINANCIAL INFORMATION". The pro forma data presented below
is not necessarily indicative of the results that would actually have been
attained if the Merger had been consummated as of the first day of the periods
described below or results that may be attained in the future.
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<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH DIVIDENDS DECLARED PER COMMON
SHARE:
Lakeland - Actual(1)............... $ .41 $ .36 $ .49 $ .46 $ .36
MSB - Actual(1).................... - - - - -
MSB, pro forma equivalent(2)....... .39 .35 .46 .44 .34
NET INCOME PER COMMON SHARE:
Lakeland - Actual.................. 1.10 1.11 1.44 1.39 1.41
MSB - Actual....................... .80 .38 .43 .70 .69
Lakeland and MSB, pro forma(3)..... 1.06 1.00 1.29 1.29 1.31
MSB, pro forma equivalent(4)....... 1.01 .95 1.23 1.23 1.25
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------- ------------------
1997 1996 1995
---- ---- ----
BOOK VALUE PER COMMON SHARE:
Lakeland - Actual................... $ 11.31 $ 10.39 $ 9.21
MSB - Actual........................ 10.83 9.96 9.66
MSB and Lakeland, pro forma(5)...... 11.32 10.40 9.36
MSB, pro forma equivalent(6)........ 10.79 9.91 8.92
</TABLE>
- -------------
(1) For information regarding Lakeland's and MSB's dividends, see "MARKET PRICE
AND DIVIDEND DATA."
(2) Represents the dividends declared on the Lakeland Common Stock during the
respective periods multiplied by an assumed Exchange Number of 0.953.
(3) Represents net income per common share on a pro forma combined basis. Such
amounts have been determined by dividing pro forma net income by the sum of
(i) the weighted average number of shares of Lakeland Common Stock
outstanding during each period, retroactively adjusted for stock dividends,
and (ii) 647,132 shares of Lakeland Common Stock assumed to be issued
pursuant to the Merger.
(4) Represents the amount computed pursuant to Note 3 above multiplied by an
assumed Exchange Number of 0.953.
(5) Represents the pro forma combined net book value of Lakeland and MSB
attributable to common shares, divided by the sum of (i) the number of
shares of Lakeland Common Stock outstanding, retroactively adjusted for
stock dividends, and (ii) 647,132 shares of Lakeland Common Stock assumed
to be issued pursuant to the Merger.
(6) Represents the amount computed pursuant to Note 5 above multiplied by an
assumed Exchange Number of 0.953.
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<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected consolidated financial and other
data of Lakeland and MSB. The consolidated results of operations for the nine
months ended September 30, 1997 and 1996 are derived in part from the unaudited
consolidated financial statements incorporated by reference or included
elsewhere in this Proxy Statement-Prospectus. Such interim data includes all
adjustments (consisting solely of normal recurring accruals) necessary for a
fair presentation of the results for the unaudited periods. The consolidated
results of operations for the nine months ended September 30, 1997 and 1996 for
Lakeland and MSB are not necessarily indicative of the results that may be
expected for any other period.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA OF LAKELAND
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- --------- -------- ------- ------- -------- --------
(In thousands, except per share and ratio information)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income......... $20,289 18,962 $25,475 $23,848 $22,184 $20,431 $18,395
Interest expense........ 7,870 7,248 9,696 9,114 7,607 7,822 8,562
------- ------- ------- ------- ------- ------- -------
Net interest income..... 12,419 11,714 15,779 14,734 14,577 12,609 9,833
Provision for possible
loan losses............ 157 169 534 129 225 695 789
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
possible loan losses .. 12,262 11,545 15,245 14,605 14,352 11,914 9,044
Other income............ 1,785 1,581 2,234 1,983 1,912 1,832 1,704
Other expenses.......... 8,123 7,225 9,784 9,505 9,258 8,589 7,390
------- ------- ------- ------- ------- ------- -------
Income before income
taxes ................. 5,924 5,901 7,695 7,083 7,006 5,157 3,358
Income taxes............ 2,022 2,021 2,634 2,287 2,175 1,509 848
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 3,902 $ 3,880 $ 5,061 $ 4,796 $ 4,831 $ 3,648 $ 2,510
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA (1):
Weighted average common
shares outstanding ..... 3,555,003 3,503,985 3,513,088 3,454,682 3,419,617 3,132,150 3,115,350
Net income per common
share ................. $ 1.10 $ 1.11 $ 1.44 $ 1.39 $ 1.41 $ 1.16 $ .81
Dividends paid per
common share.......... 41 .36 .49 .46 .36 .29 .24
BALANCE SHEET SUMMARY:
Securities.............. $128,887 $117,858 $116,959 $125,972 $129,303 $135,621 $124,178
Loans, net.............. 230,355 214,827 222,950 187,812 172,197 145,957 119,000
Allowance for loan losses 3,000 2,975 3,000 2,910 3,000 3,000 2,450
Total assets............ 399,199 366,482 377,545 360,661 333,588 320,593 293,600
Deposits................ 357,904 330,698 340,084 327,942 307,121 297,301 272,903
Shareholders' equity.... 40,270 35,139 36,819 32,040 26,161 23,069 17,341
PERFORMANCE RATIOS:
Return on average
assets (2) ............ 1.33% 1.45% 1.40% 1.42% 1.46% 1.22% 1.02%
Return on average
equity (2) ............ 13.55% 15.48% 14.86% 16.62% 19.29% 19.45% 15.45%
Dividend payout......... 37.71% 32.84% 33.66% 32.79% 25.22% 24.85% 30.32%
Average equity to
average assets ........ 9.82% 9.37% 9.41% 8.55% 7.59% 6.25% 6.58%
Net interest spread(2)(3) 3.79% 3.93% 3.99% 4.04% 4.38% 4.23% 3.77%
ASSET QUALITY RATIOS:
Allowance for possible
loan losses to
total loans, net (4)... 1.28% 1.37% 1.33% 1.53% 1.71% 2.01% 2.02%
Allowance for possible
loan losses to
non-performing loans(5) 75.26% 50.66% 56.27% 74.06% 79.05% 51.88% 62.39%
Allowance for possible
loan losses to
non-performing assets
(excluding loans
past due 90 days or
more and accruing)(6)... 86.36% 86.81% 77.42% 70.55% 77.52% 90.72% 1150.23%
Non-performing loans to
total loans,
net (4)(5)............. 1.71% 2.70% 2.36% 2.06% 2.17% 3.88% 3.23%
Non-performing assets
to total loans,
net and other real
estate owned(4)(6) .... 1.79% 2.70% 2.36% 2.19% 2.52% 4.18% 3.23%
Non-performing assets
(excluding loans
past due 90 days or
more and accruing)
to total loans,
net and other real
estate owned(4)(6)..... 1.49% 1.57% 1.71% 2.16% 2.20% 2.21% .18%
Net charge-offs to
average loans, net(2).. .09% .07% .22% .12% .14% .11% .34%
</TABLE>
- ----------------
(1) Share data has been retroactively restated to reflect a 5% stock dividend
paid on October 15, 1997, a 2% stock dividend paid on December 10, 1996, a
100% stock dividend paid on October 25, 1995, a 5% stock dividend paid on
June 30, 1995, a 10% stock dividend paid on June 10, 1994 and a 6% stock
dividend paid on June 30, 1993.
(2) Interim ratios have been annualized for purposes of comparability with
year-end data.
(3) Computed on a tax equivalent basis.
(4) Total loans are net of unearned income and deferred loan fees.
(5) Non-performing loans include non-accruing loans, renegotiated loans and
loans past due 90 days or more and accruing.
(6) Non-performing assets include non-performing loans plus other real estate
owned.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA OF MSB
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share and ratio information)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income......... $ 4,459 $ 3,843 $ 5,237 $ 5,108 $ 4,513 $ 3,971 $ 3,605
Interest expense........ 1,756 1,560 2,092 2,130 1,689 1,545 1,647
------- ------- ------- ------- ------- ------- -------
Net interest income..... 2,703 2,283 3,145 2,978 2,824 2,426 1,958
Provision for possible
loan losses............ 134 154 374 228 345 177 323
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
possible loan losses .. 2,569 2,129 2,771 2,750 2,479 2,249 1,635
Other income............ 404 329 457 452 313 598 457
Other expenses.......... 2,270 2,149 2,908 2,696 2,308 2,342 1,857
------- ------- ------- ------- ------- ------- -------
Income before income
taxes ................. 703 309 320 506 484 505 235
Income taxes............ 161 51 31 65 57 100 57
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 542 $ 258 $ 289 $ 441 $ 427 $ 405 $ 178
======= ======= ======= ======= ====== ======= =======
PER SHARE DATA(1):
Weighted average common
shares outstanding..... 679,047 679,047 679,047 632,748 622,031 587,370 587,370
Net income per common
share ................. $ .80 $ .38 $ .43 $ .70 $ .69 $ .69 $ .30
Dividends paid per
common share .......... 0 0 0 0 0 0 .04
BALANCE SHEET SUMMARY:
Securities.............. $29,899 $23,973 $24,123 $17,535 $17,902 $11,053 $14,667
Loans, net.............. 46,260 40,953 42,011 40,782 43,776 40,411 31,563
Allowance for possible
loan losses6 ........... 61 634 585 560 547 455 353
Total assets............ 94,428 82,167 80,172 76,418 68,180 60,314 52,384
Deposits................ 81,914 70,959 69,626 64,054 57,000 53,457 45,894
Shareholders' equity.... 7,355 6,677 6,761 6,561 6,054 4,942 4,559
PERFORMANCE RATIOS:
Return on average
assets(2) ............. .86% .46% .38% .62% .65% .68% .35%
Return on average
equity(2) ............. 10.38% 5.23% 4.37% 7.05% 7.90% 8.54% 3.97%
Dividend payout......... 0% 0% 0% 0% 0% 0% 0%
Average equity to
average assets......... 8.25% 8.74% 8.72% 8.80% 8.17% 7.96% 8.82%
Net interest spread
(2)(3) ................ 3.86% 3.67% 3.76% 3.62% 4.03% 4.07% 3.85%
ASSET QUALITY RATIOS:
Allowance for possible
loan losses to
total loans, net (4).. 1.41% 1.55% 1.37% 1.35% 1.23% 1.11% 1.11%
Allowance for possible
loan losses to
non-performing
loans(5) .............. 41.57% 38.73% 45.67% 38.86% 33.31% 100.89% 35.16%
Allowance for possible
loan losses to
non-performing assets
(excluding loans past
due 90 days or more
and accruing(6)....... 69.58% 43.25% 81.93% 36.91% 28.89% 43.42% 35.30%
Non-performing loans to
total loans, net(4)(5).. 3.39% 4.00% 3.01% 3.49% 3.70% 1.10% 3.15%
Non-performing assets
to total loans,
net and other real
estate owned(4)(6)..... 3.83% 5.07% 3.41% 5.08% 5.14% 2.86% 4.76%
Non-performing assets
(excluding loans
past due 90 days
or more and accruing)
to total loans, net
and other real
estate owned(4)(6).... 2.02% 3.54% 1.67% 3.61% 4.07% 2.52% 3.08%
Net charge-offs to
average loans,
net (2)................ 17% .26% .85% .51% .59% .18% .76%
</TABLE>
- --------------
(1) Share data has been retroactively restated to reflect a 10% stock dividend
paid on February 15, 1997, a 10% stock dividend paid on December 1, 1995,
and a 10% stock dividend paid on January 18, 1994.
(2) Interim ratios have been annualized for purposes of comparability with
year-end data.
(3) Not computed on a tax equivalent basis.
(4) Total loans are net of unearned income and deferred loan fees.
(5) Non-performing loans include non-accruing loans, renegotiated loans and
loans past due 90 days or more and accruing.
(6) Non-performing assets include non-performing loans plus other real estate
owned.
-16-
<PAGE>
SUMMARY SELECTED PRO FORMA DATA
The following table presents certain unaudited combined condensed
financial information from the Pro Forma Combined Condensed Statements of Income
for the nine months ended September 30, 1997 and the years ended December 31,
1996, 1995, and 1994, and the Pro Forma Combined Condensed Balance Sheet at
September 30, 1997, in each case giving effect to the acquisition of MSB by
Lakeland in a transaction accounted for as a pooling of interests, as if such
transaction had been consummated for statement of income purposes on the first
day of the applicable periods and for balance sheet purposes on September 30,
1997. The pro forma information is based on the historical consolidated
financial statements of Lakeland and MSB. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "INDEX TO MSB'S CONSOLIDATED FINANCIAL STATEMENTS."
The pro forma financial information assumes an Exchange Number of 0.953 shares
of Lakeland Common Stock for each share of MSB Common Stock outstanding.
The unaudited pro forma information should be read in conjunction with the
consolidated financial statements and related notes included and incorporated by
reference in this Proxy Statement-Prospectus. The pro forma information is not
necessarily indicative of the results of operations which would have been
achieved had the above transactions 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 COMBINED UNAUDITED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS
SEPTEMBER 30, ENDED DECEMBER 31,
--------------- ------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income .............. $15,122 $18,924 $17,712 $17,401
Provision for possible loan losses 291 908 357 570
Net interest income after provision
for possible loan losses.......... 14,831 18,016 17,355 16,831
Income before income taxes........ 6,627 8,015 7,589 7,490
Net income........................ 4,444 5,350 5,237 5,258
Net income per common share....... 1.06 1.29 1.29 1.31
<CAPTION>
AS OF
SEPTEMBER 30,
---------------
1997
----
BALANCE SHEET:
Total assets.................... $493,627
Total deposits.................. 439,818
Total shareholders' equity...... 47,625
Book value per common share..... 11.32
</TABLE>
-17-
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement-Prospectus is being furnished to the holders of
common stock, par value $5.00 per share ("MSB Common Stock"), of Metropolitan
State Bank ("MSB"), in connection with the solicitation of proxies by the Board
of Directors of MSB (the "MSB Board") for use at a special meeting of MSB's
shareholders to be held at Don Pepe's Steak House, U.S. Highway No. 46, Pine
Brook, New Jersey on _____________, 1998 at ____ p.m., local time, and at any
adjournments or postponements thereof (the "Meeting").
This Proxy Statement-Prospectus also constitutes a prospectus of Lakeland
with respect to the shares of Lakeland Common Stock issuable pursuant to the
Merger.
PARTIES TO THE MERGER
Lakeland. Lakeland is a bank holding company whose principal operating
subsidiary is Lakeland Bank (the "Bank"), a state-chartered commercial bank.
Incorporated in 1969, the Bank is a full service commercial bank which offers a
wide range of consumer and commercial services. The Bank currently operates 13
branches in Morris, Passaic and Sussex counties in New Jersey. The deposits of
the Bank are insured by the FDIC. As of September 30, 1997, Lakeland had
consolidated assets, deposits and shareholders' equity of $399.2 million, $357.9
million and $40.3 million, respectively.
Lakeland's principal assets and sources of income are its investments in
its subsidiary. Lakeland is a legal entity separate and distinct from its
subsidiary. There are various federal and state legal limitations on the extent
to which a bank subsidiary of Lakeland may pay dividends to, finance or
otherwise supply funds to Lakeland. See "MARKET PRICE AND DIVIDEND DATA" and
"DESCRIPTION OF LAKELAND'S CAPITAL STOCK - Description of Lakeland Common Stock
- - Dividend Rights."
MSB. MSB is a state-chartered commercial bank incorporated in 1987. MSB
conducts business in New Jersey through its main office and one branch office
located in Morris and Essex counties, respectively. At September 30, 1997, MSB
had assets, deposits and shareholders' equity of $94.4 million, $81.9 million
and $7.4 million, respectively.
Additional information about Lakeland and the Bank is included in
documents incorporated by reference in this Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." For additional information
about MSB, see "BUSINESS OF MSB," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF MSB'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "INDEX TO MSB'S CONSOLIDATED
FINANCIAL STATEMENTS."
-18-
<PAGE>
THE MEETING
THE MEETING
Each copy of this Proxy Statement-Prospectus mailed to holders of MSB
Common Stock is accompanied by a proxy card furnished in connection with the MSB
Board's solicitation of proxies for use at the Meeting. The Meeting is scheduled
to be held at Don Pepe's Steak House, U.S. Highway No. 46, Pine Brook, New
Jersey, on ______________, 1998 at _______ p.m., local time. Only holders of
record of MSB Common Stock at the close of business on the Record Date are
entitled to receive notice of, and to vote at, the Meeting. At the Meeting,
holders of MSB Common Stock will consider and vote upon (i) a proposal to
approve the Merger Agreement and (ii) such other matters as may properly be
brought before the Meeting. On each matter to be considered at the Meeting by
holders of MSB Common Stock, such holders will have one vote for each share of
MSB Common Stock held of record on the Record Date.
HOLDERS OF MSB COMMON STOCK ARE REQUESTED TO PROMPTLY SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD TO MSB IN THE ENCLOSED POSTAGE-PAID,
ADDRESSED ENVELOPE.
Any holder of MSB Common Stock who has delivered a proxy may revoke it at
any time before it is voted by (i) attending the Meeting and voting in person at
the Meeting, (ii) giving notice of revocation in writing to the address noted
below or (iii) submitting a signed proxy card, bearing a later date than the
proxy last received, to Metropolitan State Bank, 166 Changebridge Road,
Montville, New Jersey 07045, Attention: President, provided that such notice or
proxy card is actually received by MSB before the vote of shareholders. A proxy
will not be revoked by the death or supervening incapacity of the shareholder
executing the proxy unless, before the vote, the proxy is revoked by the
personal representative or guardian of the shareholder. Unless contrary
instructions are provided, the shares of MSB Common Stock represented by
properly executed proxies received at or prior to the Meeting and not
subsequently revoked will be voted FOR approval of the Merger Agreement. If any
other matters are properly presented for consideration at the Meeting, the
persons named in the proxy card enclosed herewith will have discretionary
authority to vote on such matters in accordance with their best judgment,
provided, however, that such discretionary authority will be exercised only to
the extent permissible under applicable laws. As of the date of this Proxy
Statement-Prospectus, MSB is unaware of any other matter to be presented at the
Meeting.
The cost of soliciting proxies from shareholders of MSB will be borne by
MSB. Such solicitation will be made by mail, but also may be made by telephone
or in person by the directors, officers and employees of MSB (who will receive
no additional compensation for doing so). MSB will make arrangements with
brokerage firms and other custodians, nominees and fiduciaries to send proxy
materials to their principals. MSB may also retain the services of a proxy
soliciting firm. The cost of such services will depend upon the volume of usage
but is not expected to exceed $10,000 plus the out-of-pocket expenses of such
firm.
SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
VOTE REQUIRED
Only holders of record of shares of MSB Common Stock on the Record Date
will be entitled to vote at the Meeting. The affirmative vote of the holders of
two thirds of the MSB Common Stock outstanding on the Record Date will be
required to approve the Merger Agreement. Therefore, a failure by a holder of
MSB Common Stock to return a properly executed proxy card or to vote in person
at the Meeting will have the same effect as a vote against the Merger Agreement.
Abstentions and broker non-votes will have the same effect as votes against the
Merger Agreement.
-19-
<PAGE>
As of the Record Date, there were 711,868 shares of MSB Common Stock
outstanding and entitled to vote at the Meeting. Each such share is entitled to
one vote.
As of December 1, 1997, the following MSB directors beneficially owned
shares of MSB Common Stock as follows:
Name of Director Number of Shares % of Class
---------------- ---------------- ----------
Carl Carambio 6,888 0.97
John Como 57,060 8.02
Frederick E. Eckhardt 7,623 1.07
Henry Fein 9,982 1.40
Peter Fioretti 10,767 1.51
Paul P. Lubertazzi 29,530 4.15
Joseph O'Dowd 8,046 1.13
Samuel Raia 4,000 0.56
Allan Sedler 13,443 1.89
Salvatore F. Yodice 10,381 1.46
As of the same date, all directors and executive officers of MSB as a group (12
persons) beneficially owned 175,245 shares (or 24.62% of the outstanding
shares). As of December 1, 1997, neither Lakeland, the directors and executive
officers of Lakeland and their affiliates nor the Bank beneficially owned any
shares of MSB Common Stock directly or, with respect to the Bank, in a fiduciary
capacity. The directors and executive officers of MSB intend to vote their
shares in favor of the Merger Agreement.
MSB's management is not aware of any individual or entity that owned of
record or beneficially more than 5% of the outstanding MSB Common Stock as of
December 1, 1997, other than John Como, a director of MSB, who beneficially
owned 57,060 shares (or 8.02%) on such date.
RECOMMENDATION OF THE MSB BOARD
The MSB Board has approved the Merger Agreement and recommends that MSB
shareholders vote FOR approval of the Merger Agreement. The MSB Board believes
that the Merger will enable MSB shareholders to participate in opportunities for
growth that the MSB Board believes the Merger makes possible. See "THE MERGER -
Background of and Reasons for the Merger" and "--Opinion of MSB's Financial
Advisor."
THE MERGER
The following information, insofar as it relates to matters contained in
the Merger Agreement, is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and is attached hereto as
Appendix A. MSB shareholders are urged to read the Merger Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
In the Summer of 1996, a community bank expressed an interest in acquiring
MSB. In furtherance of the potential acquisition, the two parties entered into a
Confidentiality Agreement which permitted the bank to conduct limited due
diligence. Upon completion of the review, it was agreed by the parties that they
would not proceed further.
Shortly thereafter, MSB was approached by a second community bank (the
"Second Bank") regarding a possible acquisition of MSB. Negotiations continued
until on or about September 4, 1997,
-20-
<PAGE>
when the Second Bank tendered a written offer to acquire MSB in the form of a
proposed Agreement of Acquisition.
On or about September 4, 1997, Lakeland also approached MSB as to a
possible merger. Two of Lakeland's directors had a lengthy meeting with two of
MSB's directors. The next day, September 5, 1997, Lakeland tendered a proposal
to MSB containing terms similar to those set forth in the Merger Agreement
between MSB and Lakeland, dated September 16, 1997. Lakeland pursued acquisition
discussions with MSB as part of Lakeland's strategy to expand into MSB's market
area.
Having been approached by the two banks earlier in 1996, MSB had secured
the assistance of Capital Consultants of Princeton, Inc. ("Capital Consultants")
as a financial advisor. In that capacity, it consulted with Capital Consultants
throughout the negotiations with both banks and with Lakeland.
The members of the MSB Merger/Acquisition Committee (the "Committee"),
consisting of four members of the MSB Board, met individually with
representatives of both banks. In addition, the Committee met independently to
deliberate over the ongoing negotiations. At substantially all of the
Committee's meetings, Capital Consultants and MSB's legal counsel were present
to answer questions and to comment upon the proposed transactions and the
process undertaken by the Committee to respond to the interest exhibited by both
banks in MSB.
On September 8, 1997, the offer of the Second Bank and Lakeland's proposal
were submitted by the Committee to the entire MSB Board at its monthly Board
meeting.
At its meeting of September 8, 1997, the MSB Board determined that the
terms presented by Lakeland in its proposal would be preferable to the offer
made by the Second Bank. This determination was based upon a comparison of the
two proposed transactions, the input received from Capital Consultants and MSB's
legal counsel, and an analysis of the history, business and the financial and
market factors affecting both institutions. The MSB Board evaluated the
liquidity and trading characteristics of the Lakeland stock and noted that MSB
could effectively become part of a larger entity that would compete more
effectively. Negotiations and due diligence efforts continued for several days
after the September 8, 1997 meeting.
On September 15, 1997, the MSB Board received an opinion from Capital
Consultants to the effect that the proposed merger with Lakeland would be fair
to the shareholders of MSB from a financial point of view. This opinion is more
specifically described below.
The Merger Agreement between MSB and Lakeland was approved by the MSB
Board on September 15, 1997 and executed by the parties on September 16, 1997.
MSB's Board of Directors approved the Merger because it believes that to
do so is in the best interests of the shareholders of MSB. In reaching this
decision, the Board considered information pertaining to the financial
structures, results of operations and future prospects of both MSB and Lakeland.
This included the long term outlook for both organizations in a rapidly changing
banking and financial services industry as well as other recent business
combinations in the New Jersey banking industry. The Board considered the trend
of consolidation of financial institutions within the New Jersey market place,
and the cost savings available to MSB after the Merger as a result of
consolidation of certain functions. It also noted that by becoming part of a
larger entity, MSB could compete more effectively in the communities served by
it by offering a number of new or expanded services while retaining its
community bank philosophy of high quality and personal service which its
customers and the local communities have come to expect.
In approving the Merger Agreement, the Board also evaluated the business,
financial and market factors affecting MSB, Lakeland's historical financial
results, Lakeland's capital position, other liquidity and trading
characteristics of the Lakeland Common Stock, the dividend income of the
Lakeland Common Stock and the lack of dividend income of the MSB Common Stock.
-21-
<PAGE>
Based upon all of the above and the input that it received from Capital
Consultants and its legal counsel, the Board of Directors of MSB believes that
the terms of the Merger Agreement are fair to and in the best interests of MSB's
shareholders.
OPINION OF MSB'S FINANCIAL ADVISOR
The MSB Board has retained Capital Consultants to act as MSB's financial
advisor, to assist management of MSB in connection with the Merger and related
matters and, if negotiations resulted in the execution of a definitive
agreement, to render its opinion with respect to the fairness, from a financial
point of view, to the shareholders of MSB of the consideration to be received in
a potential merger.
Capital Consultants is regularly engaged in the valuation of banks, bank
holding companies, savings and loan associations, and thrift holding companies
in connection with mergers, acquisitions and other securities transactions.
Capital Consultants has knowledge of, and experience with, the New Jersey
banking and thrift market and financial organizations operating in that market
and was selected by MSB because of its knowledge of, experience with, and
reputation in the financial services industry. Capital Consultants is not a
market maker in either Lakeland Common Stock or MSB Common Stock.
On September 15, 1997, the date the MSB Board approved the Merger, Capital
Consultants delivered to the MSB Board its opinion that, based upon and subject
to various items discussed in the presentations made to the MSB Board, the
consideration to be received by MSB's shareholders pursuant to the Merger
Agreement is fair from a financial point of view to MSB's shareholders. In
requesting Capital Consultants' advice and opinion, the MSB Board did not impose
any limitations upon Capital Consultants with respect to the investigations made
or procedures followed by it in rendering its opinion.
Capital Consultants reissued its opinion, in written form, as of the date
of this Proxy Statement- Prospectus. The full text of the written opinion of
Capital Consultants, dated as of __________, 1998, which sets forth assumptions
made and matters considered, is attached as Appendix B to this Proxy
Statement-Prospectus. MSB shareholders are urged to read this opinion in its
entirety. Capital Consultants' opinion is directed only to the financial terms
of the Merger and does not constitute a recommendation to any MSB shareholder as
to how such shareholder should vote at the Meeting. The summary information
regarding Capital Consultants' opinion and the procedures followed in rendering
such opinion set forth in this Proxy Statement-Prospectus is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, Capital Consultants reviewed and analyzed,
among other things, (i) the Merger Agreement; (ii) the Registration Statement on
Form S-4 of Lakeland of which this Proxy Statement-Prospectus is a part; (iii)
publicly available information relating to Lakeland and MSB including, for
Lakeland, annual reports to shareholders and Annual Reports on Form 10-K filed
with the SEC for the years ended December 31, 1994 through 1996, the
Consolidated Statements of Financial Condition as of December 31, 1996, 1995 and
1994, and the related Consolidated Statements of Income, Changes in
Shareholder's Equity and Cash Flows for the three year period ended December 31,
1996 included therein, and the quarterly reports to shareholders and Quarterly
Reports on Form 10-Q filed with the SEC for the periods ended March 31, June 30
and September 30, 1997, and for MSB, annual reports to shareholders for the
years ended December 31, 1994 through 1996, Consolidated Statements of Financial
Condition as of December 31, 1996, 1995 and 1994 and related Consolidated
Statements of Income, Changes in Shareholders' Equity and Cash Flows for the
three year period ended December 31, 1996, together with the Reports of
Independent Public Accountants and Quarterly Reports of Condition and Income as
filed with the FDIC for the periods ended March 31, June 30 and September 30,
1997; (iv) certain historical operating and financial information provided to
Capital Consultants by the managements of MSB and Lakeland; (v) historical and
current market data for the MSB Common Stock and the Lakeland Common Stock; (vi)
the publicly available financial data and stock market performance data of
publicly traded banking and thrift institutions which Capital Consultants deemed
generally comparable to MSB and Lakeland; (vii) the nature and terms of recent
acquisitions and merger transactions involving banking institutions and bank and
thrift holding companies that Capital Consultants considered reasonably similar
to MSB and Lakeland in financial character, operating character, historical
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<PAGE>
performance, geographic market and economy; and (viii) such other studies,
analyses, inquiries and reports as Capital Consultants deemed appropriate. In
addition, Capital Consultants conducted meetings with members of senior
management of MSB and Lakeland for purposes of reviewing the future prospects of
MSB and Lakeland. Capital Consultants evaluated the pro forma ownership of
Lakeland Common Stock by MSB's shareholders, relative to the pro forma
contribution of MSB's assets, deposits, equity and earnings to the pro forma
resulting company in the Merger. Capital Consultants also took into account its
experience in other transactions, as well as its knowledge of the banking and
thrift industries and its experience in securities valuations.
In rendering its opinion, Capital Consultants assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to it by MSB and Lakeland. Capital
Consultants did not conduct a physical inspection of any of the properties or
assets of MSB or Lakeland and has not made any independent evaluation or
appraisal of any properties, assets or liabilities of MSB or Lakeland. Capital
Consultants has assumed and relied upon the accuracy and completeness of the
publicly available financial and other information provided to it, has relied
upon the representations and warranties of MSB and Lakeland made pursuant to the
Merger Agreement, and has not independently attempted to verify any of such
information.
In rendering its opinion, Capital Consultants assumed that in the course
of obtaining the necessary regulatory approvals for the Merger, no conditions
will be imposed that will have a material adverse effect on the contemplated
benefits of the Merger on a pro forma basis to MSB.
In arriving at its opinion, Capital Consultants performed a variety of
financial analyses. Capital Consultants believes that its analyses must be
considered as a whole and that consideration of portions of such analyses and
the factors contained therein, without considering all factors and analyses,
could create an incomplete view of the analyses and the process underlying
Capital Consultants' opinion. The preparation of an opinion with respect to
fairness, from a financial point of view, of the consideration to be received by
shareholders is a complex process involving judgments and is not necessarily
susceptible to partial analyses and summary description.
In its analyses, Capital Consultants made numerous assumptions with
respect to MSB's and Lakeland's industry performance, business and economic
conditions and other matters, many of which are beyond the control of MSB and/or
Lakeland. Any estimates reflected in Capital Consultants' analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
ESTIMATES OF VALUES OF COMPANIES DO NOT PURPORT TO BE APPRAISALS OR
NECESSARILY REFLECT THE PRICES AT WHICH COMPANIES OR THEIR SECURITIES MAY
ACTUALLY BE SOLD.
In connection with its opinion, Capital Consultants performed various
analyses with respect to MSB and Lakeland. The following is a brief summary of
such analyses, certain of which were presented to the MSB Board by Capital
Consultants.
Valuation Analysis
Using a valuation analysis, Capital Consultants estimated the present
value of theoretical values of MSB based on a range of price-to-earnings ("P/E")
multiplies between 16.0x and 18.0x and a range of discount rates between 10% and
12%. The range of values was based on a range of estimated earnings for the next
three years assuming annual earnings growth rates between 15.0% and 20.0%. The
results of this analysis indicated a range of theoretical values for MSB between
$16.84 per share (15.0% earnings growth rate; P/E of 16.0x; 12% discount rate)
and $22.70 per share (20.0% growth rate; P/E of 18.0x; 10% discount rate).
Capital Consultants also prepared a net present value analysis that
indicated theoretical values for MSB based on a range of terminal book value
multiples between 2.30x and 2.50x and a range of discount rates between 8% and
10%. A dividend payout ratio from current earnings of 30% was used for
-23-
<PAGE>
the last three full years which is consistent with industry trends. Capital
Consultants determined the range of terminal multiples of selected comparable
companies. Such comparable companies are referred to in the Comparable Company
Analysis and Comparable Transaction Analysis set forth below. The terminal
values were discounted to present value using discount rates which reflect
assumptions regarding the required rates of return of the current and
prospective shareholders of MSB Common Stock in these economic times. The range
of present values per share of MSB resulting from the above-referenced
assumptions was $22.07 to $25.78.
Comparable Company Analysis
Capital Consultants compared the operating performance of MSB to publicly
traded commercial banks that Capital Consultants deemed to be similar to MSB.
The group consists of 10 publicly traded New Jersey commercial banks with total
assets of between $81 million and $217 million. Capital Consultants compared MSB
with these institutions based on selected operating fundamentals, including
capital adequacy, profitability and asset quality. Using pricing data as of June
30, 1997, the median price to stated book value was 158.0% for the comparable
commercial banks and 146.0% for MSB. The median equity to assets was 8.20% for
the group of comparable commercial banks and 8.29% for MSB. The median return on
average assets for the twelve months ended December 31, 1996 was 0.87% for the
comparable group of commercial banks to 0.38% for MSB. The median return on
average equity for the twelve months ended December 31, 1996 was 9.13% for the
comparable group of commercial banks and 4.37% for MSB.
Finally, Capital Consultants compared the market price, market-to-book
value and price-to-earnings multiples of the Lakeland Common Stock with
individual market multiples and medians of 16 publicly traded New Jersey based
banks and bank holding companies having total assets between $129 million and
$585 billion. The analysis also compared returns on average assets and average
equity of Lakeland to those of selected financial institutions and the medians
of the comparable group. The analysis indicated that the Lakeland Common Stock
traded in August 1997 at a price-to-earnings multiple of 17.5 times trailing
twelve months earnings for the period ended June 30, 1997 as compared to a
comparative group medium of 17.8 times trailing twelve months earnings for the
period ended June 30, 1997. While the Lakeland Common Stock traded at a
price-to-book value of 231%, the comparative group median was 184%. Lakeland's
financial performance, as measured by returns on average assets and average
equity, was 1.40% and 14.90%, respectively, as compared to the median of the
selected comparable financial institutions which was 0.92% and 12.26%,
respectively. The Capital Consultants' analyses also included summary income
statement and balance sheet data and selected ratio analyses for Lakeland and
various other potential acquirers of MSB.
Contribution Analysis
Capital Consultants prepared a contribution analysis showing the
percentage of assets, deposits, net common equity and 1997 net income MSB would
contribute to the combined company on a pro forma basis, and compared these
percentages to the pro forma ownership after the Merger. This analysis showed
that MSB would contribute 17.5% of pro forma consolidated total assets, 17.3% of
pro forma consolidated deposits, 15.4% of pro forma consolidated shareholders'
equity, and 12.1% of pro forma consolidated net income for 1997, while MSB
shareholders would hold 16.5% of the pro forma ownership of Lakeland.
Impact Analysis
Capital Consultants analyzed the financial implications of the Merger on
Lakeland's earnings per common share and book value per common share. This
analysis was based on June 30, 1997 financial data for Lakeland and MSB and
indicated that the acquisition of MSB by Lakeland would be (on a pro forma basis
for the six months ended June 30, 1997, assuming the acquisition was effective
as of January 1, 1997) approximately 5.7% dilutive to the earnings per share of
Lakeland Common Stock and approximately 1.3% dilutive to tangible book value per
share of Lakeland Common Stock on a fully diluted basis.
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Comparable Transaction Analysis
Capital Consultants performed an analysis of prices and premiums offered
in recently announced commercial bank and bank holding company transactions in
the region. Multiples of earnings and fully diluted book value implied by the
consideration to be received by MSB's shareholders in the Merger were compared
with multiples offered in such regional transactions, which included pending and
completed acquisitions announced between January 1, 1995 and September 14, 1997.
The median offer price to book value for this regional group of comparable
transactions was 211%. The equivalent offer price to book value for MSB was 251%
based on the assumed Lakeland offer price of $26.20 for each outstanding share
of MSB Common Stock and MSB's book value as of June 30, 1997. Also, the median
price to last twelve months ("LTM") earnings for this regional group was 21x
versus Lakeland's offer for MSB at 37.3x. Capital Consultants also reviewed the
core capital ratio to total assets of the comparative group and non-performing
assets as a percentage of total assets and in such analyses, MSB was above the
median of the comparative group in non-performing assets as a percentage of
total assets and was at or near the median with respect to the core capital to
total assets ratio.
It is important to note that when Capital Consultants took into account
the values shown in the comparables used in connection with the rendering of its
opinions, no company or transaction used in these analyses was identical to MSB
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, the timing of the transactions and prospective buyer
interest, the earnings trends and prospects for the future, as well as other
factors that could affect the public trading values of the companies included in
the comparisons.
For Capital Consultants' services in connection with the Merger, MSB has
agreed to pay Capital Consultants a fee, if the Merger is consummated, of
approximately $160,000 plus reimbursement for reasonable out-of-pocket expenses.
MSB has also agreed to indemnify Capital Consultants against certain
liabilities, including liabilities under the federal securities laws. MSB has
paid Capital Consultants $15,000 at the time the Merger Agreement was signed,
$20,000 thirty five days later, and will pay an additional $35,000 on the
mailing of this Proxy Statement-Prospectus. Such amounts are non-refundable. The
balance of Capital Consultants' fee is due at the effective time of the Merger.
The amount of Capital Consultants' fee was determined by negotiation between MSB
and Capital Consultants.
CONVERSION OF MSB'S SHARES
Subject to the rights of shareholders who perfect their rights as
dissenting shareholders, each share of MSB Common Stock outstanding at the
Effective Time will be automatically converted into a number of shares of
Lakeland Common Stock. The Merger Agreement provides that if the Market Value of
the Lakeland Common Stock (as defined in the Merger Agreement) is between $22.50
and $31.00 per share, MSB's shareholders will be entitled to receive for each
share of MSB Common Stock a number of shares of Lakeland Common Stock (the
"Exchange Number") determined by dividing $26.20 by such Market Value. For
example, if the Market Value of the Lakeland Common Stock is $27.50, the
Exchange Number would be 0.953. In the event that the Market Value of the
Lakeland Common Stock is less than $22.50 per share, the Merger Agreement
provides that the Exchange Number will be 1.164. In the event that the Market
Value of the Lakeland Common Stock is greater than $31.00 per share, the Merger
Agreement provides that the Exchange Number will be 0.845. Both Lakeland and MSB
have the right to terminate the Merger in the event that the Market Value of the
Lakeland Common Stock is less than $22.50 per share.
The Merger Agreement provides that the term "Market Value" means the
average of the "Bid Prices" of a share of Lakeland Common Stock on the 20
"Accountable Days" during the "Determination Period". The Merger Agreement
further provides that:
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o The "Bid Price" means the average of the highest and lowest
bid price for a share of Lakeland Common Stock as quoted by
the National Quotation Bureau, Inc. on the applicable date.
o The "Determination Period" means the 20 consecutive business
days ending on the day on which the approval of the Federal
Reserve Board required for consummation of the Merger shall be
received by Lakeland (the "Approval Date"); provided that if
an actual sale of Lakeland Common Stock does not occur on at
least 10 of such 20 consecutive business days, the
Determination Period will be extended by a number of business
days as shall be necessary to assure that at least 10 of the
business days in such period are days on which an actual sale
of Lakeland Common Stock occurred.
o An "Accountable Day" means each of the "Sales Days" and each
of the "Other Days". The term "Sales Days" means each of the
10 business days in the Determination Period closest to the
Approval Day on which an actual sale of Lakeland Common Stock
occurs. The term "Other Days" means each of the 10 business
days in the Determination Period other than such 10 Sales
Days, that are the closest to the Approval Date.
The Merger Agreement provides that the Exchange Number will be adjusted
prior to the Closing if there occurs a stock split or a stock dividend affecting
the capital stock of MSB or Lakeland, provided that no adjustments will be made
with respect to any event publicly announced by Lakeland prior to the signing of
the Merger Agreement, by reason of the issuance of stock by Lakeland or MSB upon
the exercise of any stock option outstanding at the time the Merger Agreement
was signed or by Lakeland pursuant to its Dividend Reinvestment Plan.
Accordingly, since the 5% stock dividend which Lakeland paid on October 15,
1997, was publicly announced prior to the signing of the Merger Agreement on
September 16, 1997, the payment of such 5% stock dividend did not and will not
result in an adjustment to the Exchange Number.
MSB STOCK OPTIONS
The Merger Agreement provides that at the Effective Time, Lakeland will
assume all of the rights and obligations of MSB under those stock options to
purchase MSB Common Stock which were granted by MSB prior to the signing of the
Merger Agreement, to the extent those options shall not have been exercised. As
of the date of the Merger Agreement, MSB had 32,821 such options outstanding.
All of such options were exercised in October 1997. Accordingly, no MSB options
will be assumed by Lakeland in the Merger.
NO FRACTIONAL SHARES
No fractional shares of Lakeland Common Stock will be issued in connection
with the Merger, but in lieu thereof each holder of shares of MSB Common Stock
otherwise entitled to a fraction of a share of Lakeland Common Stock will be
paid in cash an amount equal to such fraction multiplied by the Market Value of
the Lakeland Common Stock. No such holder will be entitled to dividends, voting
rights or other rights in respect of any such fractional share. The Merger
Agreement provides that all shares of MSB Common Stock held by each MSB record
holder will be aggregated before determining the need to pay cash in lieu of
fractional shares.
DELIVERY OF SHARES
Promptly after the Effective Time of the Merger, Lakeland will send to
each holder of record of MSB Common Stock as of the Effective Time a letter of
transmittal which should be completed by such holder and returned to the
exchange agent appointed by Lakeland (the "Exchange Agent"), at the address
provided therein, together with stock certificates representing all of such
holder's shares of MSB
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Common Stock. No new certificates will be delivered to or for the account of any
holder of MSB Common Stock until the Merger is consummated and the holder has
surrendered to the Exchange Agent the old certificates representing such
holder's MSB Common Stock, accompanied by the duly executed letter of
transmittal in proper form.
SHAREHOLDERS OF MSB ARE URGED NOT TO DELIVER THEIR STOCK CERTIFICATES TO
THE EXCHANGE AGENT UNTIL THE MERGER HAS BEEN COMPLETED AND THEY HAVE
RECEIVED THEIR LETTER OF TRANSMITTAL.
Upon surrender to the Exchange Agent of one or more certificates for MSB
Common Stock, together with a properly completed letter of transmittal, the
holder of MSB Common Stock surrendering such items will receive a certificate or
certificates representing the number of shares of Lakeland Common Stock to which
such holder is entitled, and, where applicable, a check for the amount to be
paid in lieu of any fractional share interest, determined in the manner
described above, without interest.
No dividends or other distributions declared or paid by Lakeland after the
Effective Time and with a record date after the Effective Time with respect to
Lakeland Common Stock will be paid to the holder of any unsurrendered
certificate representing MSB Common Stock until the holder duly surrenders such
certificate. Following the surrender of certificates representing MSB Common
Stock, there will be paid to those holders of the certificates representing
shares of Lakeland Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions having a record date after the Effective Time theretofore payable
with respect to such shares of Lakeland Common Stock and not yet paid and (ii)
at the appropriate payment date, the amount of dividends or other distributions
having (x) a record date after the Effective Time but prior to surrender and (y)
a payment date subsequent to surrender payable with respect to such shares of
Lakeland Common Stock.
No transfer taxes will be payable by MSB shareholders in connection with
the exchange of old certificates representing MSB Common Stock for new
certificates representing Lakeland Common Stock, except that if any new
certificate is to be issued in a name other than that in which the MSB
certificate surrendered in exchange therefor is registered, it will be a
condition of such exchange that the person requesting such exchange pay to the
Exchange Agent any transfer or other taxes required in connection therewith or
satisfy the Exchange Agent that such tax has been paid or is not applicable.
At the Effective Time, the stock transfer books of MSB will be closed and
no transfers of MSB Common Stock will thereafter be made. If certificates
representing shares of the MSB Common Stock are presented for transfer after the
Effective Time, they will be canceled and exchanged for shares of Lakeland
Common Stock, and cash in lieu of fractional shares, deliverable pursuant to the
Merger.
Neither Lakeland nor MSB will be liable to any former holder of MSB Common
Stock for any amount delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
Any shares of MSB Common Stock as to which the holder has perfected
dissenters' rights will be purchased in accordance with the procedures described
under "Rights of Dissenting Shareholders" and in Appendix C to this Proxy
Statement-Prospectus.
The Closing is expected to occur by April 30, 1998, although no assurances
can be given in this regard.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary of certain of the
material Federal income tax consequences of the Merger and does not purport to
be a complete analysis or listing of all potential tax effects relative to a
decision whether to vote for the approval of the Merger. The discussion does not
address all aspects of Federal income taxation that may be applicable to certain
MSB shareholders subject to special Federal income tax treatment, including,
without limitation, foreign persons, insurance
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companies, securities dealers, financial institutions, tax-exempt entities,
retirement plans and persons who acquired their MSB Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. The discussion
addresses neither the effect of applicable state, local or foreign tax laws, nor
the effect of any Federal tax laws other than those pertaining to Federal income
tax.
Lakeland and MSB expect to receive an opinion from Lakeland's counsel to
the effect that, if the Merger occurs in accordance with the Merger Agreement,
the Merger will constitute a reorganization within the meaning of section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), for Federal
income tax purposes. Such opinion is based on the Code, regulations and rulings
now in effect or proposed thereunder, current administrative rulings and
practice and judicial precedent, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences
discussed herein. The opinion is also based on certain assumptions regarding the
factual circumstances that will exist at the Effective Time, including, without
limitation, certain representations made by Lakeland, MSB and certain
shareholders of MSB. If any of these factual assumptions is inaccurate, the tax
consequences of the Merger could differ from those described herein. The
discussion below applies to MSB shareholders who hold their shares of MSB Common
Stock as a capital asset within the meaning of Code section 1221.
As a reorganization under Code section 368(a), no gain or loss will be
recognized by the MSB shareholders with respect to the Lakeland Common Stock
received in the Merger. The tax basis of the Lakeland Common Stock received by
an MSB shareholder in the Merger will be equal to the tax basis of the shares of
MSB Common Stock exchanged therefor, reduced by any amount of basis allocable to
fractional share interests for which cash is received. For purposes of
determining whether or not gain or loss on the subsequent disposition of
Lakeland Common Stock received in the Merger is long-term or short-term, the
holding period of such Lakeland Common Stock received by the MSB shareholders
will include the holding period of the shares of MSB Common Stock exchanged
therefor.
The receipt of cash in lieu of a fractional share of Lakeland Common Stock
by an MSB shareholder pursuant to the Merger will result in taxable gain or loss
to such shareholder for Federal income tax purposes based on the difference
between the amount of cash received by the shareholder and the shareholder's
basis in the fractional share as set forth above. The gain or loss will be a
capital gain or loss.
A dissenting MSB shareholder who receives cash as a result of the exercise
of dissenters' rights will recognize gain or loss for federal income tax
purposes which will be capital gain or loss if his or her shares of MSB Common
Stock are held as capital assets and if such shareholder dissents as to all of
the shares of MSB Common Stock which he or she owns actually and by application
of the attribution rules set forth in Section 318 of the Code. The capital gain
(or loss) to be realized by such dissenting shareholder will be either long or
short term capital gain (or loss) depending on the individual MSB shareholder's
holding period.
The Merger Agreement provides that neither Lakeland nor MSB is obligated
to consummate the Merger unless Lakeland and MSB shall have received the opinion
from Lakeland's counsel substantially to the effect that, under applicable law,
for Federal income tax purposes the Merger will constitute a reorganization
under Code section 368(a).
THE FOREGOING DISCUSSION OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS
FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. THE OPINION OF
LAKELAND'S COUNSEL IS NOT BINDING ON THE INTERNAL REVENUE SERVICE. BECAUSE OF
THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES OF ANY
PARTICULAR SHAREHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH MSB
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISER WITH RESPECT TO SUCH
SHAREHOLDER'S OWN PARTICULAR CIRCUMSTANCES AND WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED
CHANGES IN APPLICABLE TAX LAWS.
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EFFECT OF THE MERGER
At the Effective Time, the New Bank will merge with and into MSB, with MSB
surviving. In the Merger, each share of MSB Common Stock outstanding immediately
prior to the Effective Time will be converted into a number of shares of
Lakeland Common Stock (the "Exchange Number") calculated as described above
under "--Conversion of MSB's Shares." Any shares of MSB Common Stock held in
MSB's treasury will be canceled and retired and no payment will be made with
respect thereto.
For a discussion of the rights of dissenting holders of MSB Common Stock,
see " -- Rights of Dissenting Shareholders."
EFFECTIVE TIME
The "Effective Time" of the Merger will be the date specified in a
certification filed by the New Bank and MSB with the New Jersey Department of
Banking (the "Department"). The notice and certification will be filed after the
Closing has been consummated. The Closing will be held as soon as practicable
after the receipt of all necessary regulatory and governmental approvals and
consents and the expiration of all applicable waiting periods in connection
therewith, and the satisfaction or waiver of all other conditions to the
consummation of the Merger.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger by Lakeland and MSB is subject to the
fulfillment (or, where permissible under applicable law, waiver) at or before
the Effective Time of certain conditions, including, but not limited to, the
following conditions: (a) the required approval of the Merger Agreement and the
transactions contemplated thereby by the shareholders of MSB shall have been
obtained; (b) all necessary regulatory or governmental approvals and consents
required to consummate the Merger and the transactions contemplated by the
Merger Agreement shall have been received without the imposition of conditions
which in the reasonable opinion of Lakeland are unduly burdensome, all
conditions required to be satisfied by the terms of such approvals or consents
shall have been satisfied and all statutory waiting periods in respect thereof
shall have expired; (c) no order of any court or administrative agency shall be
in effect which restrains or prohibits the Merger; no suit, action or other
proceeding shall be pending or threatened against Lakeland or MSB to restrain or
prohibit the Merger; and no written advice shall be received by Lakeland or MSB
or their respective counsel from any governmental body stating that an action or
proceeding will, if the Merger is consummated or sought to be consummated, be
filed seeking to invalidate or restrain the Merger; (d) Lakeland and MSB shall
have received certain tax opinions of Lakeland's counsel; and (e) Lakeland and
MSB shall have received an opinion from Lakeland's accountants to the effect
that the Merger will qualify to be treated as a pooling of interests for
accounting purposes.
In addition to the foregoing conditions, Lakeland's obligations under the
Merger Agreement are conditioned upon the following, any one or more of which
may be waived by Lakeland: (a) in general, the representations and warranties of
MSB set forth in the Merger Agreement shall be true and correct in all material
respects at the closing date; (b) MSB shall have complied in all material
respects with its obligations under the Merger Agreement; and (c) MSB shall have
furnished Lakeland such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in the Merger
Agreement as Lakeland may reasonably request.
In addition to the other conditions set forth above, the obligations of
MSB under the Merger Agreement are also subject to the satisfaction of the
following conditions, any one or more of which may be waived by MSB: (a) in
general, the representations and warranties of Lakeland set forth in the Merger
Agreement shall be true and correct in all material respects at the closing
date; (b) Lakeland shall have complied in all material respects with its
obligations under the Merger Agreement; and (c) Lakeland shall have furnished
MSB such certificates of its officers or others and such other documents to
evidence fulfillment of the conditions set forth in the Merger Agreement as MSB
may reasonably request.
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REGULATORY APPROVALS
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. On __________, 1998, Lakeland
received from the Department approval of the charter of the New Bank and of the
Merger. In addition to the approval of the Department, Lakeland must obtain
regulatory approvals from the FDIC and the Federal Reserve Board. Lakeland has
applied to the FDIC for approval to merge the New Bank into MSB and to the
Federal Reserve Board for approval of the acquisition of MSB. Other applications
required under state securities laws have been or will be filed with the
appropriate regulatory authorities.
The Merger will not proceed in the absence of all requisite regulatory
approvals. Although neither Lakeland nor MSB is aware of any basis for
disapproving the Merger, there can be no assurance that all such approvals will
be obtained, that such approvals will be received on a timely basis or that such
approvals will not impose conditions which, in the reasonable opinion of
Lakeland, would be unduly burdensome. If any such condition is imposed, the
Merger Agreement permits the Board of Directors of Lakeland to terminate the
Merger Agreement. No assurance can be given as to when, or if, necessary
regulatory approvals will be obtained or the other conditions precedent to the
Merger will be satisfied or waived by the party permitted to do so. In the event
that the Merger is not effected on or before April 30, 1998, the Merger
Agreement may be terminated by MSB or Lakeland, unless the failure of the Merger
to be effected is due to the failure of the party seeking to terminate the
Merger Agreement to perform or observe its agreements set forth in the Merger
Agreement.
CONDUCT OF MSB'S BUSINESS PENDING THE MERGER
The Merger Agreement provides that except as otherwise consented to in
writing by Lakeland, prior to the Effective Time, MSB will carry on its business
diligently and in the ordinary course consistent with past practice. Under the
Merger Agreement, MSB has agreed that it will not take certain actions without
the written consent of Lakeland, including, among other things, the following:
(a) amend its Certificate of Incorporation or By-laws; (b) issue, sell or
deliver or agree to issue, sell or deliver any shares of its capital stock or
any securities convertible into such shares or any options or other rights
calling for the issuance, sale or delivery of any such shares or convertible
securities, except that MSB may issue shares of MSB Common Stock upon the
exercise of previously outstanding stock options; (c) except in the ordinary
course of business and consistent with past practice, borrow any funds, cancel
any debts or lease or sell any of its assets or property or make any amendment
to or terminate any material contract to which it is a party or mortgage or
pledge any of its assets; (d) grant any increase in compensation (other than
normal merit increases consistent with its general prevailing practices or
existing employment agreements) to any employee; (e) enter into or make any
changes in any employee benefit program, except as required by law; (f) acquire
voting securities of any corporation or other business, or acquire control or
ownership of all or a substantial portion of the assets of any other corporation
or business, or merge, consolidate or otherwise combine with any other entity or
acquire any branch of any entity engaged in the business of banking or enter
into any agreement providing for any of the foregoing; (g) directly or
indirectly solicit or authorize the solicitation of or enter into any agreement
or, except to the extent required by law, engage in any discussions with any
person or entity other than Lakeland with respect to any offer or possible offer
to purchase shares of the capital stock of MSB or otherwise acquire MSB; (h)
take any action or omit to take any action which would cause any of the
representations made by MSB in the Merger Agreement to be untrue in any material
respect; (i) except in the ordinary course of business enter into or agree to
enter into any agreement or transaction material to MSB's business; (j) grant
any severance arrangement to any employee; (k) take any action or omit to take
any action which would preclude Lakeland from accounting for the Merger as a
pooling of interests; (l) make any capital expenditures other than those
included within one or more capital budgets previously delivered by MSB to
Lakeland; (m) file any application or make any contract with respect to
branching, site locations or site relocations; (n) agree to acquire in any
manner whatsoever any business or entity; (o) make any material change in its
accounting methods or practices; or (p) agree to do any of the foregoing.
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The Merger Agreement also provides that MSB will not, without the written
consent of Lakeland, declare or pay any dividend on its capital stock in cash,
stock or property, redeem any shares of its capital stock or effect a stock
split of its shares of capital stock.
Under the Merger Agreement, MSB cannot, directly or indirectly, solicit or
authorize the solicitation of or enter into any agreement or understanding or,
except to the extent required by law, engage in any discussions with, or provide
any non-public information to, any person, entity or group (other than Lakeland)
concerning any merger, sale of shares or sale of substantial assets or
liabilities not in the ordinary course of business or similar transactions (an
"Acquisition Transaction"); provided, however, that notwithstanding the
foregoing, MSB may enter into discussions or negotiations in connection with an
unsolicited possible Acquisition Transaction if the MSB Board, after consulting
with counsel, determines in the exercise of its fiduciary responsibilities that
such discussions or negotiations should be commenced. MSB has agreed to promptly
communicate to Lakeland the terms of any proposal, whether written or oral,
which it may receive with respect to any such Acquisition Transaction, and the
fact that it is having discussions or negotiations with a third party about an
Acquisition Transaction.
FEE IN THE EVENT OF ANOTHER TRANSACTION
The Merger Agreement provides that if certain events occur, MSB or any
successor in interest will be obligated to pay Lakeland a termination fee (the
"Termination Fee") equal to $500,000, plus any legal fees and expenses incurred
by Lakeland in enforcing its right to obtain the Termination Fee. The
Termination Fee is payable only if all of the following events occur: First, the
Merger Agreement must be terminated (x) by Lakeland due to a breach of a
covenant by MSB, (y) by Lakeland or MSB as a result of the failure by MSB's
shareholders to approve the Merger Agreement by the requisite vote or (z) by MSB
due to the failure to obtain a fairness opinion from its financial advisor dated
as of the date of this Proxy Statement-Prospectus. Second, at the time of such
termination, a proposed "Acquisition Transaction" (as defined above in
"--Conduct of MSB's Business Pending the Merger") must have been publicly
announced. Third, within 12 months after the date of termination of the Merger
Agreement, MSB must have entered into an agreement to engage in an Acquisition
Transaction with a person other than Lakeland or the MSB Board must have
approved an Acquisition Transaction or must have recommended that the
shareholders of MSB approve or accept any Acquisition Transaction other than
pursuant to the Merger Agreement. Finally, an Acquisition Transaction between
MSB and another person must have closed (the "Acquisition Transaction Closing")
within 24 months after the termination of the Merger Agreement. If all of the
foregoing occur, then MSB or its successor in interest will be obligated to pay
the Termination Fee to Lakeland concurrently with the Acquisition Transaction
Closing. The Merger Agreement provides that the Termination Fee is also payable
by MSB in the event that MSB, without violating any of its covenants, determines
that in the exercise of its fiduciary duties, it must terminate the Merger
Agreement and pursue the Acquisition Transaction. In such event, the Termination
Fee is payable by MSB upon delivery of notice of termination of the Merger
Agreement.
The Termination Fee will make it more costly for another party to acquire
MSB. The obligation of a successor in interest to MSB to pay the Termination Fee
may be considered a deterrent to other potential acquisitions of control of MSB
because it is likely to increase the cost of any such acquisition.
TERMINATION, WAIVER AND AMENDMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of MSB: (a) by the
mutual consent of Lakeland and MSB for any reason; or (b) by either Lakeland or
MSB (i) if the Merger shall not have been consummated on or before April 30,
1998 (unless the failure to consummate the Merger is due to the failure of the
terminating party to perform or observe its covenants under the Merger
Agreement) or (ii) if the shareholders of MSB fail to approve the Merger
Agreement submitted to them for approval in connection with the Merger or (iii)
if the Market Value of the Lakeland Common Stock is less than $22.50 per share
or (iv) if holders of more than 9 1/2% of the outstanding shares of MSB Common
Stock file a written notice of dissent against the Merger.
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Lakeland may terminate the Merger Agreement if (a) there shall have been a
material adverse change in the business, prospects, financial condition or
results of operations of MSB since June 30, 1997, or (b) there shall have been
any material breach of any representation or warranty or a breach of any
covenant or agreement of MSB under the Merger Agreement. The Merger Agreement
may be terminated by MSB if (a) there shall be a material adverse change in the
business, prospects, financial condition or results of operations of Lakeland
and it subsidiaries, taken as a whole, since June 30, 1997, (b) there shall have
been any material breach of any representation or warranty or a breach of any
covenant or agreement of Lakeland under the Merger Agreement or (c) without
violating any of its covenants, the MSB Board shall have received an unsolicited
offer to pursue an Acquisition Transaction and the MSB Board, after consulting
with counsel, shall have determined to pursue the potential Acquisition
Transaction in the exercise of its fiduciary duties under applicable laws. In
the event of a termination by MSB pursuant to the preceding clause (c), MSB
shall pay Lakeland a Termination Fee of $500,000 (plus any legal fees and
expenses incurred by Lakeland in enforcing its right to such fee) concurrent
with delivery of its notice of termination to Lakeland.
Either party may terminate the Merger Agreement if the conditions
precedent to its obligations are not satisfied. In general, each party will pay
its own costs and expenses incurred in connection with the Merger Agreement,
provided however, that if the Merger is not consummated, printing expenses
incurred in connection with this Proxy-Statement-Prospectus will be shared
equally by MSB and Lakeland.
Subject to applicable law, at any time prior to the Effective Time,
whether before or after approval of the transactions contemplated by the Merger
Agreement by the shareholders of MSB, the parties may (a) amend the Merger
Agreement, (b) extend the time for the performance of any of the obligations or
other acts of any party under the Merger Agreement, (c) waive any inaccuracies
in the representations and warranties contained in the Merger Agreement or in
any document delivered pursuant to the Merger Agreement, or (d) waive compliance
with any of the agreements or conditions contained in the Merger Agreement.
Notwithstanding these rights, however, after any approval of the Merger by the
shareholders of MSB, there may not be, without further approval of the Merger
Agreement by the shareholders of MSB, any amendment of the Merger Agreement
which reduces the amount or changes the form of consideration to be delivered to
MSB shareholders.
MANAGEMENT AND OPERATION OF MSB FOLLOWING THE MERGER
MSB will be the surviving bank in the Merger, although it will become a
wholly-owned subsidiary of Lakeland. The Board of Directors of MSB immediately
prior to the Effective Time will continue to be the Board of Directors of MSB
immediately after the Effective Time and the executive officers of MSB
immediately prior to the Effective Time shall continue to be the executive
officers of MSB immediately after the Effective Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement provides that for a period commencing at the
Effective Time and ending on the earlier of (i) the third anniversary of the
Effective Time or (ii) the date on which Paul P. Lubertazzi ceases to serve as a
full-time employee of MSB (such period being referred to as the "Transition
Period"), Lakeland will take all steps necessary to assure that with respect to
acts or omissions occurring prior to the Effective Time, the executive officers
and directors of MSB retain substantially the same directors' and officers'
liability insurance coverage as they had on the date the Merger Agreement was
executed as executive officers and directors of MSB.
The Merger Agreement also provides that during such Transition Period,
all fees and benefits payable to the directors of MSB will not be reduced beyond
the levels paid to the directors of MSB as of the date on which the Merger
Agreement was executed.
-32-
<PAGE>
The Merger Agreement provides that during the Transition Period, Lakeland
will cause two of its directors on a rotating basis to attend meetings of the
Board of Directors of MSB. Such persons will be non-voting observers. Within 10
days following the Effective Time, the Merger Agreement provides that the Board
of Directors of Lakeland will appoint Paul P. Lubertazzi, MSB's current Chairman
and President, and another member of the Board of Directors of MSB, to the Board
of Directors of Lakeland. Within 10 days following the Effective Time, Lakeland
also will cause Paul P. Lubertazzi and another member of the Board of Directors
of MSB to be appointed to the Board of Directors of the Bank. It is currently
anticipated that Joseph O'Dowd will be the second member of the MSB Board who
will be appointed to the Boards of Lakeland and the Bank.
Mr. Lubertazzi, who was 62 years old as of December 1, 1997, has served
as President and Chief Executive Officer of MSB since 1988, and as Chairman
of the Board of MSB since 1996. Mr. Lubertazzi has served as a director of
MSB since 1988.
Mr. O'Dowd, who was 52 years old as of December 1, 1997, has served as
Vice Chairman of the Board of MSB since 1996, and as a director of MSB since
1988. He has served as President of O'Dowd Enterprises Inc. (an advertising
company) and as a partner of O'Dowd Realty (a real estate partnership) and
O'Dowd Associates (a partnership which is a real estate holding company) for
more than the past five years.
Lakeland maintains a plan which provides that any director having attained
age 72 (75 for directors active as of the date of the plan's inception on
January 1, 1996) and having completed 15 years of service may retire and
continue to be paid for a period of 10 years at a rate of $5,000, $7,500 or
$10,000 per year, depending upon the years of credited service.
Lakeland has agreed during the Transition Period not to terminate the
separate corporate existence of MSB as a subsidiary of Lakeland, unless required
to do so by law or governmental authorities or as a result of the fiduciary
obligations of Lakeland's Board of Directors. Lakeland has no present intention
to remove any of MSB's directors or executive officers during the Transition
Period, provided that MSB is managed in a manner consistent with Lakeland's
overall business strategies, as such strategies may develop from time to time.
However, nothing in the Merger Agreement limits the rights and prerogatives of
Lakeland as a shareholder of MSB except for the limitations on Lakeland's
ability to terminate the separate corporate existence of MSB during the
Transition Period, as described above.
Lakeland has also agreed in the Merger Agreement to retain Paul P.
Lubertazzi as the Chairman of the Board, Chief Executive Officer and President
of MSB following the Effective Time under the terms and conditions of his
current employment agreement and continuing until the end of the Transition
Period. In addition, to induce Mr. Lubertazzi to provide additional services
relating to the Transition Period and the integration of MSB into Lakeland's
consolidated enterprise, Lakeland has agreed to (i) at a cost to Lakeland of
$278,000, provide to Mr. Lubertazzi an additional annuity comparable to the
annuity currently provided to Mr. Lubertazzi by MSB and (ii) at a cost to
Lakeland of $45,000, provide to Mr. Lubertazzi certain retiree medical benefits.
Mr. Lubertazzi's Employment Agreement provides that he will receive base
compensation of not less than $140,000 per year. The Employment Agreement
further provides that Mr. Lubertazzi may participate in all employee benefit
plans and programs established by MSB. If MSB (and, after the Merger, Lakeland)
should terminate Mr. Lubertazzi's employment without cause, his Employment
Agreement provides that he will continue to be paid any compensation to which he
would be entitled under the terms of his Employment Agreement. The Employment
Agreement contains certain non-competition and anti-solicitation provisions in
the event that Mr. Lubertazzi terminates his employment without cause.
Mr. Lubertazzi has entered into a separate agreement with MSB, which will
be assumed by Lakeland. The agreement provides that if Mr. Lubertazzi remains
employed by MSB until he attains age
-33-
<PAGE>
65 and then voluntarily leaves his employment, MSB will pay him a total of
$525,000, payable in 15 annual installments beginning with the date of his
retirement. If Mr. Lubertazzi should die prior to receiving all of the foregoing
payments, the remaining payments will be made to his designated beneficiary. If
Mr. Lubertazzi should die prior to his retirement date, the agreement provides
that MSB will pay his designated beneficiary $525,000 over 15 years. If Mr.
Lubertazzi remains employed by MSB but becomes disabled, the agreement provides
that MSB will pay him $525,000 in 15 annual payments, commencing on his
retirement date. If he voluntarily terminates his employment between ages 62 and
65, Mr. Lubertazzi will be entitled to receive $525,000 in 15 annual payments,
commencing on his retirement date. No benefits will be paid under the agreement
if Mr. Lubertazzi is terminated for intentional wrongdoing.
The following table provides information concerning Mr. Lubertazzi's
compensation by MSB during the past three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
------------------------------------------------- ------
Securities
Name and Underlying All Other
Principal Position Year Salary($) Bonus($) Other($)(A) Options/SARs (#) Compensation($)(B)
- ------------------ ---- --------- -------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Paul P. Lubertazzi ......... 1997 $150,000 $15,000 $ -- -- $ 6,261
Chairman, President and 1996 140,000 -- -- -- 2,500
Chief Executive Officer 1995 131,000 5,000 -- -- 2,500
</TABLE>
- --------------
(A) During the periods presented above, Mr. Lubertazzi did not receive
perquisites (i.e., personal benefits) in excess of 10% of his reported
salary and bonus.
(B) Compensation reported under this column for 1997 includes: (i) a
contribution of $3,461 to MSB's 401(k) Plan, to match 1997 pre-tax elective
deferral contributions (included under "Salary") made by Mr. Lubertazzi to
such Plan and (ii) $2,800 paid by MSB as insurance premiums for Mr.
Lubertazzi's benefit.
Mr. O'Dowd received $2,450, $3,850 and $4,700 from MSB during 1995,
1996 and 1997, respectively, as directors' fees.
The following table sets forth information regarding stock option
exercises by Mr. Lubertazzi during the year ended December 31, 1997, including
the aggregate value of gains on the date of exercise. On October 27, 1997, Mr.
Lubertazzi exercised all outstanding options previously granted to him by MSB.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Common Value realized Number of Securities Unexercised
Shares (Market Price Underlying Unexercised In-the-Money
Acquired on Exercise Options/SARs at Year-End (#) Options/SARs at Year-End ($)
on Date Less ----------------------------- --------------------------------
Name Exercise (#) Exercise Price) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul P. Lubertazzi ...... 19,965 $ 289,293 -- -- -- --
</TABLE>
-34-
<PAGE>
ACCOUNTING TREATMENT OF THE MERGER
Lakeland expects to account for the Merger under the pooling of interests
method of accounting in accordance with generally accepted accounting
principles. See "PRO FORMA COMBINED FINANCIAL INFORMATION" and "--Conditions to
Consummation of the Merger."
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Sections 17:9A-140 through 17:9A-145 of the Banking Act,
holders of MSB Common Stock, who comply with applicable notice requirements and
follow certain other procedures, will have the right to dissent from the Merger
and be paid cash for the value of their shares of MSB Common Stock. In order for
a holder of MSB Common Stock to perfect dissenters' rights, such holder must
serve written notice of dissent from the Merger to MSB (addressed to the Office
of Secretary, c/o Metropolitan State Bank, 166 Changebridge Road, Montville, New
Jersey 07045-0425) not later than the third day prior to the date of the Meeting
and must not vote to approve the Merger at the Meeting. In addition, within 30
days after the Effective Time, each dissenting shareholder must make a written
request to the Surviving Bank for the value of his or her shares. The Board of
Directors of the Surviving Bank may, within 10 days after its receipt of such
request, offer to pay to such shareholder for his or her shares of MSB Common
Stock a sum determined in accordance with the applicable provisions of Sections
17:9A-140 thorough 17:9A-142 of the Banking Act. The value of such shareholder's
shares will be determined as of the Effective Time.
If the valuation fixed by the Board of Directors of the Surviving Bank is
not satisfactory to a dissenting shareholder who has requested payment in
accordance with the procedures described above, such shareholder may, within
three weeks after the receipt of the Surviving Bank's offer of payment,
institute an action in New Jersey Superior Court for the appointment of a board
of three appraisers to determine the value of his or her shares of MSB Common
Stock as of the Effective Time. Such appraisers will determine the value of the
shares of any dissenting shareholder who rejects the offer of payment made by
the Surviving Bank. Upon conclusion of their deliberations, the appraisers must
file in the Superior Court a report and appraisal of the value of the shares of
MSB Common Stock and must mail a copy of such report to the Surviving Bank and
to each dissenting shareholder who is a party to the proceeding. The Surviving
Bank and each such dissenting shareholder will have 10 days after the filing of
the report and appraisal within which to object in the Superior Court. In the
absence of any objections, the report and appraisal will be binding upon the
Surviving Bank and upon such dissenting shareholders.
A copy of Sections 17:9A-140 through 17:9A-145 of the Banking Act is
annexed to this Proxy Statement--Prospectus as Appendix C. Any deviations from
such procedures may result in the forfeiture of dissenters' rights. Accordingly,
holders of MSB Common Stock wishing to dissent from the Merger Agreement are
urged to carefully read Appendix C and to consult with their own legal advisors.
-35-
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information takes into account
Lakeland's pending acquisition of MSB. The Merger pursuant to which Lakeland
will acquire MSB is intended to be accounted for as a pooling of interests.
Under the pooling of interests method of accounting, Lakeland's consolidated
financial statements will be retroactively adjusted after the Merger to combine
the consolidated results of operations of Lakeland and MSB for periods prior to
the Effective Time.
The following unaudited Pro Forma Combined Condensed Balance Sheet of
Lakeland and MSB at September 30, 1997 gives effect to the Merger as if it had
been consummated on such date, based on certain adjustments described therein.
This Proxy Statement-Prospectus also presents unaudited Pro Forma Combined
Condensed Statements of Income, covering (i) the nine months ended September 30,
1997 (the "1997 Interim Pro Forma Statement"), (ii) the nine months ended
September 30, 1996 (the "1996 Interim Pro Forma Statement"), (iii) the year
ended December 31, 1996 (the "1996 Pro Forma Statement"), (iv) the year ended
December 31, 1995 (the "1995 Pro Forma Statement") and (v) the year ended
December 31, 1994 (the "1994 Pro Forma Statement"). These unaudited Pro Forma
Combined Condensed Statements of Income reflect the following:
o The 1997 Interim Pro Forma Statement gives effect to the Merger as if
such transaction had occurred on January 1, 1997. The 1997 Interim Pro
Forma Statement combines the results of operations of (i) Lakeland for
the nine months ended September 30, 1997 and (ii) MSB for the nine
months ended September 30, 1997, subject to the adjustments described
therein.
o The 1996 Interim Pro Forma Statement gives effect to the Merger as if
such transaction had occurred on January 1, 1996. The 1996 Interim Pro
Forma Statement combines the results of operations of (i) Lakeland for
the nine months ended September 30, 1996 and (ii) MSB for the nine
months ended September 30, 1996, subject to the adjustments described
therein.
o The 1996 Pro Forma Statement, the 1995 Pro Forma Statement and the
1994 Pro Forma Statement give effect to the Merger as if such
transaction had occurred on January 1, 1996, January 1, 1995 and
January 1, 1994, respectively, and combine the results of operations
of Lakeland and MSB for the years ended December 31, 1996, December
31, 1995 and December 31, 1994, respectively, subject to the
adjustments described therein.
The unaudited pro forma information presented herein has been prepared by
Lakeland management based upon the historical financial statements and related
notes thereto of Lakeland and MSB included herein or incorporated herein by
reference. The unaudited pro forma 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 the results of
operations which would have been achieved had the Merger been consummated as of
the beginning of such periods for which such data are presented and should not
be construed as being representative of future periods.
These Pro Forma Combined Financial Statements assume an Exchange Number of
0.953, which has been calculated by using $27.50, the closing bid price of a
share of Lakeland Common Stock on _________, 1998, as the Market Value of the
Lakeland Common Stock. The Market Value of the Lakeland Common Stock at the time
the Exchange Number is actually determined may be higher or lower than $27.50.
See "THE MERGER - Conversion of MSB's Shares".
-36-
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LAKELAND METROPOLITAN PRO
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(1)(3) FORMA
------------ ------------ ----------------- -------
(in thousands)
ASSETS:
<S> <C> <C> <C> <C>
Cash and due from banks........ $20,737 $6,105 $26,842
Federal funds sold............. 3,500 8,275 11,775
Securities available for sale,
at estimated fair value...... 78,914 23,930 102,844
Securities held to maturity 49,973 5,969 55,942
Loans, net..................... 230,355 46,260 276,615
Premises and equipment......... 11,364 2,515 13,879
Accrued interest receivable 3,391 587 3,978
Other assets................... 965 787 1,752
-------- -------- --------
Total assets................ $399,199 $94,428 $493,627
======== ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
LIABILITIES
Deposits....................... $357,904 $81,914 $439,818
Other Liabilities.............. 1,025 5,159
--------- ------- 6,184
Total liabilities......... $358,929 $87,073 $446,002
========= ======= ========
SHAREHOLDERS' EQUITY
Common Stock................... 8,904 3,395 $ (3,395) 10,522
1,618
Surplus........................ 23,641 3,329 1,777 28,747
Retained earnings.............. 5,883 608 6,491
Unrealized gain on securities
available for sale, net...... 1,842 23
1,865
Total shareholders' equity..... 40,270 7,355 47,625
-------- ------- --------
Total liabilities and
shareholders' equity......... $399,199 $94,428 $493,627
======== ======= ========
</TABLE>
- ----------
(1) Historical and pro forma common stock outstanding as of September 30, 1997
were as follows:
<TABLE>
<CAPTION>
LAKELAND METROPOLITAN PRO
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(3) FORMA
------------ ------------ ----------------- -------
(in thousands, except share amounts)
<S> <C> <C> <C>
Common Stock Lakeland.......... $ 8,904 $8,904
Common Stock MSB............... 3,395 (3,395)
Common shares outstanding 679,047
Common shares times ........
Exchange Number(2).... 647,132 1,618 1,618
------- ------- ------- --------
Total.......................... $10,522
========
</TABLE>
- ----------
(2) Represents the common shares outstanding of MSB multiplied by an assumed
Exchange Number of 0.953.
(3) Subsequent to September 30, 1997, members of MSB's management exercised
options covering 32,821 shares of MSB Common Stock which would result in an
additional 31,278 shares of Lakeland Common Stock being issued in the
Merger. These additional shares are not included in the share information
presented in these Pro Forma Combined Financial Statements.
-37-
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LAKELAND MSB
(HISTORICAL) (HISTORICAL) ADJUSTMENT PRO FORMA
------------ ------------ ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees .......................... $14,311 $ 3,066 $17,377
Federal funds sold ...................... 525 195 720
Investment securities ................... 5,453 1,198 6,651
------- ------- -------
Total interest income ................ $20,289 $ 4,459 $24,748
======= ======= =======
INTEREST EXPENSE:
Deposits ................................ 7,860 1,652 9,512
Borrowed money .......................... 10 104 114
------- ------- -------
Total interest expense ............... 7,870 1,756 9,626
------- ------- -------
Net interest income .................. 12,419 2,703 15,122
PROVISION FOR POSSIBLE LOAN
LOSSES .................................. 157 134 291
------- ------- -------
Net interest income after provision
for possible loan losses ............. 12,262 2,569 14,831
Other income ............................ 1,785 404 2,189
Other expenses .......................... 8,123 2,270 10,393
------- ------- -------
INCOME BEFORE INCOME TAXES ............ 5,924 703 6,627
INCOME TAXES .............................. 2,022 161 2,183
------ ------- ------
NET INCOME ................................ $3,902 $ 542 $4,444
====== ======= ======
Per Share Data:
Net income per common share.. ............. $ 1.10 $ .80 $ 1.06
Average number of common shares ........... 3,555,003 679,047 (31,915) 4,202,135
</TABLE>
-38-
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LAKELAND MSB
(HISTORICAL) (HISTORICAL) ADJUSTMENT PRO FORMA
------------ ------------ ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees .......................... $13,086 $ 2,677 $15,763
Federal funds sold ...................... 402 179 581
Investment securities ................... 5,474 987 6,461
------- ------- -------
Total interest income ................ $18,962 $ 3,843 $22,805
======= ======= =======
INTEREST EXPENSE:
Deposits ................................ 7,248 1,432 8,680
Borrowed money .......................... -- 128 128
------- ------- -------
Total interest expense ............... 7,248 1,560 8,808
------- ------- -------
Net interest income .................. 11,714 2,283 13,997
PROVISION FOR POSSIBLE LOAN
LOSSES .................................. 169 154 323
------- ------- -------
Net interest income after provision
for possible loan losses ............. 11,545 2,129 13,674
Other income ............................ 1,581 329 1,910
Other expenses .......................... 7,225 2,149 9,374
------- ------- -------
INCOME BEFORE INCOME TAXES ............ 5,901 309 6,210
INCOME TAXES .............................. 2,021 51 2,072
------ ------- ------
NET INCOME ................................ $3,880 $ 258 $4,138
====== ======= ======
Per Share Data:
Net income per common share.. ............. $ 1.11 $ .38 $ 1.00
Average number of common shares ........... 3,503,985 679,047 (31,915) 4,151,117
</TABLE>
-39-
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LAKELAND MSB
(HISTORICAL) (HISTORICAL) ADJUSTMENT PRO FORMA
------------ ------------ ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees .......................... $17,790 $ 3,633 $21,423
Federal funds sold ...................... 488 253 741
Investment securities ................... 7,197 1,351 8,548
------- ------- -------
Total interest income ................ $25,475 $ 5,237 $30,712
======= ======= =======
INTEREST EXPENSE:
Deposits ................................ 9,696 1,918 11,614
Borrowed money .......................... -- 174 174
------- ------- -------
Total interest expense ............... 9,696 2,092 11,788
------- ------- -------
Net interest income .................. 15,779 3,145 18,924
PROVISION FOR POSSIBLE LOAN
LOSSES .................................. 534 374 908
------- ------- -------
Net interest income after provision
for possible loan losses ............. 15,245 2,771 18,016
Other income ............................ 2,234 457 2,691
Other expenses .......................... 9,784 2,908 12,692
------- ------- -------
INCOME BEFORE INCOME TAXES ............ 7,695 320 8,015
INCOME TAXES .............................. 2,634 31 2,665
------ ------- ------
NET INCOME ................................ $5,061 $ 289 $5,350
====== ======= ======
Per Share Data:
Net income per common share.. ............. $ 1.44 $ .43 $ 1.29
Average number of common shares ........... 3,513,088 679,047 (31,915) 4,160,220
</TABLE>
-40-
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
LAKELAND MSB
(HISTORICAL) (HISTORICAL) ADJUSTMENT PRO FORMA
------------ ------------ ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees .......................... $15,917 $ 3,767 $19,684
Federal funds sold ...................... 556 152 708
Investment securities ................... 7,375 1,189 8,564
------- ------- -------
Total interest income ................ $23,848 $ 5,108 $28,956
======= ======= =======
INTEREST EXPENSE:
Deposits ................................ 9,101 1,903 11,004
Borrowed money .......................... 13 227 240
------- ------- -------
Total interest expense ............... 9,114 2,130 11,244
------- ------- -------
Net interest income .................. 14,734 2,978 17,712
PROVISION FOR POSSIBLE LOAN
LOSSES .................................. 129 228 357
------- ------- -------
Net interest income after provision
for possible loan losses ............. 14,605 2,750 17,355
Other income ............................ 1,983 452 2,435
Other interest expenses ................. 9,505 2,696 12,201
------- ------- -------
INCOME BEFORE INCOME TAXES ............ 7,083 506 7,589
INCOME TAXES .............................. 2,287 65 2,352
------ ------- ------
NET INCOME ................................ $4,796 $ 441 $5,237
====== ======= ======
Per Share Data:
Net income per common share.. ............. $ 1.39 $ .70 $ 1.29
Average number of common shares ........... 3,454,682 632,748 (29,739) 4,057,691
</TABLE>
-41-
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
LAKELAND MSB
(HISTORICAL) (HISTORICAL) ADJUSTMENT PRO FORMA
------------ ------------ ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees .......................... $13,752 $ 3,503 $17,255
Federal funds sold ...................... 326 136 462
Investment securities ................... 8,106 874 8,980
------- ------- -------
Total interest income ................ $22,184 $ 4,513 $26,697
======= ======= =======
INTEREST EXPENSE:
Deposits ................................ 7,604 1,578 9,182
Borrowed money .......................... 3 111 114
------- ------- -------
Total interest expense ............... 7,607 1,689 9,296
------- ------- -------
Net interest income .................. 14,577 2,824 17,401
PROVISION FOR POSSIBLE LOAN
LOSSES .................................. 225 345 570
------- ------- -------
Net interest income after provision
for possible loan losses ............. 14,352 2,479 16,831
Other income ............................ 1,912 313 2,225
Other expenses .......................... 9,258 2,308 11,566
------- ------- -------
INCOME BEFORE INCOME TAXES ............ 7,006 484 7,490
INCOME TAXES .............................. 2,175 57 2,232
------ ------- ------
NET INCOME ................................ $4,831 $ 427 $5,258
====== ======= ======
Per Share Data:
Net income per common share.. ............. $ 1.41 $ .69 $ 1.31
Average number of common shares ........... 3,419,617 622,031 (29,235) 4,012,413
</TABLE>
-42-
<PAGE>
BUSINESS OF MSB
GENERAL
Metropolitan State Bank ("MSB") is a New Jersey chartered bank
incorporated in 1987. At September 30, 1997, MSB had assets, deposits and
shareholders' equity of $94.4 million, $81.9 million and $7.4 million,
respectively.
MSB is a full-service commercial bank headquartered in Montville, New
Jersey, with an additional branch in Fairfield, New Jersey. It offers a full
range of banking services for individuals and businesses generally provided by
community commercial banks of similar asset size. Such services include demand
deposit, savings and individual retirement accounts, Christmas Clubs, safe
deposit boxes, home equity loans and lines of credit, home improvement loans,
automobile loans and personal loans. MSB also offers VISA(TM) credit cards and
overdraft protection. Automated teller machines (MAC(TM), Plus(R), and Honor(TM)
networks) are located at both banking offices.
MSB is also engaged in the financing of local business and industry,
providing secured and unsecured credit facilities for smaller businesses,
typically having annual sales of between $1 million and $5 million. Commercial
loan customers of MSB are businesses ranging from manufacturing and local
wholesale and distribution companies to small to medium-sized professional and
service firms and retail businesses. Commercial credit facilities include
secured and unsecured working capital lines of credit, term loans for fixed
asset acquisitions, commercial mortgages and other forms of asset-based
financing. MSB also originates loans under guarantee programs offered by certain
federal government agencies such as the U.S. Small Business Administration and
the U.S. Department of Agriculture, Business and Industrial Development Program.
Deposits of MSB are insured up to $100,000 per depositor by the Bank
Insurance Fund administered by the FDIC.
MSB had approximately 37 employees as of September 30, 1997. Its principal
executive office is located at 166 Changebridge Road, Montville, New Jersey
07045, telephone number (973) 882-0800.
COMPETITION
Competition in the banking and financial services industry in MSB's market
area is intense. MSB competes actively with national and state chartered banks
and other financial institutions including savings and loans associations,
mutual savings banks and credit unions, most of which have assets, capital and
lending limits greater than MSB. In addition, MSB 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.
Management believes that MSB's opportunities prevail in servicing the
deposit and lending requirements of local businesses often ignored by larger
financial institutions. The relative size of such customers, in management's
opinion, often inhibits close attention to their needs by the larger financial
institutions. In competing with these institutions, management believes that a
competitive advantage is realized by offering innovative products and a high
degree of personalized service through its knowledge of the primary service
areas of its customers.
SUPERVISION AND REGULATION
As a state commercial bank, MSB is subject to the regulation, supervision
and regular examination by the Commissioner of Banking and Insurance of the
State of New Jersey (the "Commissioner") and the FDIC. The approval of the
Commissioner and the FDIC is required for the establishment of any additional
bank offices.
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<PAGE>
MSB is not a member of the Federal Reserve System. However, MSB is subject
to numerous federal, state and local laws regulating the extension of credit,
credit practices, the disclosure of credit terms and discrimination in credit
transactions.
As a consequence of the extensive regulation of banking activities in the
United States, MSB's business is particularly susceptible to being affected by
federal and state legislation and regulations, which may affect the cost of its
doing business.
LEGAL PROCEEDINGS
MSB is involved in legal proceedings from time to time, ordinarily in
connection with loan collection matters. Management of MSB does not believe that
any pending legal proceedings will have a material adverse effect upon MSB's
results of operations or financial condition.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MSB'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements, including changes in general economic conditions in MSB's market
area, unanticipated occurrences impacting borrowers of MSB, regulatory
developments affecting the banking industry generally or MSB specifically,
unanticipated changes in the interest rate environment or other factors
affecting MSB's loan and/or investment securities portfolios. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date of this Proxy
Statement-Prospectus. MSB undertakes no obligation to publicly review or update
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
The following discussion and analysis of MSB's consolidated financial
condition and consolidated results of operations should be read in conjunction
with MSB's consolidated financial statements and the accompanying notes
presented elsewhere herein. See "INDEX TO MSB'S CONSOLIDATED FINANCIAL
STATEMENTS."
OVERVIEW
MSB's net income increased by $284,000, or 110%, to $542,000 for the nine
months ended September 30, 1997 compared to $258,000 for the nine months ended
September 30, 1996. Net income per share increased to $.80 per share for the
nine months ended September 30, 1997 compared to $.38 for the nine months ended
September 30, 1996. MSB's total assets grew to $94.4 million as of September 30,
1997 as compared to $80.2 million at December 31, 1996.
Net income decreased to $289,000 for the year ended December 31, 1996,
from $441,000 for the year ended December 31, 1995. Net income per share
decreased to $.43 per share for the year ended December 31, 1996, as compared to
$.70 per share for the year ended December 31, 1995. Increases in net interest
income, derived primarily from average volume increases in MSB's securities
portfolio and loan portfolio, were offset by increases in the provision for loan
losses and other expenses. Net income and net income per share for the year
ended December 31, 1994 was $427,000 and $.69, respectively. MSB's total assets
grew to $80.2 million, an increase of $3.8 million, or 4.91%, as compared to
$76.4 million at December 31, 1995.
Return on average assets and average shareholders' equity for the nine
months ended September 30, 1997 were .86% and 10.38%, respectively, compared to
.46% and 5.23%, respectively, for the nine months ended September 30, 1996.
Return on average assets and average shareholders' equity was .38% and
4.37%, respectively, for 1996, compared to .62% and 7.05%, respectively, for
1995 and .65% and 7.90%, respectively, for 1994. The decrease in the return on
average shareholders' equity in 1996 reflects an increase in salary and benefits
associated with a full year's expenses at MSB's new main office and an increase
in the provision for possible loan losses.
Gross loans increased by $4.3 million from December 31, 1996 to $46.9
million at September 30, 1997. Gross loans increased $1.3 million, or 3.03%,
from $41.3 million at December 31, 1995 to $42.6 million at December 31, 1996.
These increases were primarily due to commercial loan and real estate loan
increases.
Investment securities increased by $5.7 million, or 23.5%, from December
31, 1996 to September 30, 1997. Investment securities increased $6.6 million, or
37.6%, from $17.5 million at December 31, 1995 to $24.1 million at December 31,
1996. The increase in investment securities was generated by an increase in
deposits of $5.6 million. The investment securities contained net unrealized
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<PAGE>
losses of $104,000 at December 31, 1996, a decrease of $201,000 from the net
unrealized gain of $97,000 in the portfolio at December 31, 1995.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income increased $616,000, or 16.0%, to $4.5 million for the nine
months ended September 30, 1997, as compared to $3.8 million for the nine months
ended September 30, 1996. This increase was primarily due to an increase in the
average balance of interest earning assets from $68.0 million for the nine
months ended September 30, 1996 to $76.5 million for the nine months ended
September 30, 1997. Interest income increased by $129,000, or 2.5%, to $5.2
million for the year ended December 31, 1996, primarily as a result of an
increase in the average balance of interest earning assets from $67.0 million
for the year ended December 31, 1995 to $68.6 million for the year ended
December 31, 1996. Interest income increased by $595,000, or 13.2%, to $5.1
million for the year ended December 31, 1995, primarily as a result of an
increase in the average balance of interest earning assets from $61.1 million in
1994 to $67.0 million in 1995.
Interest income on loans increased $389,000 to $3.1 million for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996. The increase in interest income on loans for the first nine months of
1997 was attributable to an increase of $4.3 million in the average balance and
an increase of 32 basis points in the average yield as compared to the same
period in 1996. The average balance increased during this period primarily as a
result of the addition of two loan officers and more aggressive marketing
efforts by MSB during 1997. The increase in the average yield reflects a change
in the mix, as the ratio of commercial loans outstanding to total loans
outstanding increased. Interest income on loans decreased $134,000 to $3.6
million for the year ended December 31, 1996 (as compared with the prior year)
as a result of a $1.4 million decrease in the average balance and a slight
decrease in average interest rates. The decrease in the average balance is
primarily attributable to MSB's efforts during 1995 to improve the quality of
its loan portfolio by writing off and working out problem loans. The decrease in
average interest rates reflects a moderate decrease in market rates of interest.
Interest income on loans increased $264,000 to $3.8 million in 1995 as the
average yield on loans increased 72 basis points even though average balances
decreased $524,000 from 1994 to 1995. The decrease in the average balance was
the result of MSB's efforts to improve the quality of its loan portfolio. The
increased yield reflects more aggressive pricing by MSB.
Interest income on taxable investment securities increased $174,000, or
21.4%, to $987,000 for the nine months ended September 30, 1997 as compared to
the nine months ended September 30, 1996, due to a $3.1 million increase in the
average balance. The increase in the average balance reflects MSB's increased
sources of funds due to the growth of MSB's deposit base and an increase in its
net income, without the payment of dividends. Interest income on taxable
investment securities increased $271,000, or 31.9%, to $1.1 million in 1996 from
$849,000 in 1995, primarily due to a 102 basis point increase in the average
yield on taxable investment securities. The increase in the average yield
reflects a change in the mix of the portfolio to higher yielding securities.
Interest income on taxable investment securities increased $330,000, or 63.6%,
to $849,000 in 1995 from $519,000 in 1994, due to a $8.2 million, or 108.5%,
increase in the average balance of these securities. The increase in the average
balance reflects the opening by MSB of its new building in June 1995, which
resulted in an increase in deposit volume. The average yield on taxable
investment securities decreased in 1995 to 5.37% from 6.84% in 1994.
Interest income on tax exempt investment securities increased $31,000 to
$204,000 for the nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996 due primarily to a $775,000 increase in the
average balance of these securities. The increase in the average balance
reflects the above-mentioned increase in MSB's sources of funds. Interest income
on tax exempt securities decreased by $114,000, or 33.5%, to $226,000 in 1996
from $340,000 in 1995, due to a 117 basis point decline in average yield and a
decrease of $963,000 in the average balance to $5.2
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<PAGE>
million in 1996 from $6.2 million in 1995. The decrease in the average balance
reflects MSB's sales of higher yielding securities and investment in taxable
securities. Interest income on tax exempt securities decreased $15,000, or 4.2%,
to $340,000 in 1995 from $355,000 in 1994, due to a $991,000 decrease in the
average balance, which was partially offset by a 55 basis point increase in the
average yield.
Interest income on federal funds sold increased $16,000 to $195,000 for
the nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996, primarily due to increased average rates from 5.23% in 1996
to 5.39% in 1997. Interest income on federal funds sold increased by $101,000,
or 66.5%, to $253,000 in 1996 from $152,000 in 1995, due primarily to an
increase in the average balance of $2.2 million, or 81.8%, to $4.9 million in
1996 from $2.7 million in 1995. The increase in the average balance from 1995 to
1996 reflects an increase in deposits as a result of the opening of MSB's new
building in June 1995, and MBS's decision to maintain liquidity by investing in
federal funds. Interest income on federal funds sold increased $16,000, or
11.8%, to $152,000 in 1995 from $136,000 in 1994, due to a 184 basis point
increase in the average yield, which resulted from higher short term market
interest rates.
INTEREST EXPENSE
Interest paid on deposits increased $220,000 to $1.7 million for the nine
months ended September 30, 1997 compared to $1.4 million for the same period in
1996. This increase is attributable to an aggregate increase of $7.0 million in
average balances for all interest-bearing deposit types. That volume increase,
in turn, included an increase in the average balance of time deposits of $3.0
million and an increase in the average balance of interest-bearing demand
deposits of $2.9 million. The average balance of MSB's deposits increased
primarily as a result of the opening of MSB's new building in June 1995, which
provided it with an improved physical presence that assisted MSB in attracting
additional deposits.
Interest paid on deposits remained relatively stable between 1995 and 1996
at $1.9 million. While the aggregate average balances of interest bearing
deposits increased $2.2 million during 1996, the average rate paid on those
deposits decreased by 14 basis points, due to a declining rate environment. The
increase in the average balance included a $952,000 increase in the average
volume of time deposits and a $1.5 million increase in the average balance of
savings deposits. These increases in average balances reflects a full year of
MSB's operations at its new building.
Interest paid on deposits during 1995 increased $325,000 to $1.9 million
from $1.6 million in 1994. While the aggregate average balance of interest
bearing deposits increased by only $754,000, or 1.6%, during 1995, the average
rate paid on those deposits increased 62 basis points, due primarily to an
increasing interest rate environment which prevailed during the first half of
1995 and a migration of deposits from savings accounts to higher cost time
deposits. During 1995, the average balance of time deposits increased $2.6
million and the average rate paid on time deposits increased by 98 basis points.
The increase in the average balance of interest bearing time deposits was
partially offset by a $458,000 decrease in the average balance of savings
deposits and a $1.4 million decrease in the average balance of interest bearing
demand deposits.
Interest expense on borrowed funds decreased $24,000 to $104,000 for the
nine months ended September 30, 1997 as average balances decreased $867,000.
Interest paid on borrowed funds decreased by $53,000 from 1995 to 1996 and
increased by $116,000 to $227,000 in 1995 from $111,000 in 1994. Average
borrowed funds decreased by $1.3 million from $5.1 million in 1995 to $3.8
million in 1996 and increased by $1.9 million in 1995 from $3.1 million in 1994.
The average yield increased by 93 basis points in 1995 to 4.49% from 3.56% in
1994 and increased by 15 basis points to 4.64% in 1996.
NET INTEREST INCOME
Net interest income, typically the largest component of MSB'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 MSB's net interest income, setting
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<PAGE>
forth for the periods presented herein (1) average assets, liabilities and
shareholders' 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) MSB's net interest spread (i.e., the average yield on interest
earning assets less the average cost of interest bearing liabilities) and (5)
MSB's net yield on interest earning assets.
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<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------
1997 1996
---------------------------------- -----------------------------------
Interest Average Interest Average
Average Income/ Interest Average Income/ Interest(2)
Balance Expense(1) Rate(2) Balance Expense(1) Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Earning Assets:
Loans (net of unearned income)(3)........ $ 45,165 $ 3,066 9.05% $ 40,879 $ 2,677 8.73%
Taxable securities....................... 20,241 987 6.50% 17,153 813 6.32%
Tax-exempt securities.................... 6,121 204 4.44% 5,346 173 4.31%
Interest-bearing deposits................ 195 7 4.79% 51 1 2.61%
Federal funds sold....................... 4,825 195 5.39% 4 ,560 179 5.23%
-------- ------- ---- -------- ------- ----
Total interest-earning assets....... 76,547 4,459 7.77% 67,989 3,843 7.54%
-------- ------- ---- -------- ------- ----
Allowance for possible loan losses......... (631) (565)
Noninterest-earning assets................. 8,454 7,821
-------- --------
Total assets........................ $ 84,370 $ 75,245
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-Bearing Liabilities:
Demand deposits.......................... $ 20,647 $ 391 2.52% $ 17,742 $ 335 2.52%
Savings deposits......................... 9,767 186 2.54% 8,621 163 2.52%
Time deposits............................ 26,619 1,075 5.38% 23,636 934 5.27%
Total borrowed funds..................... 2,887 104 4.80% 3,754 128 4.55%
-------- ------- ---- -------- ------- ----
Total-interest-bearing
liabilities....................... 59,920 1,756 3.91% 53,753 1,560 3.87%
-------- ------- ---- -------- ------- ----
Non-Interest Bearing Liabilities:
Demand deposits.......................... 16,856 14,556
Other liabilities........................ 632 358
Shareholders' equity..................... 6,962 6,578
-------- --------
Total liabilities and
shareholders' equity.............. $ 84,370 $ 75,245
======== ========
Net interest income; net interest spread... $ 2,703 3.86% $ 2,283 3.67%
======= ---- ======= ====
Net yield on interest-earning assets....... 4.71% 4.48%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities.............................. 127.75% 126.48%
====== ======
</TABLE>
- --------------------
(1) Includes loan fees, which are not material.
(2) Percentages have been annualized for purposes of comparability with
year-end data.
(3) Includes non-accruing loans, which have the effect of reducing the average
rates earned on MSB's loan portfolio.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ----------------------------- -----------------------------
Interest Average Interest Average Interest Average
Average Income/ Interest Average Income/ Interest Average Income/ Interest
Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate
------- ---------- -------- ------- ---------- -------- ------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Earning Assets:
Loans (net of unearned
unearned income)(2) ......... $40,930 $3,633 8.88% $42,305 $3,767 8.90% $42,829 $3,503 8.18%
Taxable securities ............ 17,525 1,120 6.39% 15,822 849 5.37% 7,588 519 6.84%
Tax-exempt securities ......... 5,224 226 4.33% 6,187 340 5.50% 7,178 355 4.95%
Interest-bearing deposits ..... 86 5 5.81% 0 0 0.00% 0 0 0.00%
Federal funds sold ............ 4,853 253 5.21% 2,670 152 5.69% 3,532 136 3.85%
------- ------ ---- ------- ------ ----- ------- ----- ----
Total interest-earning
assets .................. 68,618 5,237 7.63% 66,984 5,108 7.63% 61,127 4,513 7.38%
------- ------ ---- ------- ------ ----- ------- ----- ----
Allowance for possible
loan losses ................... (583) (533) (507)
Noninterest-earning assets ...... 7,898 4,627 5,476
------- ------- -------
Total assets ............. $75,933 $71,078 $66,096
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-Bearing
Liabilities:
Demand deposits ............... $17,991 $ 453 2.52% $18,318 $ 493 2.69% $19,722 $ 485 2.46%
Savings deposits .............. 8,729 221 2.53% 7,189 190 2.64% 7,647 209 2.73%
Time deposits ................. 23,562 1,244 5.28% 22,610 1,220 5.40% 19,994 884 4.42%
Total borrowed funds .......... 3,750 174 4.63% 5,054 227 4.49% 3,119 111 3.56%
------- ------ ---- ------- ------ ----- ------- ----- ----
Total interest-bearing
liabilities ............ 54,032 2,092 3.87% 53,171 2,130 4.01% 50,482 1,689 3.35%
------- ------ ---- ------- ------ ----- ------- ----- ----
Non-Interest Bearing
Liabilities:
Demand deposits ................. 14,896 11,288 9,892
Other liabilities ............... 386 367 319
Shareholders' equity ............ 6,619 6,252 5,403
------- ------- -------
Total liabilities
and shareholders'
equity ................ $75,933 $71,078 ` $66,096
======= ======= =======
Net interest income; net
interest spread ............... $ 3,145 3.76% $ 2,978 3.62% $2,824 4.03%
======= ==== ======= ==== ====== ====
Net yield on interest-earning
assets ........................ 4.58% 4.45% 4.62%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities .. 127.00% 125.98% 121.09%
====== ====== ======
</TABLE>
- --------------------
(1) Includes loan fees, which are not material.
(2) Includes non-accruing loans, which have the effect of reducing the average
rates earned on MSB's loan portfolio.
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<PAGE>
Volume/Rate Analysis
The following table analyzes net interest income in terms of changes in
the volume of interest earning assets and interest bearing liabilities and
changes in yields and rates. The table reflects the extent to which changes in
MSB's interest income and interest expense are attributable to changes in volume
(changes in volume multiplied by the prior period's rate) and changes in rate
(changes in rate multiplied by the prior period's volume). Changes attributable
to the combined impact of volume and rate have been allocated proportionately to
changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
COMPARED WITH NINE
MONTHS ENDED
SEPTEMBER 30, 1996 1996 COMPARED TO 1995 1995 COMPARED TO 1994
---------------------------- --------------------------- ----------------------------
Due to Due to Due to
Total Change in Total Change in Total Change in
Increase/ --------------- Increase/ ---------------- Increase/ ---------------
(Decrease) Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, net of unearned income.. $ 389 $ 281 $ 108 $(134) $(122) $ (12) $ 264 $ (43) $ 307
Taxable securities ............ 174 147 27 271 92 179 330 563 (233)
Tax-exempt securities ......... 31 25 6 (114) (53) (61) (15) (49) 34
Interest-bearing deposits ..... 6 3 3 5 5 0 0 0 0
Federal funds sold ............ 16 10 6 101 122 (21) 16 (33) 49
----- ----- ----- ----- ----- ----- ----- ----- -----
Total interest
earning assets ............. 616 466 150 129 44 85 595 438 157
----- ----- ----- ----- ----- ----- ----- ----- -----
Interest expense:
Demand deposits ............. 56 56 0 (40) (9) (31) 8 (35) 43
Savings deposits ............ 23 22 1 31 41 (10) (19) (13) (6)
Time deposits ............... 141 119 22 24 52 (28) 336 116 220
Other borrowings ............ (24) (30) 6 (53) (58) 5 116 70 46
----- ----- ----- ----- ----- ----- ----- ----- -----
Total interest
bearing liabilities...... 196 167 29 (38) 26 (64) 441 138 303
----- ----- ----- ----- ----- ----- ----- ----- -----
Net change in interest
income ........................ $ 420 $ 299 $ 121 $ 167 $ 18 $ 149 $ 154 $ 300 $(146)
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Net interest income increased $420,000, or 18.4%, to $2.7 million for the
first nine months of 1997 from $2.3 million for the same period in 1996,
primarily as a result of an increase in the average balance of interest earning
assets and a 19 basis point increase in the net interest spread. The annualized
net interest spread increased from 3.67% to 3.86%. While the average yield on
earning assets increased 23 basis points from 7.54% to 7.77%, the average rate
paid on interest bearing liabilities increased 4 basis points from 3.87% to
3.91%.
For the year ended December 31, 1996, net interest income increased
$167,000 to $3.1 million from $3.0 million in 1995. This increase was
attributable to an increase in the volume of average interest earning assets, a
14 basis point increase in the net interest spread and an increase of 13 basis
points in the net yield on interest earning assets. For the year ended 1995, net
interest income increased $154,000 to $3.0 million, from $2.8 million in 1994.
This increase was also attributable to an increase in the average balance of
interest earning assets, which was offset in substantial part by a 41 basis
point decrease in the net interest spread and a 17 basis point decrease in the
net yield on interest earning assets.
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<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses (the "ALL") is established to
absorb the estimated credit losses within the loan portfolio. Additions to the
allowance are made by means of charges against current earnings and from
recoveries on loans previously charged to the allowance. The level of the
allowance is determined by management and the Board of Directors of MSB in
accordance with MSB's ALL Policy, which considers such elements as economic
conditions, risk exposure, adequacy of collateral, historical losses and such
other factors as are deemed to be relevant. The ALL Policy provides for the
establishment and maintenance of a reserve, which is designed to fall within a
range which is neither inadequate nor excessive in relation to credit risk.
Specific reserves are allocated to those loans which bear an obvious potential
for loss. General reserves are assigned to the balance of the loan portfolios at
levels determined to be adequate based upon experience.
During the first nine months of 1997, MSB provided $134,000 for the
allowance and had net charge-offs of $58,000, for an increase of $76,000 to the
allowance, leaving a balance of $661,000.
During 1996, MSB provided $374,000 to the allowance and had net
charge-offs of $349,000 for a $25,000 increase to the allowance, leaving a
balance of $585,000. At December 31, 1995, the allowance stood at $560,000, a
$13,000 increase from December 31, 1994, as MSB provided $228,000 to the
allowance and had net charge offs of $215,000.
Based on its ongoing loan review process, its collateral positions, and
its loss and recovery experience, MSB believes that its allowance for loan
losses at September 30, 1997, was adequate. The immediately preceding sentence
constitutes a forward looking statement under the Private Securities Litigation
Reform Act of 1995. While this belief constitutes management's reasoned
judgement, actual results could differ from management's determination, as a
result of a variety of factors, such as economic distress within MSB's primary
marketing area and unanticipated financial problems for MSB's significant
borrowers.
At September 30, 1997, the allowance for loan losses as a percentage of
total loans was 1.41%, as compared with 1.37%, 1.35%, and 1.23% at December 31,
1996, 1995, and 1994, respectively.
OTHER INCOME
Other income increased $75,000, or 22.8%, to $404,000 for the first nine
months of 1997 from $329,000 for the same period in 1996. This increase was
primarily the result of an increase of $46,000, or 19.7%, in service charges on
deposits.
Other income increased $5,000, or 1.1%, to $457,000 in 1996 from $452,000
in 1995. This increase was primarily attributable to an increase in demand
deposit service charge income.
Other income increased $139,000, or 44.4%, to $452,000 in 1995 from
$313,000 in 1994. This increase was primarily attributable to an increase in
service charges on deposits. The increase in service charges reflected the
increased deposit base.
OTHER EXPENSES
Other expenses increased by $121,000, or 5.6%, to $2.3 million for the
first nine months of 1997 from $2.1 million for the same period in 1996.
Salaries and benefits increased by $161,000, or 14.6%, due to increased staffing
levels and normal salary increases. Occupancy expense decreased by $8,000, or
5.3%. Other changes included advertising expense, which decreased $21,000, or
47.7%, and outside services, which increased $41,000, or 12.9%. Additionally,
deposit and other insurance expense decreased $13,000, or 20.0%.
Other expenses in 1996 increased $212,000, or 7.9%, over 1995. Salaries
and benefits, the largest component of other expenses, increased by $197,000, or
15.4%, due to normal salary and benefit
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<PAGE>
increases and the staff additions for a full year at MSB's new main office
location opened in June 1995. Occupancy expense increased $15,000, or 8.1%. This
was primarily the result of an increase of $34,000, or 117%, in building
maintenance, which was a result of the harsh winter in 1996 compared to the mild
winter in 1995, a $27,000, or 55.8%, increase in building depreciation, which
was a result of a full year of occupancy in the new main office, and a decrease
of $48,000, or 55.8%, in building rental, which was the result of the relocation
from rental space to the new facility. The increase of $4,000, or 2.7%, in
equipment expense is primarily the result of furniture and fixtures in the main
office being depreciated for a full year rather then six months in 1995. Other
expense categories excluding other real estate decreased in the aggregate by
$94,000, or 7.68%. Significant sources of changes in these expenses included
decreases of $59,000 in advertising, $64,000 in outside services, and $74,000 in
insurance partially offset by increases of $56,000 in miscellaneous expense,
$6,000 in postage and delivery and $15,000 in travel and entertainment. Other
real estate expense increased by $118,000 in 1996 from 1995, as a result of MSB
recording additional reserves on properties under contracts to sell.
Other expenses in 1995 increased $388,000, or 16.8%, over 1994. Salaries
and benefits increased $239,000, or 23.0%, due primarily to the mid-year opening
of MSB's new main office in June of 1995. Occupancy expenses decreased $13,000,
or 6.5%. Deposit and other insurance expense decreased $35,000, or 18.9%.
Expenses other than the foregoing increased $197,000, or 22.3%, to $1.1 million
in 1995 from $885,000 in 1994. This was primarily attributable to increases
of $126,000 or 34.3%, in outside services (including legal fees $36,000 or
40.4%, data processing fees $15,000 or 7.8%, and consultant fees $40,000 or
234.0%).
INCOME TAXES
The components of income taxes are summarized as follows:
Nine Months Ended
September 30, Year Ended December 31,
------------------- -----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Current..............$191,000 $ 51,000 $ 31,000 $ 92,000 $142,000
Deferred.............(30,000) 0 0 (27,000) (85,000)
-------- ---------- ---------- -------- --------
$161,000 $ 51,000 $ 31,000 $ 65,000 $ 57,000
======== ======== ======== ======== ========
Income tax expense increased $110,000 or 215.7% to $161,000 for the first
nine months of 1997 compared to $51,000 for the same period in 1996. The
increase in income tax expense was due to higher pre-tax earnings.
MSB's effective income tax rate was 22.91%, 16.51%, 9.69%, 12.85%, and
11.78% for the nine months ended September 30, 1997 and 1996 and the years ended
December 31, 1996, 1995, and 1994, respectively. These rates are lower than the
statutory minimum primarily as a result of tax exempt securities investments.
For further information regarding tax matters, see Note 8 of the Notes to
MSB's Financial Statements.
LOAN PORTFOLIO
Loans are the most significant component of MSB's interest-earning assets.
Real estate loans account for a substantial portion of MSB's total loans.
Commercial lending activities are focused primarily on lending to small to
mid-sized family-owned businesses.
-52-
<PAGE>
The following table sets forth the classification of MSB's loans by major
category as of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial ................... $ 6,497 $ 7,597 $ 6,152 $ 7,334 $ 7,698 $ 6,465
Real estate loans secured by:
Construction and land
development .............. 1,345 287 562 -- 160 185
Nonresidential properties . 11,457 8,600 7,170 7,308 4,875 4,777
------- ------- ------- ------- ------- -------
Total real estate ....... 12,802 8,887 7,732 7,308 5,035 4,962
Installment .................. 3,714 3,732 5,210 7,126 7,373 5,080
Home equity .................. 23,908 22,380 22,248 22,564 20,760 15,409
------- ------- ------- ------- ------- -------
Total installment and
home equity .............. 27,622 26,112 27,458 29,690 28,133 20,489
------- ------- ------- ------- ------- -------
Total loans ............. 46,921 42,596 41,342 44,332 40,866 31,916
Less: Allowances for possible
loan losses ................ 661 585 560 547 455 353
------- ------- ------- ------- ------- -------
Net loans ................. $46,260 $42,011 $40,782 $43,785 $40,411 $31,563
======= ======= ======= ======= ======= =======
</TABLE>
MSB has not made loans to borrowers outside the United States.
Commercial loans increased $1.4 million from December 31, 1995 to December
31, 1996, and increased to 17.8% of total loans as compared to 14.9% at December
31, 1995. These loans are primarily to borrowers within MSB's market area.
Real estate loans increased $1.2 million from December 31, 1995 to
December 31, 1996, and increased to 20.9% of total loans at December 31, 1996,
from 18.7% at December 31, 1995.
Home equity and installment loans decreased $1.3 million, representing
61.3% of total loans at December 31, 1996, as compared to 66.4% at December 31,
1995.
Rate sensitive loans of $18.0 million represented 38.2% of total loans at
September 30, 1997, as compared to $15.4 million or 36.2% of total loans at
December 31, 1996. These rate sensitive loans consist primarily of commercial
loans, real estate loans and home equity loans that will reprice with changes in
the prime lending rate.
The following table sets forth certain categories of loans as of September
30, 1997 in terms of maturity and interest rate sensitivity:
Within 1 to 5 After 5
1 year Years Years Total
-------- ------- -------- -------
(In thousands)
Commercial loans.......... $ 5,012 $ 1,485 $ 0 $ 6,497
Real estate loans......... 14,429 9,204 13,077 36,710
Installment loans......... 1,361 1,329 1,024 3,714
------- ------- -------- -------
Total.................. $20,802 $12,018 $ 14,101 $46,921
======= ======= ======== =======
Loans with predetermined
rates................... 2,878 12,018 14,101 28,997
Loans with floating rates. 17,924 0 0 17,924
------- ------- ------- -------
Total.................. $20,802 $12,018 $14,101 $46,921
======= ======= ======= =======
Risk Elements
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
-53-
<PAGE>
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.
The following schedule sets forth certain information regarding MSB's
nonaccrual, past due and renegotiated loans and other real estate owned as of
the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
--------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans(A) ....... $ 568 $1,003 $ 537 $ 821 $1,157 $ 310 $ 459
Past due loans(B) .......... 854 634 744 620 485 141 545
Renegotiated loans(C) ...... 168 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
Total nonaccrual, past due
and renegotiated loans ... 1,590 1,637 1,281 1,441 1,642 451 1,004
Other real estate owned .... 214 463 177 696 673 738 541
------ ------ ------ ------ ------ ------ ------
Total ................. $1,804 $2,100 $1,458 $2,137 $2,315 $1,189 $1,545
====== ====== ====== ====== ====== ====== ======
</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.
(C) At September 30, 1997, the loan portfolio included loans whose terms had
been renegotiated due to financial difficulties of borrowers. All such loans
were performing in accordance with the renegotiated terms and, in
management's view, do not present a significant risk of loss as of September
30, 1997.
There were no loans at December 31, 1996, other than those in the above
table, where MSB was aware of any credit conditions of any borrowers that would
indicate a strong possibility of the borrowers not complying with the present
terms and conditions of repayment and which may result in such loans being
included as non-accrual, past due or renegotiated at a future date.
At December 31, 1996, 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.
Nonaccrual loans at December 31, 1996, decreased $284,000, to $537,000,
from $821,000 at December 31, 1995. At December 31,1996, non-accrual loans
consisted of four commercial loans and seven consumer loans. All of these loans
are in various stages of litigation, foreclosure, or workout.
Loans past due ninety days or more and still accruing increased $124,000
to $744,000 at December 31, 1996, from $620,000 at December 31, 1995. This
increase relates to eight home equity loans totalling $435,000 and a decrease of
$266,000 in commercial loans. The overall increase in this category is primarily
due to financial difficulties encountered by home equity borrowers. However, all
of these loans are expected to either be restructured or brought current in the
near future.
-54-
<PAGE>
For the nine months ended September 30, 1997 and 1996, the gross interest
income that would have been recorded, had the loans classified at period end as
either non-accrual or renegotiated been performing in conformance with their
original loan terms, would have been approximately $43,000 and $42,000,
respectively. The resultant income lost of $34,000 for 1996 compares to $67,000
and $72,000 for 1995 and 1994, respectively.
On January 1, 1995, MSB adopted SFAS 114 ("Accounting by Creditors for
Impairment of a Loan") and SFAS 118 ("Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures") as required by generally accepted
accounting principles. In doing so, MSB has identified loans for which the
provisions of these pronouncements apply and has established criteria to
determine whether such loans are impaired. SFAS 114 provides that the provisions
of such Statement are not applicable to large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment.
A loan evaluated under SFAS 114 is deemed impaired when, based on current
information and events, it is probable that MSB will be unable to collect all
amounts due according to the contractual terms of the loan agreement. An
insignificant delay, which is defined as up to 90 days by MSB, will not cause a
loan to be classified as impaired. A loan is not impaired during a period of
delay in payment if MSB expects to collect all amounts due, including interest
accrued at the contractual interest rate for the period of delay. Thus, a demand
loan or other loan with no stated maturity is not impaired if MSB expects to
collect all amounts due, including interest accrued at the contractual interest
rate, during the period the loan is outstanding. All loans identified as
impaired are evaluated independently. MSB does not aggregate such loans for
evaluation purposes.
MSB'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. Therefore, a loan will be considered to
be impaired when it is 90 days delinquent and it exceeds the balance guidelines
for SFAS 114 nonapplicability referred to above. It is, therefore, possible for
a loan to be on nonaccrual status and not be classified as impaired if the
balance falls within the above referenced guidelines.
SFAS 114 also requires that loans renegotiated, as part of a troubled debt
restructuring, be classified as impaired and measured for impairment by
discounting the total expected cash flow under the renegotiated terms at the
loan's original effective interest rate. This requirement applies only to loans
renegotiated on or after the effective date of SFAS 114.
Loans, or portions thereof, are charged off when it is determined that a
loss has occurred. Until such time, an allowance for loan loss is maintained for
estimated losses. With regard to interest income recognition for payments
received on impaired loans, as well as all nonaccrual loans, MSB follows FDIC
guidelines, which apply any payments to principal as long as there is doubt as
to the collectibility of the loan balance.
As of September 30, 1997 and December 31, 1996, based on the above
criteria, MSB recorded a balance of $564,000 and $1.3 million, respectively, as
impaired. The impairment of these loans is measured using the present value of
future cash flows and is based on the fair value of the underlying collateral.
Based upon such evaluation, $170,000 and $160,000, respectively, has been
allocated to the allowance for loan losses for impairment.
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:
-55-
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------- ------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for Possible Loan Losses:
Balance at beginning of period ...... $585 $560 $560 $547 $455 $353 $305
---- ---- ---- ---- ---- ---- ----
Charge-offs:
Commercial ....................... 28 31 130 5 105 10 199
Installment ...................... 34 47 233 81 50 59 77
Real estate (home equity) ........ 25 10 10 177 115 30 0
---- ---- ---- ---- ---- ---- ----
Total Charge offs ................... 87 88 373 263 270 100 276
---- ---- ---- ---- ---- ---- ----
Recoveries of charged-off loans:
Commercial ....................... 14 0 15 20 0 0 1
Installment ...................... 15 9 9 28 16 11 0
Real Estate (home equity) ........ 0 0 0 0 1 14 0
Total Recoveries .................... 29 9 24 48 17 25 1
---- ---- ---- ---- ---- ---- ----
Net Charge-offs ..................... 58 79 349 215 253 75 275
---- ---- ---- ---- ---- ---- ----
Provisions for possible loan losses
(charged to expense) .............. 134 154 374 228 345 177 323
---- ---- ---- ---- ---- ---- ----
Balance of allowance at end of
period ............................ $661 $635 $585 $560 $547 $455 $353
==== ==== ==== ==== ==== ==== ====
Ratio of net charge-offs to
average loans outstanding(1) ...... .17% .26% .85% .51% .59% .18% .76%
Allowance for possible loan losses
as a percentage of total loans
(net of unearned income) .......... 1.41% 1.55% 1.37% 1.35% 1.23% 1.11% 1.11%
</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 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.
MSB 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.
-56-
<PAGE>
The following table sets forth the allocation of the allowance for loan
losses at the dates indicated by category of loans.
At September 30,
1997
--------------------------------
% of Loans
% of to Total
Amount Allowance Loans
-------- --------- ----------
Commercial and Real Estate .................. $477,000 72.16% 41.13%
Home equity and Installment ................. 184,000 27.84 58.87
------- ------ -----
Total ....................................... $661,000 100.00% 100.00%
======== ====== ======
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
% of Loans % of Loans % of Loans
% of to Total % of to Total % of to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- -------- ------ --------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Real Estate ... $408,000 69.74% 38.70% $419,000 74.82% 33.58% $368,000 67.28% 33.03%
Home equity and installment .. 177,000 30.26 61.30 141,000 25.18 66.42 179,000 32.72 66.97%
-------- ------ ------ -------- ------ ------ -------- ------ ------
Total................. ....... $585,000 100.00% 100.00% $560,000 100.00% 100.00% $547,000 100.00% 100.00%
======== ====== ====== ======== ====== ====== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1993 1992
---- ----
% of Loans % of Loans
% of to Total % of to Total
Amount Allowance Loans Amount Allowance Loans
-------- --------- ---------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial and Real Estate ...... $327,000 71.87% 31.18% $254,000 71.95% 35.84%
Home equity and Installment ..... 128,000 28.13 68.82 99,000 28.05 64.16
-------- ------ ------ -------- ------ ------
Total............................ $455,000 100.00% 100.00% $353,000 100.00% 100.00%
======== ====== ====== ======== ====== ======
</TABLE>
-57-
<PAGE>
SECURITIES
Commencing with fiscal 1994, MSB 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"). For
information regarding Statement No. 115, see Note 3 of the Notes to MSB's
Financial Statements.
The following tables present the estimated fair values and unrealized
gains and losses on investment securities at the dates indicated:
SEPTEMBER 30, 1997
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(in thousands)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies................. $10,783 $35 $(11) $10,807
Mortgage backed securities
of U.S. Government Agencies.. 5,669 17 (28) 5,658
Municipal bonds................ 7,044 39 (17) 7,066
Other securities............... 399 0 0 399
------- ---- ---- -------
Total..................... $23,895 $91 $(56) $23,930
======= === ==== =======
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S.......
Government corporations
and agencies................. $2,462 $ 3 $(30) $ 2,435
Mortgage backed securities
of U.S. Government Agencies 2,434 27 (30) 2,431
Municipal bonds................ 1,073 18 (2) 1,089
------ --- ---- -------
Total..................... $5,969 $48 $(62) $ 5,955
====== === ==== =======
-58-
<PAGE>
DECEMBER 31, 1996
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(in thousands)
AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies ................. $ 3,800 $ 0 $(11) $ 3,789
Mortgage backed securities
of U.S. Government Agencies... 5,290 0 (26) 5,264
Municipal bonds ................ 5,197 11 (17) 5,191
Other securities ............... 249 0 0 249
------- --- ---- -------
Total........................ $14,536 $11 $(54) $14,493
======= === ==== =======
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies ............. $ 5,581 $ 3 $(45) $5,539
Mortgaged backed securities
of U.S. Government agencies .. 2,770 1 (25) 2,746
Municipal bonds ................ 1,079 5 0 1,084
Other securities ............... 200 0 0 200
------- --- ---- ------
Total...................... $ 9,630 $ 9 $(70) $9,569
======= === ==== ======
-59-
<PAGE>
DECEMBER 31, 1995
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(in thousands)
AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies ................. $ 613 $ 6 $ 0 $ 619
Mortgage backed securities
of U.S. Government Agencies .. 1,254 25 0 1,279
Municipal bonds ................ 4,707 46 0 4,753
Other securities ............... 249 0 0 249
------- --- ---- -------
$ 6,823 $77 $ 0 $ 6,900
======= === ==== =======
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies.................. $ 5,709 $13 $ 0 $ 5,722
Mortgage backed securities of
U.S. Government Agencies...... 4,438 66 (63) 4,441
Municipal bonds................. 238 0 0 238
Other securities................ 250 4 0 254
------- --- ---- -------
$10,635 $83 $(63) $10,655
======= === ==== =======
-60-
<PAGE>
The following table sets forth the maturity distribution and weighted
average yields of MSB's investment securities held to maturity and securities
available for sale as of September 30, 1997. No tax equivalent adjustments have
been made in the following table.
WITHIN 1-5 5-10 OVER 10
1 YEAR YEARS YEARS YEARS TOTAL
------ ----- ----- ------- -----
Investment securities held
to maturity:
U.S. Agencies:
Book Value................. $ 0 $ 583 $1,879 $ 0 $2,462
Yield...................... 0% 6.37% 6.65% 0% 6.58%
Mortgage Backed Securities:
Book Value................. $ 166 $ 0 $ 0 $2,268 $2,434
Yield...................... 7.51% 0% 0% 6.19% 6.37%
Municipal Bonds:
Book Value................. $ 0 $ 438 $ 535 $ 100 $1,073
Yield...................... 0% 4.37% 4.56% 6.00% 4.62%
WITHIN 1-5 5-10 OVER 10
1 YEAR YEARS YEARS YEARS TOTAL
------ ----- ----- ------- -----
Investment securities
available for sale:
U.S. Treasury:
Book value................. $1,500 $2,747 $ 0 $ 0 $4,247
Yield...................... 5.45% 5.87% 0% 0% 5.72%
U.S. Agencies:
Book value................. $ 186 $2,529 $2,767 $1,054 $6,536
Yield...................... 6.99% 6.63% 6.57% 7.99% 6.84%
Mortgage Backed Securities:
Book value................. $ 758 $1,907 $ 220 $2,784 $5,669
Yield...................... 6.84% 6.22% 7.49% 6.48% 6.48%
Municipal Bonds:
Book value................. $ 445 $2,432 $1,519 $2,648 $7,044
Yield...................... 4.60% 4.68% 4.56% 5.13% 4.82%
Other Securities:
Book value................. $ 399 $ 0 $ 0 $ 0 $ 399
Yield...................... 0% 0% 0% 0% 0%
-61-
<PAGE>
DEPOSITS
At September 30, 1997, time deposits in amounts of $100,000 and over
matured as follows (in thousands):
September 30,
1997
-------------
Three months or less ......................... $ 8,769
Over three months through six months ......... 1,935
Over six months through twelve months ........ 600
Over twelve months............................ 2,843
-------
Total .................................... $14,147
=======
LIQUIDITY
MSB's total assets increased by $14.3 million, or 17.8%, from $80.2
million as of December 31, 1996, to $94.4 million as of September 30, 1997.
Increases of $5.8 million in the securities portfolio, $4.3 million in the loan
portfolio, and $ 4.1 million in cash and cash equivalents resulted primarily
from a $12.3 million increase in deposits.
At September 30, 1997, MSB's securities portfolio of $29.9 million had two
classifications, "available for sale" and "held to maturity". As required,
available for sale securities are carried at fair value. Unrealized gains and
losses of $91,000 and $56,000, respectively, were reflected in the available for
sale portfolio, and have been recorded, net of deferred taxes, as a separate
component of shareholders' equity. The effect of such adjustment at September
30, 1997, is to increase shareholders' equity by $23,000. Securities held to
maturity continue to be carried at historical cost and, at September 30, 1997,
contained unrealized gains and losses of $48,000 and $62,000, respectively. For
the entire securities portfolio, net unrealized gains stood at $21,000 at
September 30, 1997, as compared with a $104,000 net unrealized loss at December
31, 1996. See Note 3 of the Notes to MSB's Consolidated Financial Statements.
Total deposits increased $12.3 million, or 17.6%, from December 31, 1996
to September 30, 1997. Savings and interest bearing demand and time accounts
increased $944,000, $4.4 million, and $6.1 million, respectively, in the first
nine months of 1997. Time deposits at September 30, 1997 represented 36.0% of
total deposits as compared to 33.5% at December 31, 1996.
Shareholders' equity increased to $7.4 million at September 30, 1997 from
$6.8 million at December 31, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, which is
effective for financial statements issued after December 15, 1997. Early
adoption of the new standard is not permitted. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of basic
and diluted earnings per share together with disclosure of how the per share
amounts were computed. The adoption of SFAS No. 128 will not have a material
effect on MSB's financial position or results of operations.
The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which is
effective for years beginning after December 15, 1997. This new standard
requires entities presenting a complete set of financial statements to include
details of comprehensive income. Comprehensive income consists of net income or
loss for the current period and income, expenses, gains, and losses that bypass
the income statement and are reported directly in a separate component of
equity. The adoption of SFAS No. 130 will not have a material effect on MSB's
financial position or results of operations.
The FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, which is effective for all periods beginning after
December 15, 1997. SFAS 131 requires that public business enterprises report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major
-62-
<PAGE>
customers. The adoption of SFAS No. 131 will not have a material effect on MSB's
financial position or results of operations.
INTEREST RATE SENSITIVITY
MSB 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.
The following table illustrates MSB's interest rate gap position as of
September 30, 1997.
<TABLE>
Assets and Liabilities Maturing-Repricing in:
<CAPTION>
3 months 1 year More
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 held to
maturity ............................. $ 0 $ 166 $ 1,022 $ 4,781 $ 5,969
Investment securities available for
sale ................................. 737 1,499 10,231 11,463 23,930
Interest-bearing deposits .............. 0 50 51 0 101
Federal funds sold ..................... 8,275 0 0 0 8,275
Installment and Home Equity loans ...... 8,875 466 6,294 11,419 27,054
Real Estate loans ...................... 5,956 522 4,239 2,085 12,802
Commercial loans ....................... 4,641 371 1,485 0 6,497
-------- ------- -------- ------- -------
Total ............................... $ 28,484 $ 3,074 $ 23,322 $29,748 $84,628
======== ======== ======== ======= =======
INTEREST-BEARING LIABILITIES:
Demand deposits ........................ $ 24,008 $ 0 $ 0 $ 0 $24,008
Savings deposits ....................... 10,193 0 0 0 10,193
Time deposits .......................... $ 12,818 9,822 6,827 0 29,467
Borrowings ............................. 4,412 0 0 0 4,412
-------- -------- -------- ------- -------
Total ............................... $ 51,431 $ 9,822 $ 6,827 $ 0 $68,080
======== ======== ======== ======= =======
Period gap ............................. $(22,947) $ (6,748) $ 16,495 $29,748 $16,548
Cumulative gap ......................... $(22,947) $(29,695) $(13,200) $16,548
</TABLE>
For many reasons, an interest sensitivity table is not a complete picture
of the possible effect of interest rate changes on MSB'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 MSB 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 September 30, 1997, MSB had a cumulative negative three months or
less GAP of $22.9 million. Management of MSB does not view this amount as
representing an unusually high risk potential, although no assurances can be
given that MSB is not at risk from rate increases or decreases.
-63-
<PAGE>
CAPITAL
MSB 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 MSB's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, MSB must meet specific capital guidelines that involve
quantitative measures of MSB's assets, liabilities, and certain off balance
sheet items as calculated under regulatory accounting practices. MSB'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 MSB to maintain minimum amounts and ratios of total and Tier 1 capital
to risk weighted assets. Management believes that, as of September 30, 1997, MSB
met all capital adequacy requirements to which it is subject.
As of September 30, 1997, MSB 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 as set forth in the table below. There
are no conditions or events which have occurred that management believes have
changed the institution's category.
The following table reflects MSB's capital ratios as of September 30,
1997:
<TABLE>
<CAPTION>
Required To Be Well Capitalized
For Capital Under Prompt Corrective
Adequacy Purposes Action Provisions
Actual -------------------------- --------------------------
-------------------- Amount Ratio Amount Ratio
Amount Ratio -------------------------- --------------------------
-------------------- (Equal to or greater than) (Equal to or greater than)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997 (unaudited)
Total Capital
(to Risk Weighted Assets)........... $7,993,000 14.52% $4,403,000 8% $5,504,000 10%
Tier I Capital
(to Risk Weighted Assets)........... $7,332,000 13.32% $2,201,000 4% $3,302,000 6%
Tier I Capital
(to average assets)................. $7,332,000 8.69% $3,617,000 4% $4,521,000 5%
</TABLE>
EFFECTS OF INFLATION
The impact of inflation, as it affects banks, differs substantially from
the impact on non-financial institutions. Banks have assets which are primarily
monetary in nature and which tend to move with inflation. This is especially
true of banks with a high percentage of rate sensitive interest earning assets
and interest bearing liabilities. A bank can further reduce the impact of
inflation with proper management of its rate sensitivity gap. This gap
represents the difference between interest sensitive assets and interest rate
sensitive liabilities. MSB attempts to structure its assets and liabilities and
manage its gap to protect against substantial changes in interest rate
scenarios, thus minimizing the potential effects of inflation.
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<PAGE>
DESCRIPTION OF LAKELAND'S CAPITAL STOCK
The authorized capital stock of Lakeland consists of 7,403,359 shares of
Lakeland Common Stock. As of December 1, 1997, 3,569,994 shares of Lakeland
Common Stock were issued and outstanding.
DESCRIPTION OF LAKELAND COMMON STOCK
The following description of the Lakeland Common Stock sets forth certain
general terms of the Lakeland Common Stock. The following summary does not
purport to be complete. For an additional description relating to the Lakeland
Common Stock, see "COMPARISON OF THE RIGHTS OF SHAREHOLDERS UNDER THE NEW JERSEY
BANKING ACT AND THE NEW JERSEY BUSINESS CORPORATION ACT."
Dividend Rights
The holders of Lakeland Common Stock are entitled to receive dividends,
when, as and if declared by the Board of Directors of Lakeland out of funds
legally available therefor. The only statutory limitation is that such dividends
may not be paid when Lakeland is insolvent. Due to the fact that funds for the
payment of dividends by Lakeland must come primarily from the earnings of
Lakeland's bank subsidiaries, as a practical matter, any restrictions on the
ability of either the Bank or, after the Merger, the Surviving Bank, to pay
dividends act as restrictions on the amount of funds available for the payment
of dividends by Lakeland.
The Bank is, and the Surviving Bank will be, subject to restrictions on the
payment of dividends contained in the Banking Act. Under the Banking Act, a
state-chartered bank, such as the Bank and the Surviving Bank, may pay dividends
only if, upon payment of each such dividend, its capital stock will not be
impaired and either (i) such bank will have a surplus of not less than fifty
percent of its capital stock or (ii) the payment of such dividend will not
reduce the surplus of such bank. Under the Financial Institutions Supervisory
Act, the FDIC has the authority to prohibit a state-chartered bank from engaging
in conduct which, in the FDIC's opinion, constitutes an unsafe or unsound
banking practice. Under certain circumstances, the FDIC could claim that the
payment of a dividend or other distribution by the Bank or the Surviving Bank to
Lakeland constitutes an unsafe or unsound practice.
Lakeland is also subject to certain Federal Reserve Board policies which
may, in certain circumstances, limit its ability to pay dividends. The Federal
Reserve Board 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.
The policy of the Federal Reserve Board provides that a bank holding
company is expected to act as a source of financial strength to its subsidiary
banks and to commit resources to support such subsidiary banks in circumstances
in which it might not do so absent such policy. Such policy may serve to limit
Lakeland's ability to pay dividends.
At September 30, 1997, the Bank had approximately $21.4 million available
for the payment of dividends to Lakeland, the payment of which would not reduce
any of its capital ratios below the minimum regulatory requirements.
Voting Rights
At meetings of shareholders, holders of Lakeland Common Stock are entitled
to one vote per share. The quorum for shareholders' meetings is a majority of
the outstanding shares entitled to vote represented in person or by proxy.
Except as indicated below, all actions and authorizations to be
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<PAGE>
taken or given by shareholders require the approval of a majority of the votes
cast by holders of Lakeland Common Stock at a meeting at which a quorum is
present.
The Board of Directors of Lakeland 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 of Lakeland is elected
each year and the directors serve for terms of up to three years, and, in all
cases, until their respective successors are duly elected and qualified.
The exact number of directors and the number constituting each class is
fixed from time to time by resolution adopted by a majority of the entire Board
of Directors. The affirmative vote of at least eighty percent (80%) of the
outstanding voting stock of Lakeland is required to amend or repeal the
provisions of Lakeland's Certificate of Incorporation relating to the
classification of the Board of Directors. In addition, shareholders may remove
any director from office only for cause (as defined in Lakeland's Certificate of
Incorporation).
Lakeland's Certificate of Incorporation contains a "minimum price"
provision. If a "Controlling Party" (defined in the Certificate of Incorporation
to include persons who own or control twenty percent (20%) or more of Lakeland's
voting stock at the time of the proposed transaction) proposes to acquire by
merger, consolidation, sale, exchange or lease of all or substantially all of
the assets of Lakeland, the proposed transaction will require the affirmative
vote of (i) not less than eighty percent (80%) of the outstanding shares
entitled to vote on the transaction or (ii) not less than sixty-seven percent
(67%) of the outstanding shares of voting stock of Lakeland held by shareholders
other than the Controlling Party, unless (x) the proposed transaction is
approved by a majority of Lakeland's Board of Directors, or (y) the shareholders
of Lakeland are offered consideration in an amount equal to or in excess of an
amount determined in accordance with a formula contained in Lakeland's
Certificate of Incorporation. If both these tests are met, the proposed
transaction need only be approved by a majority of the outstanding shares
entitled to vote.
Liquidation Rights
In the event of liquidation, holders of Lakeland Common Stock are entitled
to receive ratably any assets distributed to shareholders.
Assessment and Redemption
All outstanding shares of Lakeland Common Stock are fully paid and
nonassessable. Lakeland Common Stock is not redeemable at the option of the
issuer or the holders thereof.
Preemptive and Conversion Rights
Holders of Lakeland Common Stock do not have conversion rights or
preemptive rights with respect to any securities of Lakeland.
Other Matters
Lakeland can issue new shares of authorized but unissued Lakeland Common
Stock without shareholder approval. The affirmative vote of at least eighty
percent (80%) of the outstanding voting stock of Lakeland is required to amend
or repeal the provision of Lakeland's Certificate of Incorporation relating to
the issuance of capital stock of Lakeland.
Lakeland's Certificate of Incorporation provides for the indemnification of
the directors of Lakeland, to the fullest extent permitted under the BCA, for
the breach of any duty owed to Lakeland or its shareholders.
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<PAGE>
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
UNDER THE NEW JERSEY BANKING ACT AND
THE NEW JERSEY BUSINESS CORPORATION ACT
MSB is a New Jersey state bank chartered under the Banking Act, and
Lakeland is a business corporation incorporated in New Jersey under the BCA. The
rights of MSB shareholders are currently governed by New Jersey banking law
applicable to state-chartered banks and by MSB's Articles of Association and
by-laws. At the Effective Time, each MSB shareholder will become a shareholder
of Lakeland. The rights of shareholders of Lakeland are governed by New Jersey
corporate law and by Lakeland's Certificate of Incorporation and by-laws. The
following is a comparison of certain provisions of New Jersey banking law
applicable to state-chartered banks and New Jersey corporate law. This summary
does not purport to be complete and is qualified in its entirety by reference to
the Banking Act and the BCA, which statutes may change from time to time, and
the Certificate of Incorporation and by-laws of Lakeland, 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 the holders of at least two-thirds of the capital stock entitled to vote
thereon. The Banking Act provides that approval of the merger of a New Jersey
state-chartered bank with and into another state bank requires the affirmative
vote of the holders of at least two-thirds of the capital stock of each bank.
MSB's Certificate of Incorporation does not contain greater vote provisions than
those required by the Banking Act.
Under the BCA, unless a greater vote is specified in the certificate of
incorporation, an 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. Lakeland's Certificate of Incorporation presently contains
provisions specifying a greater vote in certain circumstances. See "DESCRIPTION
OF LAKELAND'S CAPITAL STOCK-Description of Lakeland Common Stock-Voting Rights."
Under the BCA, 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 existing preemptive rights, cancel or otherwise
adversely affect their dividends which have accrued but have not been declared,
create a new class or series having or convertible into shares having rights or
preferences superior to the class or increase the rights or preference of any
class or series. In addition, notwithstanding any provisions 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 designations, 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 the certificate of incorporation of a state-chartered bank.
CUMULATIVE VOTING
Under the BCA, shareholders of a New Jersey corporation do not have
cumulative voting rights in the election of directors unless the certificate of
incorporation so provides, and Lakeland's
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<PAGE>
Certificate of Incorporation does not presently provide for cumulative voting.
The Banking Act does not provide for cumulative voting rights.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS
The Certificate of Incorporation of Lakeland provides for a classified
Board of Directors, with one-third of the entire Board being elected each year
and with directors serving for terms of up to three years. The Banking Act
provides for the election of the entire MSB Board annually.
The BCA provides that, with respect to a corporation having a classified
board, such as Lakeland, a director may be removed only for cause, unless
otherwise provided in the Certificate of Incorporation. The Certificate of
Incorporation of Lakeland provides for the removal of directors only for cause
(as defined in Lakeland's Certificate of Incorporation). See "DESCRIPTION OF
LAKELAND'S CAPITAL STOCK-Description of Lakeland Common Stock-Voting Rights."
The Banking Act does not provide for the removal of directors by the
shareholders of a bank other than at the annual meeting of shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS
Generally, shareholders of a New Jersey state-chartered bank who dissent
from a conversion, merger or consolidation of the bank are entitled to appraisal
rights. The shareholders of MSB have statutory rights of appraisal with respect
to the Merger. See "THE MERGER-Rights of Dissenting Shareholders."
Shareholders of a New Jersey corporation who dissent from a merger,
consolidation, sale of all or substantially all of the corporation's assets or
certain other corporate transactions are generally entitled to appraisal rights.
No statutory right of appraisal exists, however, where the stock of the New
Jersey corporation is (i) listed on a national securities exchange, (ii) is held
of record by not less than 1,000 holders, or (iii) where the consideration to be
received pursuant to the merger, consolidation or sale consists of cash or
securities or other obligations which, after the transaction, will be listed on
a national securities exchange or held of record by not less than 1,000 holders.
SHAREHOLDER CONSENT TO CORPORATE ACTION
The Banking Act permits any action to be taken without a meeting if all of
the shareholders of the bank consent to such action in writing and such written
consents are filed with the minutes of the proceedings of shareholders.
The BCA permits any action required or permitted to be taken at any meeting
of a corporation's shareholders to be taken without a meeting upon the unanimous
written consent of all of the shareholders entitled to vote thereon; provided
however 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 or (ii) unanimous consent of all
shareholders entitled to vote thereon, together with advance notice to all other
shareholders. In addition, except as otherwise provided by the certificate of
incorporation (Lakeland's Certificate of Incorporation does not address this
issue), the BCA 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.
DIVIDENDS
Under the Banking Act, a bank may pay dividends only if, upon payment of
each such dividend, the capital stock of the bank will not be impaired and
either (i) the bank will have a surplus of
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<PAGE>
not less than fifty percent of its capital stock or (ii) the payment of such
dividend will not reduce the surplus of such bank.
Unless there are other restrictions contained in its certificate of
incorporation (and Lakeland's Certificate of Incorporation presently contains
none), the BCA 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. Due to the fact that funds for the payment of dividends by Lakeland
must come primarily from the earnings of Lakeland's bank subsidiary, as a
practical matter, any restrictions on the ability of the Bank and, after the
Merger, of the Surviving Bank to pay dividends act as restrictions on the amount
of funds available for the payment of dividends by Lakeland. For a description
of the regulatory restrictions on dividend payments by the Bank and the
Surviving Bank, see "DESCRIPTION OF LAKELAND'S CAPITAL STOCK-Description of
Lakeland Common Stock-Dividend Rights." At September 30, 1997, the Bank had
approximately $21.4 million available for the payment of dividends to Lakeland,
the payment of which would not reduce any of its capital ratios below the
minimum regulatory requirements.
PREEMPTIVE RIGHTS
Under the BCA, shareholders of Lakeland have only such preemptive rights as
may be provided in the certificate of incorporation. Lakeland's Certificate of
Incorporation does not provide shareholders with preemptive rights. Unless
otherwise provided in the certificate of incorporation of a state-chartered
bank, shareholders of each such bank shall have preemptive rights. MSB's
Certificate of Incorporation provides that its shareholders do not have
preemptive rights.
SHAREHOLDER PROTECTION LEGISLATION
The New Jersey Shareholder 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. See "DESCRIPTION OF LAKELAND'S CAPITAL STOCK-Description of Lakeland
Common Stock-Voting Rights" for information regarding similar provisions
contained in the Certificate of Incorporation of Lakeland. The Banking Act
contains no provisions similar to those set forth in the NJSPA.
DISSOLUTION AND LIQUIDATION RIGHTS
In the event of dissolution, the holders of MSB Common Stock are entitled
to receive pro-rata any assets distributable to shareholders. Holders of
Lakeland Common Stock are entitled to receive pro-rata any assets distributable
to shareholders, after distribution to holders of outstanding shares, if any,
having prior rights upon liquidation.
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<PAGE>
OTHER MATTERS
The management of MSB is not aware of any business to come before the
Meeting other than the matter described above in this Proxy
Statement-Prospectus. However, if any other matters should come before the
meeting, it is intended that the proxies solicited hereby will be voted with
respect to those other matters in accordance with the judgment of the person
voting the proxies.
LEGAL OPINION
The validity of the Lakeland Common Stock issuable in connection with the
Merger will be passed upon for Lakeland by Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.C., 65 Livingston Avenue, Roseland, New Jersey 07068.
EXPERTS
The consolidated financial statements of Lakeland and subsidiaries as of
and for the years ended December 31, 1996, 1995 and 1994 incorporated by
reference in this Proxy Statement-Prospectus have been audited by Radics & Co.,
LLC, independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in giving said report.
The consolidated financial statements of MSB and subsidiary as of and for
the years ended December 31, 1996, 1995 and 1994 included in this Proxy
Statement-Prospectus 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 report.
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<PAGE>
INDEX TO MSB'S CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants................................ F-1
Consolidated Statements of Condition at September 30, 1997
(unaudited) and December 31, 1996 and 1995 ......................... F-2
Consolidated Statements of Income for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited) and the Years Ended
December 31, 1996, 1995 and 1994 ................................... F-3
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1997
(Unaudited) and the Years Ended December 31, 1996,
1995 and 1994 ...................................................... F-4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited) and the Years Ended
December 31, 1996, 1995 and 1994.................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
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<PAGE>
Report of Independent Public Accountants
To the Shareholders and
Board of Directors of
Metropolitan State Bank:
We have audited the accompanying consolidated statements of condition of
Metropolitan State Bank (a New Jersey State Chartered Bank) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. 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 provides 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 Metropolitan State Bank and
subsidiary as of December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended Decemeber
31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
January 23, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN STATE BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
SEPTEMBER 30, DECEMBER 31,
------------- -------------------------
ASSETS 1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS - noninterest bearing..... $ 6,105,000 $ 3,355,000 $ 4,258,000
FEDERAL FUNDS SOLD................................ 8,275,000 6,950,000 9,850,000
------------ ----------- -----------
Total cash and cash equivalents................ 14,380,000 10,305,000 14,108,000
------------ ----------- -----------
SECURITIES:
Available for sale (Notes 2 and 3) (at fair value) 23,930,000 14,493,000 6,900,000
Held to maturity (Notes 2 and 3) (market value of
$5,955,000, $9,569,000 and $10,655,000 in 1997,
1996 and 1995, respectively).................. 5,969,000 9,630,000 10,635,000
------------ ----------- -----------
Total securities............................... 29,899,000 24,123,000 17,535,000
------------ ----------- -----------
LOANS (Notes 2, 4 and 5).......................... 46,921,000 42,596,000 41,342,000
Less
Allowance for possible loan losses............ 661,000 585,000 560,000
----------- ----------- -----------
Net loans...................................... 46,260,000 42,011,000 40,782,000
----------- ----------- -----------
PREMISES AND EQUIPMENT, net (Notes 2 and 6)....... 2,515,000 2,524,000 2,513,000
ACCRUED INTEREST RECEIVABLE....................... 587,000 551,000 429,000
OTHER REAL ESTATE, net (Note 2)................... 214,000 177,000 696,000
OTHER ASSETS...................................... 573,000 481,000 355,000
----------- ----------- -----------
Total assets................................... $94,428,000 $80,172,000 $76,418,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Noninterest bearing......................... 18,246,000 $17,392,000 $13,954,000
Interest bearing............................ 24,008,000 19,632,000 18,799,000
Savings....................................... 10,193,000 9,249,000 7,632,000
Time (includes deposits $100,000 and over of
$14,147,000 at September 30, 1997 and
$9,982,000 and $8,808,000 at December 31, 1996
and 1995 respectively)........................ 29,467,000 23,353,000 23,669,000
----------- ----------- -----------
Total deposits................................. 81,914,000 69,626,000 64,054,000
Short-term borrowings............................. 4,412,000 3,336,000 5,390,000
Accrued interest payable.......................... 323,000 273,000 307,000
Accrued expenses and other liabilities............ 424,000 176,000 106,000
----------- ----------- -----------
Total liabilities.............................. 87,073,000 73,411,000 69,857,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Notes 11 and 12):
Common stock $5.00 par value, 1,500,000 shares
authorized; 679,047 shares issued and
outstanding in 1997 and 617,315
in 1996 and 1995 ............................. 3,395,000 3,087,000 3,087,000
Additional paid-in capital...................... 3,329,000 2,897,000 2,897,000
Retained earnings............................... 608,000 806,000 517,000
Unrealized holding gain (loss) on securities
available for sale, net of income taxes....... 23,000 (29,000) 60,000
----------- ----------- -----------
Total shareholders' equity.................. 7,355,000 6,761,000 6,561,000
----------- ----------- -----------
Total liabilities and shareholders' equity..... $94,428,000 $80,172,000 $76,418,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-2
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Nine
Months ended
September 30, For the Years Ended December 31,
-------------- --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME: (Note 2)
Interest on loans................... $3,066,000 $2,677,000 $3,633,000 $3,767,000 $3,503,000
Interest on securities and interest
bearing deposits with banks....... 1,198,000 987,000 1,351,000 1,189,000 874,000
Interest on Federal funds sold...... 195,000 179,000 253,000 152,000 136,000
---------- ---------- ---------- ---------- ----------
Total interest income............ 4,459,000 3,843,000 5,237,000 5,108,000 4,513,000
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits................ 1,652,000 1,432,000 1,918,000 1,903,000 1,578,000
Interest on short-term borrowings... 104,000 128,000 174,000 227,000 111,000
---------- ---------- ---------- ---------- ----------
Total interest expense........... 1,756,000 1,560,000 2,092,000 2,130,000 1,689,000
---------- ---------- ---------- ---------- ----------
Net interest income.............. 2,703,000 2,283,000 3,145,000 2,978,000 2,824,000
PROVISION FOR POSSIBLE LOAN LOSSES:
(Notes 2 and 5)..................... 134,000 154,000 374,000 228,000 345,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses....... 2,569,000 2,129,000 2,771,000 2,750,000 2,479,000
---------- ---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts. 279,000 233,000 331,000 281,000 243,000
Gain on sale of securities.......... 38,000 15,000 23,000 115,000 9,000
Other income........................ 87,000 81,000 103,000 56,000 61,000
---------- ---------- ---------- ---------- ----------
Total other income............... 404,000 329,000 457,000 452,000 313,000
OTHER EXPENSES:
Salaries and employee benefits...... 1,262,000 1,101,000 1,475,000 1,278,000 1,039,000
Net occupancy expense............... 142,000 150,000 201,000 186,000 199,000
Other operating expenses (Note 13).. 866,000 898,000 1,232,000 1,232,000 1,070,000
---------- ---------- ---------- ---------- ----------
Total other expense.............. 2,270,000 2,149,000 2,908,000 2,696,000 2,308,000
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes................... 703,000 309,000 320,000 506,000 484,000
PROVISION FOR INCOME TAXES: (Note 8)... 161,000 51,000 31,000 65,000 57,000
---------- ---------- ---------- ---------- ----------
Net income....................... $ 542,000 $ 258,000 $ 289,000 $ 441,000 $ 427,000
========== ========== ========== ========== ==========
NET INCOME PER SHARE: (Note 2)......... $ .80 $ .38 $ .43 $ .70 $ .69
========== ========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
(Note 2)............................. 679,047 679,047 679,047 632,748 622,031
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE>
<TABLE>
METROPOLITAN STATE BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
UNREALIZED
HOLDING
GAIN (LOSS) ON
SECURITIES
ADDITIONAL AVAILABLE TOTAL
COMMON PAID-IN RETAINED FOR SHAREHOLDERS'
STOCK CAPITAL EARNINGS SALE EQUITY
----- ------- -------- ---- ------
BALANCE
<S> <C> <C> <C> <C> <C>
December 31, 1993 ............ $ 2,207,000 $ 2,206,000 $ 529,000 $ 0 $ 4,942,000
Net income - 1994 .......... 0 0 427,000 0 427,000
10% stock dividend ......... 221,000 97,000 (318,000) 0 0
Issuance of 75,765 shares
of common stock ............ 378,000 313,000 0 0 691,000
Unrealized holding
gain (loss) on securities
available for sale, net of
income taxes ............... 0 0 0 (6,000) (6,000)
----------- ----------- ----------- ----------- -----------
BALANCE
December 31, 1994 ............ 2,806,000 2,616,000 638,000 (6,000) 6,054,000
Net income - 1995 .......... 0 0 441,000 0 441,000
10% stock dividend ......... 281,000 281,000 (562,000) 0 0
Change in unrealized
holding gain (loss)
on securities
available for sale, net
of income taxes ............ 0 0 0 66,000 66,000
----------- ----------- ----------- ----------- -----------
BALANCE
December 31, 1995 ............ 3,087,000 2,897,000 517,000 60,000 6,561,000
Net income - 1996 .......... 0 0 289,000 0 289,000
Change in unrealized
holding gain (loss)
on securities
available for sale, net
of income taxes ............ 0 0 0 (89,000) (89,000)
----------- ----------- ----------- ----------- -----------
BALANCE
December 31, 1996 ............ 3,087,000 2,897,000 806,000 (29,000) 6,761,000
Net Income for the
nine months ended .......... 0 0 542,000 0 542,000
10% stock dividend ......... 308,000 432,000 (740,000) 0 0
Change in unrealized holding
gain (loss) on securities
available for sale, net of
income taxes ............... 0 0 0 52,000 52,000
----------- ----------- ----------- ----------- -----------
BALANCE
September 30, 1997 ........... $ 3,395,000 $ 3,329,000 $ 608,000 $ 23,000 $ 7,355,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
<PAGE>
<TABLE>
METROPOLITAN STATE BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------ -----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net income ........................ $ 542,000 $ 258,000 $ 289,000 $ 441,000 $ 427,000
Adjustments to reconcile net
income to net cash provided
by operating activities
Provision for possible
loan losses ................. 134,000 154,000 374,000 228,000 345,000
Depreciation and amortization . 83,000 64,000 100,000 136,000 90,000
Deferred taxes ................ 0 0 0 (27,000) (85,000)
Amortization (accretion) of
securities premium
(discount), net ............. (5,000) 79,000 77,000 (121,000) 6,000
Gain on sale of
Securities ............... (38,000) (15,000) (23,000) (115,000) (9,000)
Loans .................... 0 0 0 0 (30,000)
(Increase) decrease in accrued
interest receivable .......... (36,000) (226,000) (122,000) 77,000 (141,000)
(Increase) in other assets .... (92,000) (65,000) (126,000) (78,000) (15,000)
Increase (decrease) in accrued
interest payable ............ 50,000 (29,000) (34,000) 80,000 44,000
Increase (decrease) in accrued
expense and other liabilities 248,000 (80,000) 70,000 (12,000) (34,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities .......... 886,000 140,000 605,000 609,000 598,000
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Available for sale securities
Purchases ....................... (23,407,000) (14,057,000) (18,191,000) (12,489,000) (4,154,000)
Sales ........................... 6,625,000 3,152,000 4,982,000 9,569,000 2,091,000
Maturities ...................... 7,435,000 790,000 1,040,000 0 0
Held to maturity securities
Purchases ....................... (250,000) (4,858,000) (4,858,000) (990,000) (7,775,000)
Maturities ...................... 3,911,000 8,330,000 9,520,000 4,595,000 2,986,000
Net change in loans ............. (4,383,000) 309,000 (827,000) 2,766,000 (3,680,000)
(Increase) decrease in other real
estate, net .................... (37,000) 233,000 519,000 (23,000) 65,000
Capital expenditures ............ (69,000) (62,000) (111,000) (1,922,000) (670,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities .......... (10,175,000) (6,163,000) (7,926,000) 1,506,000 (11,137,000)
------------ ------------ ------------ ------------ ------------
FINANCING ACTVITIES
Net increase (decrease) in
demand deposits and savings
accounts ........................ 6,174,000 5,611,000 5,888,000 5,300,000 (1,366,000)
Net increase (decrease) in time
deposits ........................ 6,114,000 1,294,000 (316,000) 1,765,000 4,909,000
Net increase (decrease) in
short-term borrowings ........... 1,076,000 (1,164,000) (2,054,000) 609,000 3,201,000
Proceeds from the issuance of common
stock ........................... 0 0 0 0 691,000
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities ...................... 13,364,000 5,741,000 3,518,000 7,674,000 7,435,000
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents ................ 4,075,000 (282,000) (3,803,000) 9,789,000 (3,104,000)
CASH AND CASH EQUIVALENTS,
beginning of year ................. 10,305,000 14,108,000 14,108,000 4,319,000 7,423,000
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of year ....................... $ 14,380,000 $ 13,826,000 $ 10,305,000 $ 14,108,000 $ 4,319,000
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for
Interest ........................ $ 1,706,000 $ 1,589,000 $ 2,126,000 $ 2,050,000 $ 1,644,000
------------ ------------ ------------ ------------ ------------
Income taxes .................... $ 211,000 $ 51,000 $ 30,600 $ 141,000 $ 137,000
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-5
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION:
Metropolitan State Bank (the Bank, including its investment company) is
a full service community bank, primarily serving Morris and Essex
Counties of New Jersey.
All significant intercompany accounts and transactions are eliminated in
consolidation.
(2) SIGNIFICANT ACCOUNTING 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.
The consolidated financial statements as of September 30, 1997, and the
nine months ended September 30, 1997 and 1996, are unaudited. In the
opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
position and results of operations have been included. The results of
operations for the nine months ended September 30, 1997 and 1996, are
not necessarily indicative of the results that may be attained for an
entire fiscal year.
Securities
The Bank classifies its securities as: (1) held for investment purposes
(held to maturity); (2) available for sale and (3) held for trading
purposes. 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 effective 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, increases in capital requirements or other similar
factors, are classified as available for sale and are carried at fair
value. Differences between a security's amortized cost and fair value is
charged/credited directly to shareholders' 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
consolidated statement of income upon sale.
The Bank had no securities held for trading purposes at September 30,
1997, December 31, 1996 and 1995. See Note 3 for additional discussion
of the Bank's securities portfolio.
Allowance For Possible Loan Losses
The Bank's management 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 after consideration
of appraised
F-6
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
collateral values, financial condition of the borrowers, as well as
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 is computed primarily on the
straight-line method over the estimated useful lives of the assets.
Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan is reported separately in
the consolidated statements of condition. Properties acquired by
foreclosure are ORE and recorded at the lower of recorded investment in
the related loan or fair value based on appraised value at the date
actually or constructively received. Loan losses arising from the
acquisition of such properties are charged against the allowance for
possible loan losses. Subsequent adjustments to the carrying values of
ORE properties are charged to operating expense. ORE is stated at the
lower of cost or fair value, less estimated cost to sell.
Interest On 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 using the level yield method.
Income Taxes
The Bank recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Bank's financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and the tax basis of
assets and liabilities.
Per Share Amounts
Net income per share is based on the weighted average number of common
shares outstanding during the period. All weighted average actual shares
or per share information in the financial statements has been adjusted
retroactively for the effect of stock dividends.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share,
which is effective for financial statements issued after December 15,
1997. Early adoption of the new standard is not permitted. The new
standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together
with disclosure of how the per share amounts were computed. The adoption
of SFAS No. 128 will not have a material effect on the Bank's financial
position or results of operations.
The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which
is effective for year beginning after December 15, 1997. This new
standard requires entities presenting a complete set of financial
statements to include details of comprehensive income. Comprehensive
income consists of net income or loss for the current period and income,
expenses, gains, and losses that bypass the income statement and are
reported directly in a
F-7
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
separate component of equity. The adoption of SFAS No. 130 will not have
a material effect on the Bank's financial position or results of
operations.
The FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which is effective for all periods
beginning after December 15, 1997. SFAS 131 requires that public
business enterprises report certain information about operating segments
in complete sets of financial statements of the enterprise and in
condensed financial statements of interim periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic
areas in which they operate, and their major customers. The adoption of
SFAS No. 131 will not have a material effect on the Bank's financial
position or results of operations.
(3) SECURITIES
Information with regard to the Bank's securities portfolio is as
follows:
<TABLE>
<CAPTION>
As of September 30, 1997
------------------------------------------------------------------------
(Unaudited)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies.................. $ 10,783,000 $ 35,000 $ (11,000) $10,807,000
Mortgage backed securities
of U.S. Government Agencies... 5,669,000 17,000 (28,000) 5,658,000
Municipal bonds................. 7,044,000 39,000 (17,000) 7,066,000
Other securities................ 399,000 0 0 399,000
------------ ----------- ----------- -----------
$ 23,895,000 $ 91,000 $ (56,000) $23,930,000
============ =========== ============ ===========
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies.................. $ 2,462,000 $ 3,000 $ (30,000) $ 2,435,000
Mortgage backed securities of
U.S. Government Agencies...... 2,434,000 27,000 (30,000) 2,431,000
Municipal bonds................. 1,073,000 18,000 (2,000) 1,089,000
------------ ----------- ----------- -----------
$ 5,969,000 $ 48,000 $ (62,000) $ 5,955,000
============ =========== ============ ===========
</TABLE>
F-8
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies .......................... $ 3,800,000 $ 0 $ (11,000) $ 3,789,000
Mortgage backed securities
of U.S. Government Agencies ........... 5,290,000 0 (26,000) 5,264,000
Municipal bonds ......................... 5,197,000 11,000 (17,000) 5,191,000
Other securities ........................ 249,000 0 0 249,000
----------- -------- ------------ -----------
$14,536,000 $ 11,000 $ (54,000) $14,493,000
=========== ======== ============ ===========
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies .......................... $ 5,581,000 $ 3,000 $ (45,000) $ 5,539,000
Mortgage backed securities of
U.S. Government Agencies .............. 2,770,000 1,000 (25,000) 2,746,000
Municipal bonds ......................... 1,079,000 5,000 0 1,084,000
Other securities ........................ 200,000 0 0 200,000
----------- -------- ------------ -----------
$ 9,630,000 $ 9,000 $ (70,000) $ 9,569,000
=========== ======== ============ ===========
</TABLE>
F-9
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies .......................... $ 613,000 $ 6,000 $ 0 $ 619,000
Mortgage backed securities
of U.S. Government Agencies ........... 1,254,000 25,000 0 1,279,000
Municipal bonds ......................... 4,707,000 46,000 0 4,753,000
Other securities ........................ 249,000 0 0 249,000
----------- -------- ------------ -----------
$ 6,823,000 $ 77,000 $ 0 $ 6,900,000
=========== ======== ------------ ===========
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S. ...............
Government corporations
and agencies .......................... $ 5,709,000 $ 13,000 $ 0 $ 5,722,000
Mortgage backed securities of
U.S. Government Agencies .............. 4,438,000 66,000 (63,000) 4,441,000
Municipal bonds ......................... 238,000 0 0 238,000
Other securities ........................ 250,000 4,000 0 254,000
----------- -------- ------------ -----------
$10,635,000 $ 83,000 $ (63,000) $10,655,000
=========== ======== ============ ===========
</TABLE>
In March 1995, based on a recommendation by the Bank's regulators, the
Bank transferred $13,698,000 of securities from held to maturity to
available for sale. A portion of those securities were subsequently
sold. Under the provisions of Statement of Financial Accounting
Standards No. 115, all of the remaining securities in the held to
maturity portfolio were required to be classified as available for sale.
In December 1995, as then permitted by certain accounting standards, the
Bank transferred available for sale securities with a fair value of
$9,248,000 to held to maturity. The amount transferred approximated the
carrying value of the securities.
The amortized cost and estimated market value of securities at September
30, 1997 and December 31, 1996 by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or repayment penalties.
F-10
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 1997
--------------------------
Amortized Estimated
Cost Market Value
---- ------------
(Unaudited)
AVAILABLE FOR SALE
Due in one year or less .................... $ 2,224,000 $ 2,224,000
Due after one year through five years ...... 7,968,000 7,985,000
Due after five years through ten years ..... 4,161,000 4,164,000
Due after ten years ........................ 3,873,000 3,899,000
----------- -----------
$18,226,000 18,272,000
Mortgage backed securities of U.S. .........
Government Agencies ...................... 5,669,000 5,658,000
----------- -----------
$23,895,000 $23,930,000
=========== ===========
HELD TO MATURITY
Due after one year through five years ...... $ 1,022,000 $ 1,026,000
Due after five years through ten years ..... 2,413,000 2,394,000
Due after ten years ........................ 100,000 104,000
----------- -----------
3,535,000 3,524,000
Mortgaged backed securities of U.S. ........
Government Agencies ...................... 2,434,000 2,431,000
----------- -----------
$ 5,969,000 $ 5,955,000
=========== ===========
December 31, 1996
--------------------------
Amortized Estimated
Cost Market Value
---- ------------
(Unaudited)
AVAILABLE FOR SALE
Due in one year or less .................... $ 2,101,000 $ 2,100,000
Due after one year through five years ...... 5,565,000 5,544,000
Due after five years through ten years ..... 1,580,000 1,585,000
----------- -----------
9,246,000 9,229,000
Mortgage backed securities of U.S. .........
Government Agencies .................... 5,290,000 5,264,000
----------- -----------
$14,536,000 $14,493,000
=========== ===========
HELD TO MATURITY
Due in one year or less .................... $ 3,444,000 $ 3,444,000
Due after one year through five years ...... 1,267,000 1,263,000
Due after five years through ten years ..... 2,149,000 2,116,000
----------- -----------
6,860,000 6,823,000
Mortgaged backed securities of U.S. ........
Government Agencies ...................... 2,770,000 2,746,000
----------- -----------
$ 9,630,000 $ 9,569,000
=========== ===========
As of December 31, 1996 and 1995, securities having a book value of $5,993,000
and $4,734,000, respectively, were pledged to secure public deposits, repurchase
agreements and for other purposes as required by law.
F-11
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) LOANS:
The Bank's loans are primarily to businesses and individuals in Morris
and Essex Counties of New Jersey. Loans outstanding by classification are as
follows:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------
1997 1996 1995
------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Loans secured by real estate-
Construction and land development ................ $ 1,345,000 $ 287,000 $ 562,000
Secured by residential properties ................ 23,908,000 22,380,000 22,248,000
Secured by nonresidential properties ............. 11,457,000 8,600,000 7,170,000
Commercial and industrial loans .................... 6,497,000 7,597,000 6,152,000
Loans to individuals ............................... 3,714,000 3,632,000 5,057,000
All other loans .................................... 0 100,000 153,000
----------- ----------- -----------
$46,921,000 $42,596,000 $41,342,000
=========== =========== ===========
</TABLE>
Activity related to loans to directors, executive officers and their
affiliated interests for the year ended December 31, 1996, all of which are
current as to principal and interest payments, is as follows-
Balance, beginning of year $ 1,553,000
Loans granted 1,187,000
Repayments of loans (1,094,000)
------------
Balance, end of year $ 1,646,000
===========
(5) 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 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------ -------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 585,000 $ 560,000 $ 560,000 $ 547,000 $ 455,000
Provision charged to expense 134,000 154,000 374,000 228,000 345,000
Charge-offs (87,000) (88,000) (373,000) (263,000) (270,000)
Recoveries 29,000 9,000 24,000 48,000 17,000
--------- --------- ----------- ---------- -----------
Balance, end of year $ 661,000 $ 635,000 $ 585,000 $ 560,000 $ 547,000
========= ========= =========== =========== ===========
</TABLE>
Certain additional information with regard to the Bank's loan portfolio
is as follows-
<TABLE>
<CAPTION>
September 30, December 31,
-------------------- ---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 568,000 $ 1,003,000 $ 537,000 $ 821,000 $1,157,000
Additional loans past due
90 days or more $ 854,000 $ 634,000 $ 744,000 $ 620,000 $ 485,000
</TABLE>
F-12
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Interest income that would have been recorded in the financial statements had
the non-accrual loans been performing in accordance with their terms would have
been $43,000 and 42,000 at September 30, 1997 and 1996, respectively, and
$34,000, $67,000 and $72,000 in 1996, 1995 and 1994, respectively.
In accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," the Bank utilized the
following information when measuring the allowance for possible loan losses. A
loan is considered impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of nonaccrual loans but may include
performing loans to the extent that situations arise which would reduce the
probability of collection in accordance with the contractual terms. The Bank's
recorded investment in impaired loans and the related valuation allowance were
$564,000 and $170,000, respectively, as of September 30, 1997, $1,291,000 and
$160,000, respectively, as of December 31, 1996 and $1,481,000 and $235,000,
respectively, as of December 31, 1995. This valuation allowance is included in
the allowance for possible loan losses in the accompanying consolidated
statement of condition.
The average recorded investment in impaired loans for the nine month period
ended September 30, 1997 was $928,000 and for the period ended December 31, 1996
and 1995 was approximately $1,567,000 and $1,785,000, respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, at which
time payments recieved are recorded as reductions of principal. The Bank
recognized interest income on impaired loans of $0 and $11,000 for the nine
months ended September 30, 1997 and 1996, respectively, and $82,000 and $66,000
for the years ended December 31, 1996 and 1995, respectively.
(6) PREMISES AND EQUIPMENT:
Premises and equipment consists of the following-
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1997 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Land $ 971,000 $ 971,000 $ 971,000
Premises and improvements................ 1,209,000 1,203,000 1,195,000
Furniture and equipment.................. 844,000 775,000 672,000
----------- ------------ ------------
3,024,000 2,949,000 2,838,000
Less-Accumulated depreciation
and amortization...................... 509,000 425,000 325,000
------------ ------------ ------------
$ 2,515,000 $ 2,524,000 $ 2,513,000
============ ============ ============
</TABLE>
(7) SHORT-TERM BORROWINGS:
Short-term borrowings during the year consisted of securities sold under
agreements to repurchase. Securities underlying the agreements were under the
Bank's control.
<TABLE>
<CAPTION>
September 30, December 31,
------------- --------------------------------
1997 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Balance outstanding 4,412,000 3,336,000 5,390,000
Weighted average interest
rate at end of period 4.98% 4.84% 4.48%
--------- --------- --------
</TABLE>
F-13
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31
------------------- ----------------------
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Average daily balance outstanding $ 2,887,000 $ 3,750,000 $ 5,054,000
Weighted average interest rate 4.80% 4.63% 4.49%
----------- ------------ -----------
Highest month-end outstanding balance $ 5,038,200 $ 4,888,000 $ 7,363,000
=========== ============ ===========
</TABLE>
FEDERAL HOME LOAN BANK ADVANCES
As of September 30, 1997, the Company has a line of credit for $8.2
million with the Federal Home Loan Bank (FHLB) which is collateralized by FHLB
stock in proportion to the balance outstanding. Borrowings under this
arrangement have an interest rate that fluctuates based on market conditions and
customer demand. As of September 30, 1997, December 31, 1996 and 1995, there
were no outstanding borrowings.
(8) INCOME TAXES:
The components of the provision for income taxes are as follows-
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------- -----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal income taxes-
Current $ 162,000 $ 42,000 $ 17,200 $ 72,000 $ 119,000
Deferred (30,000) 0 0 (27,000) (85,000)
State income taxes 29,000 9,000 13,800 20,000 23,000
------ ----- ------ ------ ------
$ 161,000 $ 51,000 $ 31,000 $ 65,000 $ 57,000
======== ======== ====== ====== ======
</TABLE>
A reconciliation of the provision for Federal income taxes, as reported, with
the Federal income tax at the statutory rate of 34 percent is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------- ----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax at statutory rate................. $ 240,000 $ 106,000 $ 109,000 $ 172,000 $ 145,000
Increase (decrease) in taxes
resulting from Tax-exempt income... (70,000) (59,000) (76,500) (119,000) (113,000)
State income taxes, net of Federal
income tax benefit................ (10,000) (3,000) (4,700) (7,000) (8,000)
Other, net............................ (28,000) (2,000) (10,600) (1,000) 10,000
----------- ---------- ---------- ---------- ---------
Provision for Federal income taxes.... $ 132,000 $ 42,000 $ 17,200 $ 45,000 $ 34,000
=========== ========== ========== ========== =========
</TABLE>
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and the tax basis of the Bank's assets and
liabilities. Cumulative temporary differences are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Allowance for possible losses on other real estate $ 37,300 $ 37,300 $ 58,000
Allowance for possible loan losses............... 110,000 77,400 50,000
Depreciation and amortization.................... 31,000 37,900 62,000
Other............................................ 6,700 2,400 (15,000)
----- ----- --------
Net deferred tax asset....................... $ 185,000 $ 155,000 $ 155,000
======= ======= =======
</TABLE>
F-14
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In order to fully realize the deferred tax asset, the Bank will need to generate
future taxable income during periods in which existing deductible temporary
differences reverse. Based upon the Bank's historical and current pretax
earnings, management believes it is more likely than not that the Bank will
generate future net taxable income in sufficient amounts to realize its net
deferred tax asset at September 30, 1997 and December 31, 1996; however, there
can be no assurance that the Bank will generate any earnings or any specific
level of continuing earnings. The Bank did not record any valuation allowance
against its net deferred tax asset at September 30, 1997, December 31, 1996 or
December 31, 1995.
(9) BENEFIT PLANS:
In January 1996, the Bank entered into an agreement with its Chief Executive
Officer, which provides for an annual retirement benefit of $35,000 for a
15-year period. Although there are certain provisions for early retirement, it
is expected that the officer will remain in the employment of the Bank until his
retirement date in 2000 at age 65. The present value of this obligation is being
charged to operations over the officer's remaining period of service. During the
first nine months of 1997 and in 1996, the Bank charged $0 and $40,000,
respectively, to operations related to this obligation.
The Bank has a noncontributory 401(k) savings plan covering substantially all
employees. As of January 1, 1997, the Bank matches 50% of employee contributions
for all participants, not to exceed 5% of their total salary. The Bank does not
currently provide any postretirement benefits to its employees. Contributions
made by the Bank for the nine months ended September 30, 1997 were $20,000.
(10) COMMITMENTS AND CONTINGENCIES:
The Bank leases a branch at an annual rental of $36,000 under a lease agreement
expiring in 2002. The lease is subject to periodic adjustments to a current
market value rental.
As of December 31, 1996, future minimum rental payments are as follows-
1997................................................................$ 40,000
1998................................................................ 42,000
1999................................................................ 44,096
2000................................................................ 46,298
2001................................................................ 48,608
Thereafter.......................................................... 8,166
--------
Total minimum future rental payments...........................$229,168
========
The above amount represents minimum rentals not adjusted for possible future
increases due to escalation provisions and assumes that all option periods will
be exercised by the Bank.
The consolidated statements of condition do not reflect various commitments
relating to financial instruments which are used in the normal course of
business. Management does not anticipate that the settlement of those financial
instruments will have a material adverse effect on the Bank's financial
position. These instruments include commitments to extend credit and letters of
credit. These financial instruments carry various degrees of credit risk, which
is defined as the possibility that a loss may occur from the failure of another
party to perform according to the terms of the contract.
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 was committed to advance
$10,581,000 and $6,491,000 to its borrowers as of December 31, 1996 and 1995,
respectively, which commitments generally expire within one year.
F-15
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. The Bank has entered into
standby letters of credit contracts with its customers totaling $632,000 at both
December 31, 1996 and 1995, which generally expire within one year.
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.
(11) STOCK OPTION PLAN:
The Bank's shareholders have approved a stock option plan for key employees, and
entered into an employment agreement with additional options awarded to its
President. The Bank accounts for the various stock option agreements in
accordance with Accounting Principles Board Opinion No. 25, under which no
compensation cost has been recognized.
Had compensation cost for these options been determined consistent with FASB
Statement No. 123, the Bank's net income and net income per share for 1996 would
have been the same because Statement No. 123 method of accounting has not been
applied to the options granted prior to January 1, 1995, and no options were
granted subsequent to January 1, 1995.
During 1989, the shareholders approved a stock option plan (the "Plan") for
officers and key employees of the Bank. In accordance with the Plan, options for
the purchase of 33,275 shares of the Bank's common stock may be granted. As of
September 30, 1997, options to purchase 19,965 shares and 12,856 shares of the
Bank's common stock at a price of $7.51 per share have been granted to the
Bank's President and Executive Vice President, respectively. All such options
are currently exercisable and expire 10 years from date of grant which was 1989.
No options have been exercised through September 30, 1997. The weighted average
remaining contractual life of oustanding stock options is 2.5 years.
(12) REGULATORY 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 classifications 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 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 September 30, 1997 and December
31, 1996 and 1995, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as adequately 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.
The Bank's actual capital amounts and ratios are also presented in the table.
F-16
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
----------------- -----------------
Actual Amount Ratio Amount Ratio
------------------ ------------------- ------------------
Amount Ratio (Equal to or greater than) (Equal to or greater than)
------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997 (Unaudited)
Total Capital
(to Risk Weighted Assets) $7,993,000 14.52% $4,403,000 8.00% $5,504,000 10.00%
Tier I Capital
(to Risk Weighted Assets) $7,332,000 13.32% $2,201,000 4.00% $3,302,000 6.00%
Tier I Capital
(to average assets) $7,332,000 8.69% $3,617,000 4.00% $4,521,000 5.00%
As of December 31, 1996-
Total Capital
(to Risk Weighted Assets) $7,374,000 15.18% $3,886,000 8.00% $4,858,000 10.00%
Tier I Capital
(to Risk Weighted Assets) $6,789,000 13.98% $1,942,000 4.00% $2,914,000 6.00%
Tier I Capital
(to Average Assets) $6,789,000 8.69% $3,125,000 4.00% $3,906,000 5.00%
As of December 31, 1995-
Total Capital
(to Risk Weighted Assets) $7,061,000 9.23% $6,120,000 8.00% $7,650,000 10.00%
Tier I Capital
(to Risk Weighted Assets) $6,561,000 8.51% $3,084,000 4.00% $4,626,000 6.00%
Tier I Capital
(to Average Assets) $6,561,000 9.23% $2,843,000 4.00% $3,554,000 5.00%
</TABLE>
(13) OTHER OPERATING EXPENSES:
The components of other operating expenses are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- ------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Advertising..................................... $ 23,000 $ 44,000 $ 53,000 $ 112,000 $ 96,000
Computer services............................... 167,000 165,000 209,000 208,000 193,000
Regulatory, professional and other fees......... 192,000 153,000 220,000 285,000 174,000
Deposit and other insurance..................... 52,000 65,000 76,000 150,000 185,000
Office expense.................................. 88,000 81,000 99,000 87,000 55,000
Equipment expense............................... 120,000 112,000 153,000 149,000 135,000
Postage and delivery expense.................... 65,000 63,000 85,000 79,000 81,000
Loan/collection expense......................... 43,000 43,000 57,000 56,000 42,000
(Income) loss from operation of
other real estate......................... 15,000 47,000 107,000 (11,000) 27,000
Other........................................... 101,000 125,000 173,000 117,000 82,000
---------- ---------- ---------- ---------- ---------
$ 866,000 $ 898,000 $1,232,000 $1,232,000 $1,070,000
========== ========== ========== ========== ==========
</TABLE>
F-17
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(14) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following is a summary of fair value versus the carrying value of the Bank's
financial instruments. For the Bank, as for most financial institutions, the
bulk of its assets and liabilities are considered financial instruments. Many of
the Bank's financial instruments lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction. It is also the Bank's general practice and intent to hold its
financial instruments to maturity and not engage in trading or sales activities.
Therefore, significant estimations and present value calculations were used by
the Bank for the purpose of this disclosure.
Estimated fair values have been determined by the Bank using the best available
data and an estimation methodology suitable for each category of financial
instruments. Financial instruments actively traded in the secondary market have
been valued using available market prices.
The estimation methodologies used, the estimated fair values, and carrying
values, were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 10,305,000 $ 10,305,000 $ 14,108,000 $ 14,108,000
Securities available for sale......... 14,493,000 14,493,000 6,900,000 6,900,000
Securities held to maturity........... 9,630,000 9,569,000 10,635,000 10,655,000
Accrued interest receivable........... 551,000 551,000 429,000 429,000
Accrued interest payable.............. 273,000 273,000 307,000 307,000
Securities sold under
agreement to repurchase ............ 3,336,000 3,336,000 5,390,000 5,390,000
</TABLE>
Financial instruments with stated maturities have been valued using a present
value discounted cash flow with a discount rate approximating current market for
similar assets and liabilities. For those loans and deposits with floating
interest rates, it is assumed that estimated fair values generally approximate
the recorded book balances.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Gross loans........................... $ 42,596,000 $ 42,821,000 $ 41,342,000 $ 40,934,000
Deposits.............................. 69,626,000 69,524,000 64,054,000 64,116,000
</TABLE>
There is no material difference between the notional amount and the estimated
fair value of off-balance sheet unfunded loan commitments which totaled
$10,581,000 and $6,491,000 at December 31, 1996 and 1995, respectively. Standby
letters of credit totaling $632,000 as of both December 31, 1996 and 1995 are
based on fees charged for similar agreements; accordingly, the estimated fair
value of standby letters of credit is nominal. See also Note 10 for additional
discussion relating to these off-balance sheet activities.
(15) STOCK DIVIDEND:
On February 15, 1997, the Bank paid a 10% stock dividend to shareholders
of record as of January 15, 1997.
F-18
<PAGE>
METROPOLITAN STATE BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(16) DEPOSITS (UNAUDITED):
At September 30, 1997, the schedule of maturities of Certificates of
Deposit is as follows:
1997............................................... $12,818,000
1998............................................... 9,822,000
1999............................................... 2,357,000
2000............................................... 2,993,000
2001 and thereafter................................ 1,477,000
-----------
$29,467,000
===========
(17) SUBSEQUENT EVENTS (UNAUDITED):
Agreement and Plan Of Reorganization
On September 16, 1997, the Bank entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Lakeland Bancorp, Inc. ("Lakeland")
which provides for the merger of the Bank and a newly formed subsidiary bank of
Lakeland (the "Merger"). The shareholders of the Bank will be entitled to
receive a specified number of shares of Lakeland common stock in exchange for
each share of the Bank's common stock owned on the effective date of the Merger
(the "Exchange Number"). The Exchange Number is determined by dividing $26.20 by
the market value of Lakeland common stock (the "Market Value") if the Market
Value is between $22.50 and $31.00 per share. If the Market Value is greater
than $31.00 per share, the Merger Agreement provides that the Exchange Number
will be .845. If the Market Value is less than $22.50 per share, the Exchange
Number will be 1.164. Both Lakeland and the Bank have the right to terminate the
Merger in the event the Market Value of Lakeland common stock is less than
$22.50 per share. The Agreement and Plan of Reorganization is subject to
regulatory and shareholder approval.
Stock Option Plan
On October 27, 1997, the Bank's President and Executive Vice President
exercised all 32,821 of their stock options as described in Note 11.
F-19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT (the "Agreement" or the "Merger Agreement"), made as of the
16th day of September, 1997, by and between LAKELAND BANCORP, INC., a
corporation duly organized and existing under the laws of the State of New
Jersey (hereinafter referred to as "Lakeland"), having an address for purposes
of this Agreement located at 250 Oak Ridge Road, Oak Ridge, New Jersey 07438,
and METROPOLITAN STATE BANK, a Banking Corporation organized and existing under
the laws of the State of New Jersey (hereinafter referred to as "MSB"), having
an address for purposes of this Agreement located at 166 Changebridge Road,
Montville, New Jersey 07045,
W I T N E S S E T H
WHEREAS, Lakeland desires to acquire MSB by means of a transaction
(hereinafter collectively referred to as the "Merger") pursuant to which (i) a
wholly-owned subsidiary of Lakeland would be formed as a state-chartered bank,
(ii) such subsidiary would merge with and into MSB, (iii) MSB would become a
wholly-owned subsidiary of Lakeland and (iv) each of the outstanding shares of
capital stock of MSB would be automatically converted into the right to receive
shares of the Common Stock, par value $2.50 per share, of Lakeland (the
"Lakeland Stock"), all in accordance with, and subject to, the terms and
conditions hereinafter set forth;
WHEREAS, the Merger is intended to qualify as a reorganization within the
meaning of Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Boards of Directors of Lakeland and MSB, deeming the Merger to
be in the best interests of Lakeland, MSB and their respective stockholders,
have each by duly adopted resolutions approved this Merger Agreement,
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger; Exchange of MSB Stock.
(a) Promptly following the execution of this Merger Agreement, Lakeland
will use its best efforts to cause (subject to necessary governmental approvals)
a new state-chartered bank (the "Subsidiary Bank") to be organized in accordance
with the laws of the State of New Jersey. All of the capital stock of the
Subsidiary Bank, other than directors' qualifying shares, if any, shall be owned
by Lakeland. Upon receipt of all governmental approvals necessary for the
formation of the Subsidiary Bank, the Subsidiary Bank and MSB will execute a
merger agreement (the "Subsidiary Bank
A-1
<PAGE>
Merger Agreement"), containing terms consistent with the terms of this Merger
Agreement, in such form as counsel for Lakeland and MSB shall advise for the
purpose of obtaining all necessary approvals from the Department of Banking of
the State of New Jersey.
(b) Subject to and in accordance with the provisions of this Agreement, at
the "Effective Time" (as defined herein) (i) the Subsidiary Bank will be merged
into MSB; (ii) all of the outstanding shares of the common stock, par value
$5.00 per share, of MSB ("MSB Stock"), other than "MSB Dissenting Shares" (as
defined in Section 1.11 hereof), will be converted into shares of Lakeland
Stock; (iii) all options to purchase MSB Stock which are outstanding and
unexercised at the Effective Time shall be converted into options to purchase
Lakeland Stock in accordance with Section 1.2 hereof; and (iv) all of the
outstanding capital stock of the bank resulting from the merger of the
Subsidiary Bank into MSB (the "Surviving Bank") will be owned by Lakeland. At
the Effective Time, by virtue of the Merger and without any action on the part
of any holder thereof:
(i) Any shares of MSB Stock held in the treasury of MSB shall be
canceled and retired, and no cash, securities or other consideration shall
be paid or delivered in exchange for such MSB Stock under this Agreement.
(ii) Each share of MSB Stock issued and outstanding immediately prior
to the Effective Time, which is not to be canceled and retired pursuant to
Section 1(b)(i) above or treated as an MSB Dissenting Share, shall be
converted into such number of shares (the "Exchange Number") of Lakeland
Stock as shall be determined pursuant to the provisions of Sections 1.1(c),
1.1(d) and 1.1(e) hereof.
(iii) No MSB Dissenting Shares shall be converted into or represent a
right to receive Lakeland Stock under this Section 1.1(b) but shall be
subject to the provisions of Section 1.11 below.
(iv) Each authorized but unissued share of MSB Stock shall cease to
exist.
(c) In the event that the "Market Value" (as defined herein) is equal to or
greater than $22.50 per share but not greater than $31.00 per share, the
Exchange Number shall equal $26.20 divided by the Market Value. In the event
that the Market Value is less than $22.50 per share, the Exchange Number shall
be 1.164. In the event that the Market Value is greater than $31.00 per share,
the Exchange Number shall be 0.845. Either party shall have the right to
terminate the Merger in the event that the Market Value is less than $22.50 per
share.
(d) The term "Market Value" shall mean the average of the "Bid Prices" (as
defined herein) of a share of Lakeland Stock on the twenty "Accountable Days"
(as defined herein) during the "Determination Period" (as defined herein). For
purposes of this Merger Agreement, the following terms shall have the following
meanings:
A-2
<PAGE>
(i) The term "Bid Price", with respect to a particular date, shall
mean the average of the highest and lowest bid price for a share of
Lakeland Stock quoted by the National Quotation Bureau, Inc. on such date.
(ii) The term "Determination Period" shall mean the twenty consecutive
business days ending on the day (the "Approval Day") on which the approval
of the Federal Reserve Board required for consummation of the Merger shall
be received by Lakeland; provided, however, that if an actual sale of
Lakeland Stock does not occur on at least ten of such business days, such
period shall be extended closer to the date hereof (on a consecutive date
basis) by such number of business days as shall be necessary to assure that
at least ten of the business days in such period are days on which an
actual sale of Lakeland Stock occurs.
(iii) The term "Accountable Day" shall mean (x) each of the "Sales
Days" (as defined herein) and each of the "Other Days" (as defined herein).
The term "Sales Days" shall mean each of the ten business days in the
Determination Period closest to the Approval Day on which an actual sale of
Lakeland Stock occurs. The term "Other Days" shall mean each of the ten
business days in the Determination Period, other than such ten Sales Days,
that are the closest to the Approval Day.
(e) The Exchange Number shall be appropriately adjusted if, prior to the
Closing, there is a stock split or other subdivision or consolidation of shares,
or any stock dividends or distributions, or other similar changes affecting the
capital stock of MSB or Lakeland; provided, however, that no adjustment shall be
made with respect to any event publicly announced by Lakeland prior to the date
hereof. Furthermore, no adjustment shall be made by reason of the issuance of
stock (1) by Lakeland or MSB upon the exercise of any currently outstanding
stock options or (2) by Lakeland pursuant to its dividend reinvestment plan.
(f) All references in the remainder of this Agreement to the Exchange
Number shall mean the Exchange Number as adjusted in accordance with Section
1.1(e).
1.2. MSB Stock Options. As of the Effective Time, Lakeland shall assume the
rights and obligations of MSB under those stock options to purchase MSB Stock
granted by MSB prior to the date hereof pursuant to the Metropolitan State Bank
1988 Stock Option Plan, as amended prior to the date hereof (the "1988 MSB Stock
Option Plan"), or pursuant to an employment agreement, dated February 6, 1988,
between MSB and Paul P. Lubertazzi, as amended prior to the date hereof (the
"Employment Agreement"), which options are outstanding at the Effective Time
("Assumed Options"), to the extent such options shall not theretofore have been
exercised. Pursuant to such assumption, the holder of each Assumed Option shall
be entitled, subject to the terms of his stock option and compliance with
applicable law, to purchase the number of shares (rounded to the nearest whole
number) of Lakeland Stock determined by multiplying the number of shares of MSB
Stock covered by the Assumed Option by the Exchange Number; the price per share
of Lakeland Stock under each Assumed Option shall be determined by dividing the
price per share of MSB Stock specified in the Assumed Option by the Exchange
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Number (rounded to the nearest penny), so that the aggregate price for all
shares covered by the Assumed Option shall remain substantially unchanged. Each
Assumed Option shall constitute a continuation of the corresponding stock option
issued under the 1988 MSB Stock Option Plan or pursuant to the Employment
Agreement, as the case may be, substituting Lakeland for MSB and Lakeland Stock
for MSB Stock in accordance with the foregoing conversion formula, substituting
the price per share determined in accordance with the foregoing formula, and
substituting a relationship with Lakeland or any of its subsidiaries for a
relationship with MSB, effective as of the Effective Time. Except as provided in
this Section 1.2, all of the terms and provisions of each Assumed Option shall
remain the same, including, but not limited to, the times when the Assumed
Option may be exercised. As soon as practicable after the Effective Time,
Lakeland will send written notice of the assumption of the Assumed Options to
each holder thereof. As of the Effective Time, Lakeland will have taken all
corporate and other action necessary to reserve sufficient shares of Lakeland
Stock for issuance upon exercise of the Assumed Options. Lakeland will prepare
and file with the Securities and Exchange Commission (the "SEC") one or more
registration statements on the appropriate form relating to the issuance of the
shares of Lakeland Stock underlying such Assumed Options upon the exercise
thereof and will use its best efforts to have such registration statement
declared effective as soon as practicable after the Effective Time, but in no
case later than six (6) months after the Effective Time.
1.3. No Fractional Interests. Neither certificates nor scrip for fractional
interests in shares of Lakeland Stock will be issued in connection with the
Merger, but in lieu thereof, each holder of MSB Stock who would otherwise have
been entitled to a fraction of a share of Lakeland Stock will be paid an amount
of cash equal to such fraction multiplied by the Market Value. All shares of MSB
Stock held by each record holder shall be aggregated before determining the need
to pay cash in lieu of fractional shares.
1.4. Meeting of Stockholders of MSB. Upon receipt of all requisite
regulatory approvals required in order to conduct the meeting described herein,
the Board of Directors of MSB shall duly call, and cause to be held, a special
meeting of the stockholders of MSB (the "Special Meeting") and shall direct that
this Merger Agreement and the Subsidiary Bank Merger Agreement be submitted to
said stockholders for the purpose of adopting and approving the same. The Board
of Directors of MSB shall, consistent with their fiduciary duties, recommend
that the stockholders of MSB vote to adopt and approve this Merger Agreement and
the Subsidiary Bank Merger Agreement. Lakeland and MSB shall cooperate in
soliciting proxies from stockholders of MSB in favor of approval of this Merger
Agreement and the Subsidiary Bank Merger Agreement pursuant to a proxy statement
included within the Registration Statement described in Section 7.1 hereof.
1.5. Filing of Subsidiary Bank Merger Agreement and Certification. In the
event that this Merger Agreement and the Subsidiary Bank Merger Agreement are
approved by at least two thirds of the outstanding shares of MSB Stock as of the
record date for the Special Meeting as required under N.J.S.A. 17:9A-137, such
approval shall be promptly certified by the president or a vice president of MSB
and the Subsidiary
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Bank and the certification shall be attached to the Subsidiary Bank Merger
Agreement (the "Certification"). Thereafter, upon satisfaction or waiver of all
conditions specified in Article VIII and Article IX hereof and consummation of
the Closing described in Article X hereof, the Subsidiary Bank Merger Agreement
and the Certification shall be filed in the Department of Banking of the State
of New Jersey by the parties hereto, all as provided in N.J.S.A. 17:9A-137.
1.6. Effective Time. The Merger shall become effective (the "Effective
Time") at such time as the Subsidiary Bank Merger Agreement and the
Certification are deemed filed with the Department of Banking of the State of
New Jersey in accordance with N.J.S.A. 17:9A-137 following the Closing
contemplated by Article X hereof.
1.7. Directors.
(a) Within ten (10) days following the Effective Time, the Board of
Directors of Lakeland shall, consistent with their fiduciary duties, appoint
Paul P. Lubertazzi and another member of the Board of Directors of MSB (the
"Second Designee") to the Board of Directors of Lakeland. The Board of Directors
of MSB shall, prior to the Effective Time, designate one of their members to be
the Second Designee, provided that such person is acceptable to the Board of
Directors of Lakeland, consistent with their fiduciary duties. In the event that
Mr. Lubertazzi and/or the Second Designee is unable to take office, the Board of
Directors of MSB shall designate a substitute, acceptable to the Board of
Directors of Lakeland, to be appointed in his place by the Board of Directors of
Lakeland, consistent with their fiduciary duties.
(b) Within ten (10) days following the Effective Time, Lakeland shall,
consistent with its fiduciary duties, cause Paul P. Lubertazzi and another
member of the Board of Directors of MSB (the "Second Bank Board Designee") to be
appointed to the Board of Directors of Lakeland State Bank. The Board of
Directors of MSB shall, prior to the Effective Time, designate one of their
members to be the Second Bank Board Designee, provided that such person is
acceptable to the Board of Directors of Lakeland State Bank, consistent with
their fiduciary duties. In the event that Mr. Lubertazzi and/or the Second Bank
Board Designee is unable to take office, the Board of Directors of MSB shall
designate a substitute, acceptable to the Board of Directors of Lakeland State
Bank, to be appointed in his place by the Board of Directors of Lakeland State
Bank, consistent with their fiduciary duties.
(c) For a period commencing at the Effective Time and ending on the earlier
of (i) the third anniversary of the Effective Time or (ii) the date on which
Paul P. Lubertazzi ceases to serve as a full-time employee of MSB (such period
being hereinafter referred to as the "Transition Period"), all fees and benefits
payable to MSB Directors will not be reduced beyond the levels currently being
paid to MSB Directors. During the "Delivery Period" (as defined in Section 6.1
hereof), MSB shall furnish to Lakeland a schedule describing such fees and
benefits.
(d) During the Transition Period, Lakeland shall cause two (2) of its
Directors, on a rotating basis, to attend meetings of the MSB Board of
Directors. MSB
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shall appoint such persons as non-voting observers for the purpose of
maintaining communication between the MSB Board and the Lakeland Board.
1.8. MSB as a Separate Subsidiary. Upon the Effective Time, MSB, as the
Surviving Bank, shall become a wholly owned subsidiary of Lakeland. The Board of
Directors of MSB immediately prior to the Effective Time shall continue to be
the Board of Directors of MSB immediately after the Effective Time, the
executive officers of MSB immediately prior to the Effective Time shall continue
to be the executive officers of MSB immediately after the Effective Time, and
the Certificate of Incorporation and By-laws of MSB as in existence immediately
prior to the Effective Time shall continue to be the Certificate of
Incorporation and By-laws of MSB immediately after the Effective Time. Lakeland
shall not terminate the separate corporate existence of MSB as a subsidiary of
Lakeland during the Transition Period, unless required to do so by law or
governmental authorities or as a result of the fiduciary obligations of
Lakeland's Board of Directors. Lakeland has no present intention to remove any
of MSB's directors or executive officers during the Transition Period, provided
that MSB is managed in a manner consistent with Lakeland's overall business
strategies, as such strategies may develop from time to time. However, nothing
herein shall be construed to limit the right of Lakeland to remove and/or
replace any or all of the directors and executive officers of MSB at any time
following the Effective Time, to amend the Certificate of Incorporation and
By-laws of MSB at any time following the Effective Time or otherwise to limit
the rights and prerogatives of Lakeland as a stockholder of MSB at any time
following the Effective Time, except that Lakeland shall not terminate the
separate corporate existence of MSB prior to the end of the Transition Period
unless required to do so by law or governmental authorities or as a result of
the fiduciary obligations of Lakeland's Board of Directors.
1.9. Issuance and Delivery of Lakeland Common Stock.
(a) As soon as practicable after the Effective Time, Lakeland will send a
letter of transmittal to each record holder of certificates representing shares
of MSB Stock immediately prior to the Effective Time ("Old Certificates"), which
letter shall state the Exchange Number.
(b) Thereafter, upon surrender for cancellation to Lakeland's exchange
agent of a completed letter of transmittal, together with one or more Old
Certificates (or, in the event that the Old Certificates cannot be located, an
appropriate affidavit of loss and indemnity agreement and/or bond as may be
reasonably required in each case by Lakeland), Lakeland shall cause to be issued
and delivered to the holder of each surrendered Old Certificate a New
Certificate representing the appropriate number of shares of Lakeland Stock,
together with a check for payment of cash in lieu of fractional interests to be
issued in respect of the Old Certificates. No interest shall be paid with
respect to such cash payments.
(c) Until an outstanding Old Certificate has been surrendered and exchanged
as herein provided for a New Certificate (or until such time as the record
holder of an outstanding Old Certificate shall have delivered an appropriate
affidavit of loss and
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indemnity agreement and/or bond as may be reasonably required by Lakeland,
together with a completed letter of transmittal), such outstanding Old
Certificate shall be deemed for all corporate purposes of Lakeland, other than
the payment of dividends or other distributions, to evidence ownership of the
number of shares of Lakeland Stock which were exchanged for the shares of MSB
Stock formerly evidenced by the Old Certificate. No dividends (whether payable
in cash, stock or otherwise) or other distributions which are declared on
Lakeland Stock will be paid to any person otherwise entitled to receive the same
until such person's Old Certificates have been surrendered in exchange for New
Certificates in the manner herein provided, but upon such surrender, such
dividends and other distributions, if any, payable from and after the Effective
Time will be paid to such person. In no event shall any person entitled to
receive such dividends or other distributions be entitled to receive interest
thereon.
1.10. Stock Transfer Books. At the Effective Time, the stock transfer books
of MSB shall be closed and no transfer of MSB Stock shall thereafter be made.
1.11 MSB Dissenting Shares.
(a) The shares of MSB Stock held by those shareholders of MSB who have
timely and properly exercised their dissenter's rights in accordance with all
applicable laws, including without limitation the provisions of N.J.S.A.
17:9A-140 (collectively, the "Appraisal Laws"), are herein referred to as "MSB
Dissenting Shares". Each MSB Dissenting Share, the holder of which, as of the
Effective Time, has not effectively withdrawn or lost his dissenter's rights
under the Appraisal Laws, shall not be converted into Lakeland Stock, but the
holder thereof shall be entitled only to such rights as are granted by the
Appraisal Laws. Each holder of MSB Dissenting Shares who becomes entitled to
payment for his MSB Stock pursuant to the Appraisal Laws shall receive payment
therefor from the Surviving Bank (but only after the amount thereof shall have
been agreed upon or finally determined pursuant to the Appraisal Laws). If any
holder of MSB Dissenting Shares shall withdraw or lose his dissenter's rights
under the Appraisal Laws, such MSB Dissenting Shares shall be converted into
Lakeland Stock in accordance with the provisions of this Merger Agreement as if
such shares were not MSB Dissenting Shares.
(b) MSB will give Lakeland (i) prompt notice of any written objections,
notices, withdrawals of objections or notices and any other instruments served
pursuant to N.J.S.A. 17:9A-140 through 17:9A-145, inclusive, and received by
MSB, and (ii) the opportunity to direct all negotiations with and proceedings
with respect to holders of MSB Dissenting Shares. MSB, will not, except with the
prior written consent of Lakeland, (i) voluntarily make any payment with respect
to any demands for payment under N.J.S.A. 17:9A-140 or (ii) settle or offer to
settle any such demands.
(c) Either party may terminate this Merger Agreement if holders of more
than nine and one-half percent (9-1/2%) of the outstanding shares of MSB Stock
file a written notice of dissent in accordance with N.J.S.A. 17:9A-140.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MSB; CERTAIN COVENANTS
MSB hereby represents and warrants to Lakeland as follows:
2.1. Organization; Good Standing; Power and Qualification. MSB is a
commercial bank duly organized, validly existing and in good standing under the
laws of the State of New Jersey, and has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as it is now being conducted. MSB has no direct or indirect subsidiaries other
than Metropolitan State Bank Investment, Inc. (the "MSB Subsidiary"), a New
Jersey corporation. MSB owns 100% of the outstanding capital stock of the MSB
Subsidiary. The MSB Subsidiary is duly organized, validly existing and in good
standing under the laws of the State of New Jersey and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business as it is now being conducted. MSB shall, during the
"Delivery Period" (as defined in Section 6.1 hereof) deliver to Lakeland's
counsel true, correct and complete copies of the Certificates of Incorporation
and By-laws, as amended to the date hereof, of MSB and the MSB Subsidiary.
Neither MSB nor the MSB Subsidiary is required to be qualified or licensed to do
business in any jurisdiction other than the State of New Jersey.
2.2. Capitalization. The authorized capital stock of MSB consists solely of
1,500,000 shares of MSB Stock, of which 679,047 shares are issued and
outstanding and 0 shares are held by MSB as treasury stock. MSB has no
outstanding convertible securities, warrants, options, rights, calls or other
commitments of any nature to issue or sell its capital stock, other than stock
options described in Section 2.3 hereof. All of the issued and outstanding
capital stock of the MSB Subsidiary is owned directly by MSB.
2.3. MSB Stock Options. MSB shall, during the Delivery Period, deliver to
Lakeland a true, correct and complete list of each holder of stock options to
purchase MSB Stock outstanding on the date hereof (the "Outstanding Options"),
the number of shares under each such option to each such holder, the exercise
price of each such option and the dates on which each such option granted to
such holder becomes exercisable and the date on which each such option
terminates, and the stock option plan or agreement pursuant to which each such
option was issued. Such list shall identify which of the Outstanding Options
have been granted as incentive stock options under the Internal Revenue Code of
1986, as amended. MSB shall, during the Delivery Period, deliver to Lakeland a
true, correct and complete copy of each such stock option plan or agreement, as
amended to the date hereof, together with specimen stock options and/or copies
of the actual stock options. No Outstanding Options were granted to any person
who was not an employee of MSB on the date of grant. As of the date hereof, the
Outstanding Options covered a total of 32,821.25 shares of MSB Stock. All of the
Outstanding Options were granted pursuant to the 1988 MSB Stock Option Plan or
pursuant to the Employment Agreement.
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2.4. Authority; No Violation, etc. Subject to the approval of this Merger
Agreement and the Subsidiary Bank Merger Agreement by the stockholders of MSB,
and subject to the parties' obtaining all necessary regulatory approvals, MSB
has all requisite corporate power to execute, deliver and perform its
obligations under this Merger Agreement. The execution and delivery of this
Merger Agreement and performance by MSB of all its obligations hereunder have
been duly approved and authorized by all requisite corporate action of MSB,
subject to the stockholder approval contemplated by this Merger Agreement and
the parties' obtaining all necessary regulatory approvals. This Merger Agreement
has been duly executed and delivered by MSB and, subject as aforesaid,
constitutes the legal, valid and binding agreement of MSB. Neither the execution
and delivery of this Merger Agreement by MSB nor compliance by MSB with any of
the provisions hereof will (a) conflict with or result in a breach of any
provisions of MSB's Certificate of Incorporation or by-laws, (b) violate, or
result with the passage of time in a violation of, or cause a default or
acceleration under, or give rise to any right to termination, cancellation,
severance or acceleration (whether immediately, or after the giving of notice,
or after the passage of time, or a combination thereof) under, or result in the
creation of any lien, charge or encumbrance on any assets of MSB or the MSB
Subsidiary pursuant to, any of the terms, conditions or provisions of any
agreement, instrument or obligation to which MSB or the MSB Subsidiary is a
party, or by which MSB or the MSB Subsidiary or any of their properties or
assets may be bound, and which would have or might reasonably be expected to
have a material adverse effect on the financial condition, results of
operations, business or prospects of MSB and the MSB Subsidiary, taken as a
whole, or (c) violate any Federal or state statute, rule or regulation or
judgment, order, writ, injunction or decree of any Federal or state court,
administrative agency or governmental body, in each case applicable to MSB or
the MSB Subsidiary, or any of their properties or assets, and which violation
would have, or might reasonably be expected to have, a material adverse effect
on the financial condition, results of operations, business or prospects of MSB
and the MSB Subsidiary, taken as a whole, or otherwise require any filing with,
or obtaining any permit, authorization, consent or approval of, any Federal,
State or local public body, commission or authority, except those approvals and
authorizations specified in Section 2.5 hereof and any filing, permit,
authorization, consent or approval required under the New Jersey Industrial Site
Recovery Act (N.J.S.A. 13:1K-6, et. seq.).
2.5. Governmental Approvals and Filings. No approval, authorization,
consent, license, clearance or order of, declaration or notification to, or
filing, registration or compliance with, any governmental or regulatory
authority is required in order to (a) consummate the Merger or (b) prevent the
termination of any material right, privilege, license or agreement of MSB or the
MSB Subsidiary, or to prevent any material loss to MSB or the MSB Subsidiary or
their businesses, taken as a whole, by reason of the Merger, except (i)
compliance with the banking laws of the State of New Jersey with respect to the
formation of the Subsidiary Bank and the consummation of all other aspects of
the Merger, (ii) compliance with the Federal Bank Holding Company Act, including
approval by the Federal Reserve Bank of New York, and the expiration of any
required waiting period, and (iii) the requirements of the Securities Act of
1933, the Securities Exchange Act of 1934 and any applicable state securities
law.
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2.6. Equity Investments. MSB shall, during the Delivery Period, deliver to
Lakeland a true, correct and complete list of all voting shares or other equity
interests of any entity, other than the MSB Subsidiary, which are owned,
directly or indirectly, by MSB.
2.7. Financial Information. MSB has delivered to Lakeland the audited
consolidated statements of condition of MSB and the MSB Subsidiary as of
December 31, 1996 and December 31, 1995, the related audited consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years ended December 31, 1996 (including the notes thereto), and the
consolidated unaudited statement of condition of MSB and the MSB Subsidiary as
at June 30, 1997, and the related unaudited consolidated statement of income and
unaudited consolidated statement of cash flows for the six months ended June 30,
1997 and 1996 (including the notes thereto). All of such financial statements,
with the related notes thereto, (i) are in accordance with the books and records
of MSB and the MSB Subsidiary, (ii) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except if and as otherwise indicated therein, and (iii) fairly
present the financial position of MSB and the MSB Subsidiary at such dates and
the results of its operations and the cash flows for the respective periods
indicated therein, except, in the case of the unaudited statements, for normal
year-end adjustments. MSB shall, during the Delivery Period, deliver to Lakeland
true, correct and complete copies of the corporate income tax returns of MSB for
the 12 month periods ended December 31, 1996, 1995, 1994, 1993 and 1992. Based
on inquiries made of its accountants, MSB has available to it such information
as shall be required in order to assure that the financial statements described
in this Section 2.7 conform with Regulation S-X as promulgated by the SEC.
2.8. Regulatory Filings. MSB shall, during the Delivery Period, deliver to
Lakeland true, correct and complete copies of all reports filed by MSB with the
New Jersey Department of Banking and the Federal Deposit Insurance Corporation
during the past 36 months.
2.9. Absence of Changes. Since June 30, 1997, there has been no material
adverse changes in the assets, properties, business or condition, financial or
otherwise, of MSB and the MSB Subsidiary, taken as a whole. For purposes of this
Agreement, a loss suffered by MSB or the MSB Subsidiary, or a reduction in value
of any assets or properties of MSB or the MSB Subsidiary, shall be deemed a
material adverse change if such loss or reduction exceeds 5% of the capital of
MSB as of June 30, 1997. Since January 1, 1996, neither MSB nor the MSB
Subsidiary has taken any action outside of the ordinary course of business,
consistent with prior practice, other than actions taken in connection with the
Merger.
2.10. Agreements, etc. MSB shall, during the Delivery Period, deliver to
Lakeland a true, correct and complete list of, together with true, correct and
complete copies of, every agreement to which MSB or the MSB Subsidiary is a
party or by which MSB or the MSB Subsidiary is bound, which is performable in
the future and which, together with all other contracts of the same or similar
nature, provides for the future
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obligation to pay or receive more than $25,000 or is otherwise material to the
business of MSB and the MSB Subsidiary, taken as a whole, including but not
limited to (a) leases of real estate or equipment, (b) agreements for the sale
of any assets of MSB or the MSB Subsidiary other than in the ordinary course of
business, (c) agreements pursuant to which MSB or the MSB Subsidiary has
borrowed money or may in the future borrow money, (d) employment agreements,
consulting agreements and salary continuation agreements, (e) collective
bargaining agreements, (f) license agreements, (g) capital expenditure
commitments, (h) joint venture agreements, (i) partnership agreements, (j)
operating agreements and (k) agreements restricting MSB's ability to compete in
any area; provided, however, that MSB need not list outstanding loans to
unaffiliated persons made by MSB in the ordinary course of business or loan
commitments and credit facilities made in the ordinary course of business
pursuant to which MSB may be obligated to lend money to unaffiliated persons.
Except for matters expressly disclosed on such list, (i) each of MSB and the MSB
Subsidiary has performed all obligations to be performed by it to date under all
contracts and other agreements which shall be included on such list and is not
in default thereunder and (ii) to the best knowledge of MSB, there exists no
default, or any event upon which the giving of notice or the passage of time
would give rise to any default, in the performance of any obligation to be
performed by any other party to any such contract or other agreement.
2.11. Absence of Undisclosed Liabilities. MSB and the MSB Subsidiary do not
have any material liabilities (whether matured or unmatured, accrued, absolute
or contingent or otherwise) which were not reflected, reserved against, accrued
for or otherwise disclosed on MSB's balance sheet dated June 30, 1997 delivered
to Lakeland prior to the date hereof, except for obligations to perform the
contracts and the agreements referred to in Section 2.10 hereof and liabilities
consistent with prudent banking practices which have arisen in the ordinary
course of business subsequent to June 30, 1997.
2.12. Condition of Tangible Assets. Those assets of MSB and the MSB
Subsidiaries that are tangible property are in generally good operating
condition and repair.
2.13. Litigation, etc. MSB shall, during the Delivery Period, deliver to
Lakeland a true, correct and complete list of: (a) actions, suits, claims,
investigations or proceedings (legal, administrative or arbitrative) pending or,
to the best knowledge of MSB, threatened against MSB or the MSB Subsidiary,
whether at law or in equity, whether civil or criminal in nature and whether
before or by any Federal, state, municipal or other governmental court,
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, other than those which are immaterial to the financial condition,
results of operations, business and prospects of MSB and the MSB Subsidiary,
taken as a whole; and (b) unsatisfied judgments, decrees, injunctions or orders
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against MSB or the MSB Subsidiary other than those which
are immaterial to the financial condition, results of operations, business and
prospects of MSB and the MSB Subsidiary, taken as a whole. No petition for
bankruptcy, voluntary or involuntarily, has been filed by or against MSB or the
MSB Subsidiary, neither MSB nor
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the MSB Subsidiary has made any assignment for the benefit of its creditors and
no receiver has been appointed for MSB or the MSB Subsidiary or any of their
assets.
2.14. Permits, Licenses, etc. MSB shall, during the Delivery Period,
deliver to Lakeland a true, correct and complete list of all licenses, permits,
orders and approvals issued by any department, commission, agency or other
instrumentality of any federal, state, county or local government which pertain
to the business conducted by MSB or the MSB Subsidiary, the absence, revocation
or non-renewal of which would have, or could reasonably be expected to have, a
material adverse effect on the financial condition, results of operations,
business or prospects of MSB and the MSB Subsidiary, taken as a whole.
2.15. Compliance with Laws. Neither MSB nor the MSB Subsidiary is in
violation, in any respect material to the financial condition, results of
operations, business or prospects of MSB and the MSB Subsidiary, taken as a
whole, of any federal, state, county or local law, ordinance, regulation or
order applicable to the business conducted by it. Each of MSB and the MSB
Subsidiary has all licenses, permits, orders and approvals of any governmental
or regulatory body which are required for the conduct of the business conducted
by it and which, if not held by it, could reasonably be expected to have a
material adverse effect upon the financial condition, results of operations,
business or prospects of MSB and the MSB Subsidiary, taken as a whole
(collectively, "Required Permits"). All such Required Permits are in full force
and effect, no violations are required to be or have been reported in respect of
any Required Permit and no proceeding is pending, or to the knowledge of MSB,
threatened, to revoke or limit any such Required Permit.
2.16. Brokers' or Finders' Fees, etc. No agent, broker, investment banker,
person or other firm acting on behalf of MSB or under the authority of MSB is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee directly or indirectly from Lakeland, MSB or the MSB Subsidiary in
connection with any of the transactions contemplated hereby, except for fees
payable to Capital Consultants of Princeton, Inc. in connection with its
rendering of the fairness opinion contemplated by Section 8.12 hereof and for
other services rendered to MSB, which fees shall, in accordance with Section 6.7
hereof, be the sole responsibility of MSB. During the Delivery Period, MSB shall
furnish to Lakeland a copy of an engagement letter setting forth all fees
payable by or on behalf of MSB to Capital Consultants of Princeton, Inc.
2.17. Employees. MSB shall, during the Delivery Period, deliver to Lakeland
a true, correct and complete list of the names, positions and rates of
compensation of all employees of MSB and the MSB Subsidiary.
2.18. Name. During the last three (3) years, MSB has used no business name
other than the name Metropolitan State Bank and the name of the MSB Subsidiary.
2.19. Environmental Matters. MSB and the MSB Subsidiary have never engaged
in any use or operation involving the storage, manufacture, generation or
transportation of hazardous substances, and there are no hazardous substances
located on
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any properties now or heretofore owned or operated by MSB or the MSB Subsidiary,
including but not limited to the premises in which the business of MSB and the
MSB Subsidiary is conducted, except as necessary for the conduct of typical
administrative or office activities. Each of MSB and the MSB Subsidiary is in
compliance in all material respects with all environmental laws, rules and
regulations applicable to it or to any property now or heretofore owned or
operated by MSB or the MSB Subsidiary. Neither MSB nor the MSB Subsidiary has
received notice of any violation of any such law, rule or regulation or of any
enforcement action by any governmental agency or authority pertaining to MSB or
the MSB Subsidiary or any property now or heretofore owned or operated by any of
them. Neither MSB nor the MSB Subsidiary has received notice of, and is not
otherwise aware of, any spills, releases or discharges of hazardous substances
on or from any property now or heretofore owned or operated by MSB or the MSB
Subsidiary. MSB and the MSB Subsidiary have not received any written notice,
citation, claim, assessment, proposed assessment or demand for abatement
alleging that MSB or the MSB Subsidiary (either directly or as a
successor-in-interest in connection with the enforcement of remedies to realize
the value of properties serving as collateral for outstanding loans) is
responsible for the correction or 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 MSB and the MSB
Subsidiary, taken as a whole. For purposes of this Merger Agreement, the term
"hazardous substances" includes all substances defined as such under either the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.A.
9601, et seq.) or the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K,
et. seq.).
2.20. Benefit Plans; Employee Relations.
(a) (i) Each of MSB and the MSB Subsidiary is in material compliance with
all applicable Federal, state, local and foreign laws and regulations respecting
employment and employment practices, and terms and conditions of employment and
wages and hours, (ii) no collective bargaining agreement presently covers (nor
has any, in the past, covered) any employees of MSB or the MSB Subsidiary, nor
is any currently being negotiated by MSB or the MSB Subsidiary, nor is MSB or
the MSB Subsidiary a party to any other written contract with or material
enforceable oral commitment to any labor union, (iii) there is no unfair labor
practice complaint against MSB or the MSB Subsidiary pending before the National
Labor Relations Board or any comparable state, local or foreign agency, and (iv)
since January 1, 1994, there has been no labor strike, dispute, slowdown,
stoppage or organizational effort actually pending or, to the best knowledge of
MSB, threatened against or involving MSB or the MSB Subsidiary.
(b) MSB shall, during the Delivery Period, deliver to Lakeland a true,
correct and complete list of, together with true, correct and complete copies
of, all written contracts with, or oral commitments for the employment,
retention or payment of any severance or other benefit to, any employee,
consultant or other person.
(c) MSB shall, during the Delivery Period, deliver to Lakeland a true,
correct and complete list of, all Employee Pension Benefit Plans (as defined in
Section 3(2) of
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the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all
Employee Welfare Benefit Plans (as defined in Section 3(1) of ERISA), all
incentive compensation plans (including stock option plans) and all other
employee benefit plans, arrangements or programs maintained by MSB and the MSB
Subsidiary in respect of their employees (including normal policies concerning
vacations, holidays and salary continuation during short absences for illness or
other reasons) (each, an "Employee Benefit Plan", and collectively, the
"Employee Benefit Programs"). MSB shall, during the Delivery Period, deliver to
Lakeland true, correct and complete copies of all plan documents and other
agreements, procedures and interpretations adopted in connection with the
Employee Benefit Programs and an accurate and complete copy of all employee
handbooks utilized at any time since January 1, 1994. With respect to each
Employee Benefit Plan, MSB shall, during the Delivery Period, deliver to
Lakeland a true, correct and complete list of, and true, correct and complete
copies of, the following:
(i) the most recent Internal Revenue Service ("IRS") determination
letter and related IRS submissions relating to each of the Employee Pension
Benefit Plans listed in such Section 2.20(c) (the "MSB Retirement Plans");
(ii) the most recent Annual Report (Form 5500 Series) and accompanying
schedules and attachments of each of the Employee Welfare Benefit Plans
listed in such Section 2.20(c) (the "MSB Welfare Plans") and each of the
MSB Retirement Plans, as filed pursuant to applicable law for the last
three (3) years;
(iii) the Summary Plan Description (as currently in effect) and
summaries of material modifications distributed to employees for each of
the MSB Retirement Plans and MSB Welfare Plans; and
(iv) the three (3) most recent actuarial reports received with respect
to each of the MSB Retirement Plans that is a defined benefit plan.
(d) Each of the MSB Retirement Plans is in compliance in all material
respects with ERISA and will constitute qualified plans under the Code
immediately prior to the Effective Time.
(e) Each MSB Retirement Plan and each MSB Welfare Plans has been operated
in compliance in all material respects with ERISA.
(f) There are no actions, suits or claims pending or, to MSB's best
knowledge, threatened against any of the MSB Retirement Plans or MSB Welfare
Plans, or any administrator or fiduciary thereof.
(g) With respect to each of the MSB Retirement Plans and MSB Welfare Plans
as to which an Annual Report is required to be filed, no liabilities as of the
date of the most recent Annual Report relating to such Plan exist unless
specifically referred to in such Annual Report, and no material adverse change
has occurred with respect to the financial materials covered by such Annual
Report since the date thereof.
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(h) No accumulated funding deficiency (within the meaning of Section 412 of
the Code) exists with respect to any of the MSB Retirement Plans.
(i) The assets and liabilities of each funded Employee Benefit Plan are
fully and accurately reflected in the most recent Form 5500 furnished to
Lakeland.
(j) No "reportable event" (as defined in Section 4043 of ERISA) has
occurred with respect to any of the MSB Retirement Plans that are subject to
Title IV of ERISA.
(k) All of the MSB Welfare Plans are either self-funded, or are funded
through an insurance policy with an insurance company. As of the Effective Time,
neither MSB nor the MSB Subsidiary will be liable under any such insurance
policy for a retroactive rate adjustment or other liability arising our of
events occurring prior to the Effective Time.
(l) Neither MSB nor the MSB Subsidiary has ever participated in a
multi-employer plan as defined in Section 3(37)A of ERISA or a multiple employer
plan described in Section 413(c) of the Code.
(m) MSB does not provide any post-retirement or other post-termination
benefits to its former employees, except as required under Sections 601 through
609 of ERISA.
(n) Neither MSB nor the MSB Subsidiary has filed a notice of intent or
adopted any amendment of resolution, to terminate any Employee Benefit Plan.
(o) All required premium payments to the Pension Benefit Guaranty
Corporation, and all contributions required to be made under each Employee
Benefit Plan, have been paid when due.
(p) No excise taxes are payable under the Code with respect to any
Employee Benefit Plan.
(q) No nonexempt prohibited transaction, within the meaning of Section 4975
or Section 406 of ERISA, has occurred with respect to any of the MSB Retirement
Plans or any of the MSB Welfare Plans.
(r) Neither the execution nor the consummation of the transactions
contemplated by this Merger Agreement will (i) entitle any current or former
employee of MSB or the MSB Subsidiary to any severance pay or any similar
payment; (ii) accelerate the time of payments or vesting or increase the amount
of any benefit or compensation due any current or former employee under any MSB
Employee Benefit Plan; or (iii) result in payments not deductible under Section
280G of the Code.
(s) Notwithstanding any provision herein to the contrary, the
representations set forth in this Section 2.20 shall only be applicable to those
Employee Benefit Plans currently or previously maintained by or on behalf of
MSB.
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2.21. Tax Matters.
(a) Each of MSB and the MSB Subsidiary has filed all Federal, state, local
and foreign income and other tax returns required to be filed by it, and each
such return is complete and accurate in all material respects. All taxes of any
nature whatsoever, with any related penalties, interest and liabilities (any of
the foregoing being referred to herein as a "Tax"), owed by MSB and the MSB
Subsidiary (whether or not shown on any Tax return) for any period ending on or
before the date hereof, have been paid. MSB and the MSB Subsidiary have adequate
reserves on their financial statements for any Taxes in excess of the amounts so
paid. Neither MSB nor the MSB Subsidiary currently is the beneficiary of any
extension of time within which to file any Tax return.
(b) MSB and the MSB Subsidiary have withheld and paid all Taxes required to
have been withheld and paid in connection with the amounts owing or paid to any
employee, independent contractor, creditor, shareholder or other third party.
(c) There is no material dispute or claim concerning any Tax liability of
either MSB or the MSB Subsidiary either (i) claimed or raised by any authority
in writing or (b) as to which any of MSB, the MSB Subsidiary and their
respective directors and officers has knowledge based upon personal contact with
any agent of such authority. During the Delivery Period, MSB shall deliver to
Lakeland a true, correct and complete list of all federal, state, local and
foreign income Tax returns filed with respect to MSB and/or the MSB Subsidiary
for taxable periods ended on or after December 31, 1992. Such list shall
identify those income Tax returns that have been audited and those income Tax
returns that currently that are the subject of audit. During the Delivery
Period, MSB shall deliver to Lakeland correct and complete copies of all federal
income Tax returns, examination reports, and statements of deficiencies assessed
against, or agreed to by, MSB and/or the MSB Subsidiary, since December 31,
1992.
(d) Neither MSB nor the MSB Subsidiary has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency.
(e) Neither MSB nor the MSB Subsidiary has filed a consent under Code
Section 341(f) concerning collapsible corporations. Neither MSB nor the MSB
Subsidiary has made any material payments, is obligated to make any material
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any material payments that will be nondeductible under Code
section 280G. Neither MSB nor the MSB Subsidiary has been a United States real
property holding corporation within the meaning of Code section 897(c)(2) during
the applicable period specified in Code section 897(c)(1)(A)(ii). Neither MSB
nor the MSB Subsidiary is a party to any Tax allocation or sharing arrangement.
Neither MSB nor the MSB Subsidiary (i) has been a member of an affiliated group
filing a consolidated federal income Tax return (other than a group the common
parent of which was MSB) or (ii) has any liability for the Taxes of any person
(other than MSB or the MSB Subsidiary) under Treasury Regulation
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ss.1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
2.22. Insurance. The business operations and all insurable properties and
assets of MSB and the MSB Subsidiary are insured for their benefit against all
risks which, in the reasonable judgment of the management of MSB, should be
insured against, in each case under policies or bonds issued by insurers of
recognized responsibility, in such amounts with such deductibles and against
such risks and losses as are, in the opinion of the management of MSB, adequate
for the businesses engaged in by MSB and the MSB Subsidiary. MSB shall, during
the Delivery Period, deliver to Lakeland a true, correct and complete list of
all policies of liability, theft, fidelity, property damage and other forms of
insurance held by MSB and the MSB Subsidiary (specifying the insurer, amount of
coverage, annual premium, type of insurance, policy number and any pending
material claims thereunder). All policies to be included on such list shall be
outstanding and duly in force and all premiums with respect to such policies are
currently paid. Neither MSB nor the MSB Subsidiary has, during the past three
(3) fiscal years, been denied or had revoked, canceled or rescinded any policy
of insurance. MSB shall, during the Delivery Period, deliver to Lakeland a copy
of MSB's current directors and officers liability insurance policy.
2.23. Dealings with Officers and Directors. MSB shall, during the Delivery
Period, deliver to Lakeland a true, correct and complete list of transactions,
business relationships or indebtedness within the past three years involving MSB
or the MSB Subsidiary which is of a type described in Item 404 of Regulation S-K
(promulgated by the Securities and Exchange Commission ) or which is a "covered
transaction" as that term is defined in Section 23A of the Federal Reserve Act
(12 U.S. Code 371c), as amended. MSB and the MSB Subsidiary are not parties to
any agreement or understanding which provides for or contemplates such a
transaction, business relationship or indebtedness in the future. Except for the
Employee Benefit Programs referred to in Section 2.20 hereof, neither MSB nor
the MSB Subsidiary is a party to any agreement involving payments to any person
or entity based on the profits or gross revenues of MSB or the MSB Subsidiary.
2.24. Securities Exchange Act of 1934. No securities issued by MSB,
including but not limited to MSB Stock, are registered under the Securities
Exchange Act of 1934, and no such securities are required to be registered under
said Act.
2.25. Properties. Each of MSB and the MSB Subsidiary has good and, as to
owned real property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in MSB's
consolidated statement of condition as of December 31, 1996, or owned and
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since December 31, 1996), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in such statement of condition or the notes thereto or that
secure liabilities incurred in the ordinary course of business after the date of
such statement of condition, (ii) statutory liens for amounts not yet delinquent
or which are being contested in good faith, (iii) such
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encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business, results of
operations, prospects and financial condition of MSB and the MSB Subsidiary,
taken as a whole, and (iv) with respect to owned real property, title
imperfections noted in title reports to be delivered to Lakeland during the
Delivery Period. Except as affected by the transactions contemplated hereby,
each of MSB and the MSB Subsidiary, as lessee, has the right under valid and
subsisting leases to occupy, use, possess and control all real property leased
by MSB or the MSB Subsidiary in all material respects as presently occupied,
used, possessed and controlled by MSB or the MSB Subsidiary.
2.26. Minute Books. The minute books of MSB and the MSB Subsidiary contain
accurate records of all meetings and other corporate action held by the
stockholders and Boards of Directors (including committees of the Boards of
Directors) of MSB and the MSB Subsidiary, except where the failure to so
maintain such records would not have a material adverse effect on the business,
results of operations, prospects or financial condition of MSB and the MSB
Subsidiary, taken as a whole. During the Delivery Period (and thereafter), MSB
shall make such minute books available for review by Lakeland, its counsel and
other Lakeland representatives.
2.27. Reserves. As of December 31, 1996 and June 30, 1997, the allowance
for possible loan losses in MSB's consolidated balance sheets was adequate based
upon all factors required to be considered by MSB at that time in determining
the amount of such allowance. The methodology used to compute the allowance for
possible loan losses complied in all material respects with all applicable
policies of the FDIC and the New Jersey Department of Banking. As of June 30,
1997, the valuation allowance for OREO properties, if any, in MSB's consolidated
financial statements was adequate based upon all factors required to be
considered by MSB at that time in determining the amount of such allowance.
2.28. No Parachute Payments. No officer, director, employee or agent (or
former officer, director, employee or agent) of MSB or the MSB Subsidiary is
entitled now, or will or may be entitled to as a consequence of this Merger
Agreement or the Merger, to any payment or benefit from MSB or the MSB
Subsidiary or their successors which, if paid or provided, would constitute an
"excess parachute payment", as defined in Section 280G of the Internal Revenue
Code of 1986, as amended, or regulations promulgated thereunder.
2.29. Agreements with Bank Regulators. MSB is not 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, nor has MSB 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
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letter or similar submission. MSB 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.
2.30. Disclosure Schedule and Other Materials Furnished by MSB. All lists
and other materials to be furnished to Lakeland by MSB pursuant to this Article
II shall be true, correct and complete in all material respects and shall not
contain any untrue statement of a material fact or omit to state any material
fact which is necessary to make the statements contained therein not misleading.
2.31. Pooling of Interests. Based upon inquiries that it has made with its
accountants, senior management of MSB is not aware of any act or omission of MSB
or the MSB Subsidiary that would preclude, or materially interfere with,
Lakeland's accounting for the Merger as a pooling of interests.
2.32. Survival. The representations and warranties of MSB contained in this
Article II shall not survive the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LAKELAND
Lakeland hereby represents and warrants to MSB as follows:
3.1. Organization; Good Standing; Power; and Qualification. Lakeland is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of New Jersey and has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as it is now being conducted.
3.2. Capitalization. At July 1, 1997, the authorized capital stock of
Lakeland consisted of 7,050,819 shares of Lakeland Stock, of which 3,390,490
shares were issued and outstanding and no shares were held by Lakeland as
treasury stock. Upon the payment by Lakeland of a 5% stock dividend on October
15, 1997 to shareholders of record as of October 1, 1997 and the filing of any
required documents with the New Jersey Secretary of State, Lakeland's authorized
capital stock will be increased by the number of shares of Lakeland Stock issued
pursuant to such stock dividend. Lakeland has no outstanding convertible
securities, warrants, options, rights, calls or other commitments of any nature
to issue or sell its capital stock, other than pursuant to Lakeland's Dividend
Reinvestment Plan.
3.3. Intentionally omitted.
3.4. Authority; No Violation, etc. Subject to the parties' obtaining all
necessary regulatory approvals, Lakeland has all requisite corporate power to
execute, deliver and perform its obligations under this Merger Agreement. The
execution and delivery of this Merger Agreement and the performance by Lakeland
of its obligations
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hereunder have been duly approved and authorized by all requisite corporate
action of Lakeland, subject to the parties' obtaining all necessary regulatory
approvals. This Merger Agreement has been duly executed and delivered by
Lakeland and, subject as aforesaid, constitutes the legal, valid and binding
agreement of Lakeland. Neither the execution and delivery of this Merger
Agreement by Lakeland nor compliance by Lakeland with any of the provisions
hereof will (a) conflict with or result in a breach of any provision of
Lakeland's Certificate of Incorporation or by-laws, (b) violate, or result with
the passage of time in a violation of, or cause a default or acceleration under,
or give rise to any right to termination, cancellation, severance or
acceleration (whether immediately, or after the giving of notice, or after the
passage of time, or a combination thereof) under, or result in the creation of
any lien, charge or encumbrance on any of the assets of Lakeland or any
subsidiary of Lakeland pursuant to, any of the terms, conditions or provisions
of any agreement, instrument or obligation to which Lakeland or any subsidiary
of Lakeland is a party, or by which it or any of its properties or assets may be
bound, and which would have or might reasonably be expected to have a material
adverse effect on the financial condition or results of operations of Lakeland
and its subsidiaries, taken as a whole, or (c) violate any Federal or state
statute, rule or regulation or judgment, order, writ, injunction or decree of
any Federal or state court, administrative agency or governmental body, in each
case applicable to Lakeland or any subsidiary of Lakeland, or any of their
properties or assets, and which violation would have, or might reasonably be
expected to have, a material adverse effect on the financial condition or
results of operations of Lakeland and its subsidiaries, taken as a whole, or
otherwise require any filing with, or obtaining any permit, authorization,
consent or approval of, any Federal, state or local public body, commission or
authority, except those approvals and authorizations specified in Section 3.5
hereof and any filing, permit, authorization, consent or approval required under
the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6, et. seq.).
3.5. Governmental Approvals and Filings. No approval, authorization,
consent, license, clearance or order of, declaration or notification to, or
filing, registration or compliance with, any governmental or regulatory
authority or compliance with, any governmental or regulatory authority is
required in order to (a) consummate the Merger or (b) prevent the termination of
any material right, privilege, license or agreement of Lakeland or any
subsidiary of Lakeland, or to prevent any material loss to Lakeland or any
subsidiary of Lakeland or their businesses, taken as a whole, by reason of the
Merger, except (i) compliance with the banking laws of the State of New Jersey
and with laws, rules and regulations applicable to the Federal Deposit Insurance
Corporation with respect to the formation of the Subsidiary Bank and the
consummation of all other aspects of the Merger, (ii) compliance with the
Federal Bank Holding Company Act, including approval by the Federal Reserve Bank
of New York, and the expiration of any required waiting period, and (iii) the
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934
and any applicable state securities laws.
3.6. Brokers' or Finders' Fees, etc. No agent, broker, investment banker,
person or firm acting on behalf of Lakeland or under the authority of Lakeland
is or will be entitled to any broker's or finder's fee or any other commission
or similar fee directly or indirectly from Lakeland in connection with any of
the transactions contemplated
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hereby, except for fees payable to Ryan, Beck & Co., which fees shall, in
accordance with Section 6.7 hereof, be the sole responsibility of Lakeland. It
is expressly understood that Ryan, Beck & Co. has been retained solely by and is
working solely for the benefit of Lakeland in connection with this matter.
3.7. SEC Filings. Lakeland has filed all reports required to be filed by it
pursuant to the Securities Exchange Act of 1934, as amended, during the
thirty-six (36) months preceding the date of this Merger Agreement.
3.8. Pooling of Interests. Based upon inquiries that it has made with its
accountants, senior management of Lakeland is not aware of any act or omission
of Lakeland or Lakeland's subsidiaries that would preclude, or materially
interfere with, Lakeland's accounting for the Merger as a pooling of interests.
3.9. Survival. The representations and warranties of Lakeland contained in
this Article III shall not survive the Closing.
ARTICLE IV
COVENANTS OF MSB
4.1. Regular Course of Business. Except as otherwise consented to in
writing by Lakeland, prior to the Effective Time, MSB will (and will cause the
MSB Subsidiary to) carry on its business diligently and in the ordinary course
consistent with past practice through the date hereof, and, without limiting the
generality of the foregoing, MSB will use its best efforts to preserve its
present business organization (including that of the MSB Subsidiary) intact,
keep available the services of the present executive officers of MSB and the MSB
Subsidiary and preserve the present relationships of MSB and the MSB Subsidiary
with persons having business dealings with them; provided that MSB shall not be
required to take any unreasonable or extraordinary act or any action which would
conflict with any other term of this Merger Agreement.
4.2. Restricted Activities and Mergers. Except as otherwise consented to in
writing by Lakeland, prior to the Effective Time, MSB will not, and will not
permit the MSB Subsidiary, to:
(a) amend its Certificate of Incorporation or By-laws;
(b) issue, sell or deliver, or agree to issue, sell or deliver, any shares
of any class of capital stock of MSB or any securities or instruments
convertible into any such shares, or any options, subscriptions, warrants,
calls, commitments or other rights calling for the issuance, sale or delivery of
any such shares or convertible securities or instruments, except that MSB may
issue shares of MSB Stock upon exercise of the Outstanding Options;
(c) except in the ordinary course of business (and consistent with past
practice) (i) borrow, or agree to borrow, any funds or voluntarily incur, assume
or become
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subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), (ii) cancel or agree to cancel any debts
or claims, (iii) lease, sell or transfer, agree to lease, sell or transfer, or
grant or agree to grant any preferential rights to lease or acquire, any of its
assets, property or rights, (iv) make or permit any amendment to or termination
of any material contract, agreement, license or other right to which it is a
party or (v) mortgage or pledge any of its assets, tangible or intangible;
(d) grant any increase in compensation, other than normal merit increases
consistent with its general prevailing practices or existing employment
agreements, to any employee or group of employees or to all employees generally;
(e) enter into or make any change in any Employee Benefit Program, except
as required by law;
(f) acquire voting securities or any other ownership interest in any
corporation, association, joint venture, mutual savings association,
partnership, business trust or other business entity, or acquire control or
ownership of all or a substantial portion of the assets of any of the foregoing,
or merge, consolidate or otherwise combine with any other entity, or acquire any
branch of any entity engaged in the business of banking, or enter into any
agreement providing for any of the foregoing;
(g) directly or indirectly solicit or authorize the solicitation of or
enter into any agreement or understanding or, except to the extent required by
law, engage in any discussions with, or furnish any non-public information
concerning MSB or the MSB Subsidiary to, any person or entity other than
Lakeland or a representative thereof with respect to any offer or possible offer
from a third party (i) to purchase shares of any class of capital stock of MSB
or the MSB Subsidiary or any securities or instruments convertible into any such
shares, or to acquire any option, subscription, warrant, call, commitment or
other right to purchase or otherwise acquire any such shares or convertible
securities or instruments, (ii) to make a tender or exchange offer for any
shares of any class of capital stock of MSB or the MSB Subsidiary, (iii) to
purchase, lease or otherwise acquire all or a substantial portion of the assets
of MSB or the MSB Subsidiary, or (iv) to merge, consolidate or otherwise combine
with MSB or the MSB Subsidiary (the transactions described in (i), (ii), (iii)
and (iv) above are hereinafter sometimes referred to as "Acquisition
Transactions"); notwithstanding the foregoing, MSB may enter into discussions or
negotiations in connection with a possible Acquisition Transaction which was not
solicited by MSB if the Board of Directors of MSB, after consultation with
counsel, determines that such discussions or negotiations must be commenced in
the exercise of the Board's fiduciary responsibilities;
(h) take any action or omit to take any action which would cause any
representation, (including, without limitation, any representation made in
connection with the delivery of information during the Delivery Period) to be
untrue in any material respect (or, with respect to any representation qualified
as to materiality, to be untrue in any respect);
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(i) except in the ordinary course of business, enter into or agree to enter
into any agreement or transaction material to the business of MSB and the MSB
Subsidiary, taken as a whole;
(j) grant any severance arrangement to any employee;
(k) take any action or omit to take any action which would preclude
Lakeland from accounting for the Merger as a pooling of interests;
(l) make any capital expenditure other than capital expenditures included
within one or more capital budgets delivered by MSB to Lakeland during the
Discovery Period;
(m) file any application or make any contract with respect to branching,
site locations or site relocations;
(n) agree to acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity;
(o) make any material change in its accounting methods or practices, other
than changes required in accordance with generally accepted accounting
principles; or
(p) agree to do any of the foregoing.
4.3. Dividends and Distributions; Repurchases; Stock Splits. Except as
otherwise consented to in writing by Lakeland, prior to the Effective Time, MSB
will not declare or pay any dividend on its capital stock in cash, stock or
property, and will not redeem, repurchase or otherwise acquire any shares of its
capital stock, and will not approve or effect a stock split or other subdivision
or consolidation of its shares of capital stock.
4.4. Advice of Changes. MSB will promptly advise Lakeland in writing of (i)
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of MSB contained in this Agreement, if made on or
as of the date of such event or on or as of the Closing, untrue or inaccurate in
any material respect (or, with respect to representations or warranties that are
qualified as to materiality, inaccurate in any respect), (ii) any event
occurring subsequent to the date of this Agreement which would render any
information furnished to Lakeland by MSB pursuant to Article II of this
Agreement, if furnished on or as of the date of such event or on or as of the
Closing, untrue or inaccurate in any material respect (or, with respect to
information that is qualified as to materiality, inaccurate in any respect),
(iii) any material adverse change in the business of MSB and the MSB Subsidiary,
taken as a whole, (iv) any exercises of any Outstanding Options to purchase MSB
Stock and (v) any information which comes to the attention of MSB that indicates
either that any representation or warranty of MSB contained in this Agreement
was untrue or inaccurate in any material respect (or, with respect to
representations or warranties that are qualified
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as to materiality, inaccurate in any respect) when made or that MSB failed to
deliver all of the documentation which MSB is required to deliver to MSB during
the Delivery Period pursuant to Article II hereof.
4.5. Merger Proposals. Commencing with the date of this Merger Agreement,
MSB will provide Lakeland with same-day notice of any offer MSB or the MSB
Subsidiary receives from or on behalf of any third party regarding a proposed
Acquisition Transaction, including, in such notice, the identity of the offeror
and the complete terms of any such offer, and will provide Lakeland with
same-day notice of the receipt of any information that such an offer is likely
to be made and any available details with respect to such potential offer.
4.6. Affiliates. MSB will deliver to Lakeland, as soon as practicable after
the execution of this Merger Agreement, but in no event later than twenty (20)
days hereafter, a letter identifying all persons who may be deemed to be
"affiliates" of MSB within the meaning of Rule 145 promulgated under the
Securities Act of 1933 or who may be deemed to be "affiliates" of MSB as that
term is used for purposes of qualifying for "pooling of interests" accounting
treatment (collectively, "MSB Affiliates"). MSB will furnish such information
and documents as Lakeland may request for the purpose of reviewing such letter.
MSB will cause each MSB Affiliate to issue and deliver to Lakeland within three
(3) weeks after the date hereof an agreement (an "Affiliate's Agreement"), in
such form as Lakeland's counsel shall reasonably require, to the effect that,
among other things, no Lakeland Stock to be acquired by such person in the
Merger will be disposed of by such person except in compliance with Rule 145
under the Securities Act of 1933 or another exemption from the registration
requirements of the Securities Act of 1933 or pursuant to an effective
registration statement under the Securities Act of 1933, and that such person
agrees to be bound by the rules which will permit the transaction contemplated
by this Merger Agreement to be treated as a pooling of interests for accounting
purposes.
4.7. Consents, Approvals and Filings.
(a) MSB will use its best efforts to comply as promptly as practicable with
the governmental requirements specified in Sections 2.4 and 2.5 hereof and
obtain all necessary approvals, authorizations, consents, licenses, clearances
or orders of governmental and regulatory authorities referred to in such
Sections; provided, however, that compliance with the Federal Bank Holding
Company Act and state securities laws shall primarily be Lakeland's
responsibility and provided that the responsibility for compliance with Federal
securities laws shall be allocated in accordance with Article VII hereof;
further provided, that MSB shall not be required to take any extraordinary
action or enter into any agreement which, in the reasonable opinion of MSB, is
unduly burdensome to MSB in order to obtain any such approvals, authorizations,
etc.
(b) MSB shall provide Lakeland with copies of all filings made by MSB after
the date hereof to the New Jersey Department of Banking, the Federal Deposit
Insurance Corporation and any other regulatory agency which has authority to
regulate MSB within two (2) business days of such filing.
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(c) MSB shall prepare unaudited consolidated balance sheets and income
statements (in a manner consistent with prior practices) on a monthly basis and
shall furnish copies of such statements to Lakeland by the 10th day following
the end of each month.
4.8. Access to Records and Properties. MSB agrees to assist Lakeland in
conducting such investigations and reviews of the business, financial condition,
properties, assets, books and records of MSB and the MSB Subsidiary as Lakeland
deems necessary or desirable, and will provide, and will cause its independent
public accountants to provide, Lakeland and its employees, agents and
representatives full access to, and complete information concerning, all
properties, books, records (including tax returns filed or in preparation),
regulatory filings, personnel and premises, and audit work papers and other
records of its independent public accountants, pertaining to the business of MSB
and the MSB Subsidiary. Neither any investigation by Lakeland nor the receipt by
Lakeland of any data or information from MSB shall affect the right of Lakeland
to rely on the representations, warranties or covenants of MSB or the right of
Lakeland to terminate this Agreement as provided in Article XI hereof. MSB's
obligations, and Lakeland's rights, under this Section 4.8 shall be in addition
to, and not in lieu of, MSB's obligations and Lakeland's rights under Section
6.1 hereof.
4.9 Intentionally omitted.
4.10. 8-K. At least 10 days prior to the Effective Time, MSB shall furnish
Lakeland with all such information and financial statements as Lakeland may
reasonably require in order for Lakeland to prepare a Current Report on Form 8-K
(describing the Merger pursuant to Items 2 and 7 of such Form) for filing with
the SEC promptly after the Effective Time. Immediately prior to the Closing, MSB
shall cause its former and/or current independent accountants to provide any
report of such accountants which Lakeland determines must be included in such
filing on Form 8-K and a consent (in form and substance satisfactory to
Lakeland) to the filing of any report of such accountants which Lakeland
determines must be included or incorporated by reference in such filing on Form
8-K.
ARTICLE V
COVENANTS OF LAKELAND
5.1. Advice of Changes. Lakeland will promptly advise MSB, in writing, of
(i) any event occurring subsequent to the date of this Agreement which would
render any representation or warranty of MSB contained in this Agreement, if
made on or as of the date of such event or on or as of the Closing, untrue or
inaccurate in any material respect (or, with respect to representations or
warranties that are qualified as to materiality, inaccurate in any respect) and
(ii) any information which comes to the attention of MSB that indicates that any
representation or warranty of MSB contained in this Agreement was untrue or
inaccurate in any material respect (or, with respect to representations or
warranties that are qualified as to materiality, inaccurate in any respect) when
made.
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5.2. Consents, Approvals and Filings. Lakeland will use its best efforts to
comply as promptly as practicable with the governmental requirements specified
in Sections 3.4 and 3.5 hereof and obtain all necessary approvals,
authorizations, consents, licenses, clearances or orders of governmental and
regulatory authorities referred to in such Sections; provided, however, that
responsibility for compliance with Federal securities laws shall be allocated in
accordance with Article VII hereof; and further provided that Lakeland shall not
be required to take any extraordinary action or enter into any agreement which
in the reasonable opinion of Lakeland is unduly burdensome to Lakeland in order
to obtain such approvals, authorizations, etc.
5.3. Affiliates. Lakeland will deliver to MSB, as soon as practicable after
the execution of this Merger Agreement, but in no event later than twenty (20)
days hereafter, a letter identifying all persons who may be deemed to be
"affiliates" of Lakeland as that term is used for purposes of qualifying for
"pooling of interests" accounting treatment (collectively, "Lakeland
Affiliates"). Lakeland will furnish such information and documents as MSB's
counsel may request for the purpose of reviewing such letter. Lakeland will
cause each Lakeland Affiliate to issue and deliver to MSB, within three (3)
weeks after the date hereof, an agreement, in such form as MSB's counsel shall
reasonably require, to the effect that, among other things, such person agrees
to be bound by the rules which will permit the transaction contemplated by the
Merger Agreement to be treated as a pooling of interests for accounting
purposes.
5.4. Directors and Officers Liability Insurance. During the Transition
Period, Lakeland shall take all steps necessary to assure that, with respect to
acts or omissions occurring prior to the Effective Time, the executive officers
and directors of MSB retain substantially the same directors and officers
liability insurance coverage as they have on the date hereof as executive
officers and directors of MSB.
5.5. Employment of Key Executive. Lakeland agrees to cause MSB to retain
Paul P. Lubertazzi as Chairman of the Board, Chief Executive Officer and
President of MSB following the Effective Time under the terms and conditions of
his current Employment Agreement and continuing until the end of the Transition
Period. In addition, to induce Mr. Lubertazzi to provide additional services
relating to the Transition Period and the integration of MSB into Lakeland's
consolidated enterprise, Lakeland shall offer to Mr. Lubertazzi an agreement
effective as of the Effective Time, in form and substance reasonably
satisfactory to him, pursuant to which (i) at a cost to Lakeland of $278,000,
Lakeland would (through a trust or such other approach as shall be reasonably
acceptable to Mr. Lubertazzi) provide to Mr. Lubertazzi an additional annuity
comparable to the annuity currently provided by MSB and (ii) at a cost to
Lakeland of $45,000, Lakeland would provide to Mr. Lubertazzi (through a trust
or such other approach as shall be reasonably acceptable to Mr. Lubertazzi)
certain retiree medical benefits.
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ARTICLE VI
OTHER COVENANTS AND AGREEMENTS
6.1. Due Diligence. MSB shall, within fourteen (14) days following the date
of this Agreement (the "Delivery Period"), deliver to Lakeland all lists and
other materials called for in Article II hereof. Based upon its review of such
materials and any other information that it may consider (including without
limitation information received pursuant to Section 4.8 hereof), Lakeland shall
have the right, in its sole discretion, to terminate this Agreement by written
notice to MSB given within thirty five (35) days following the date of this
Agreement. In the event that Lakeland shall terminate this Agreement in
accordance with this Section 6.1, neither party shall have any further liability
to the other.
6.2. Confidentiality. Personnel of Lakeland have received in the course of
the negotiation of this Merger Agreement, and in the course of prior
negotiations, and are expected to continue to receive, confidential information
concerning the assets, methods of operation, loan and deposit pricing,
investment policies of MSB and the MSB Subsidiary, and other trade secrets and
confidential information concerning the business of MSB and the MSB Subsidiary;
and personnel of MSB have received in the course of the negotiation of this
Merger Agreement, and in the course of prior negotiations, and are expected to
continue to receive, confidential information concerning the assets, methods of
operation, loan and deposit pricing, investment policies of Lakeland and its
subsidiaries, and other trade secrets and confidential information concerning
the businesses of Lakeland and its subsidiaries. Such information has been
furnished by each party in good faith to the other party in confidence solely to
enable the other party to evaluate the proposed transaction, and with the
agreement that the party receiving such information will (1) treat all such
information at all times as being confidential and proprietary to the party
furnishing the information, (2) not divulge or make any unauthorized disclosure
of such confidential information to any third parties, and (3) not make any use
of such confidential information except in connection with its evaluation of the
other party's business for purposes of a proposed acquisition or merger
transaction. Following termination or cancellation of this Agreement, each party
shall, if requested to do so by the other, return all materials furnished to it
by the other which contain such confidential materials, without retaining any
copy thereof. The provisions of this Section 6.2 will be specifically
enforceable, entitling each party to injunctive relief against the other in
addition to such other relief as may be available. The provisions of this
Section 6.2 will survive any termination or cancellation of this Agreement.
Information shall cease to be protected by this Section 6.2 when and if it
enters the public domain through no fault of the party receiving such
information pursuant to this Agreement.
6.3. Expenses. Subject to the provisions of Article XI hereof, in the event
the Merger is not consummated, Lakeland and MSB will each separately bear its
own expenses incurred in connection with this Agreement or any transaction
contemplated hereby. However, printing expenses incurred in connection with the
registration statement, proxy statement and prospectus described in Section 7.1
hereof shall be shared equally by MSB and Lakeland.
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6.4. Public Announcements. The parties intend to issue a joint press
release upon signing of this Merger Agreement. Thereafter, recognizing that they
each have independent obligations with respect to the dissemination of material
information to the public and to their respective shareholders, Lakeland and MSB
will, to the maximum extent feasible, advise and confer with each other prior to
the issuance of any reports, statements or releases (including reports,
statements or releases to their respective employees) pertaining to this
Agreement.
6.5. Further Assurances. Lakeland and MSB agree to execute and deliver such
instruments and take such other actions as either of them may reasonably
require, consistent with the fiduciary duties of their respective Boards of
Directors, in order to carry out the intent of this Agreement.
6.6 Post-Effective Time Operations. From and after the Effective Time and
through the end of the Transition Period, MSB shall not take any of the actions
described in Sections 4.2 and 4.3 hereof (the "Actions") without the prior
written consent of Lakeland. During the Transition Period, Lakeland shall have
the right to expand the list of Actions at any time and from time to time and to
obtain injunctive relief to enforce the provisions of this Section 6.6.
6.7. Fees of Investment Bankers, Attorneys and Accountants. All fees of
Capital Consultants of Princeton, Inc. for its services in connection with the
transaction contemplated by this Agreement, including but not limited to the
rendering of the fairness opinion contemplated by Section 8.12 hereof, shall be
the sole responsibility of MSB. All fees of Ryan, Beck & Co. or any other
investment banking firm retained by Lakeland for its services in connection with
the transaction contemplated by this Agreement shall be the sole responsibility
of Lakeland. All fees of Lowenstein, Sandler, Kohl, Fisher and Boylan, P.A. or
any other law firm retained by Lakeland shall be the sole responsibility of
Lakeland. All fees of Robert J. Romano, Jr. & Associates or any other law firm
retained by MSB shall be the sole responsibility of MSB. All fees of Radics &
Co., LLC or any other accounting firm retained by Lakeland shall be the sole
responsibility of Lakeland. All fees of Grant Thornton, LLP and any other
accounting firm retained by MSB to provide advice regarding MSB's financial
statements or tax matters shall be borne by MSB.
ARTICLE VII
PROXY AND REGISTRATION STATEMENTS
7.1. Preparation. Lakeland and MSB acknowledge that the transactions
contemplated hereby are subject to the provisions of the Securities Act of 1933
and Rule 145 promulgated thereunder by the Securities and Exchange Commission
(the "SEC"). Lakeland (which shall prepare the first draft of the "Prospectus"
and "Registration Statement" as defined herein) and MSB will cooperate in the
prompt preparation of a proxy statement for submission to the stockholders of
MSB in connection with the meeting of such stockholders referred to in Section
1.4 hereof. The proxy statement to be submitted to the stockholders of MSB, in
its definitive form, together with any and all
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amendments and supplements thereto and all information incorporated by reference
therein (the "MSB Proxy Statement"), will also serve as the prospectus (the
"Prospectus") to be included in the Registration Statement (as defined below).
Lakeland will file a registration statement on Form S-4 (which registration
statement, in the form it is declared effective by the SEC, together with any
and all amendments and supplements thereto and all information incorporated by
reference therein, is referred to herein as the "Registration Statement") under
and pursuant to the provisions of the Securities Act of 1933 for the purpose of
registering the Lakeland Stock to be distributed to holders of MSB Stock in
accordance with the provisions of this Agreement. Each of MSB and Lakeland
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the other
party or its counsel, may be required or appropriate for inclusion in the
Registration Statement or the MSB Proxy Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Registration Statement
and the MSB Proxy Statement. Lakeland agrees to use its best efforts to have the
Registration Statement declared effective under the Securities Act of 1933 as
soon as may be practicable; provided, however, that it is understood that
Lakeland shall not commence preparing the Registration Statement until after the
thirty-five (35) day period referenced in Section 6.1 hereof has been completed
and that the Registration Statement will contain financial information regarding
the nine month period ending September 30, 1997.
7.2. Representations, Warranties and Covenants of MSB. MSB represents and
warrants to Lakeland that the MSB Proxy Statement will not, at the time of its
issuance and at the time of the meeting of stockholders of MSB contemplated by
Section 1.4 hereof, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made, in the
light of the circumstances under which they are made, not misleading, except
that no representation is made with respect to information set forth or
incorporated by reference in the MSB Proxy Statement concerning Lakeland or its
subsidiaries furnished or approved by Lakeland. MSB will promptly advise
Lakeland in writing if at any time prior to the Effective Time it shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Registration Statement or the MSB Proxy Statement in order to
make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law.
7.3. Representations, Warranties and Covenants of Lakeland. Lakeland
represents and warrants to MSB that the Registration Statement (including the
MSB Proxy Statement), at the time it becomes effective and at the time of the
meeting of stockholders of MSB contemplated by Section 1.4 hereof, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, except that no
representation is made with respect to information set forth or incorporated by
reference in the Registration Statement (including the MSB Proxy Statement)
concerning MSB furnished or approved by MSB.
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7.4. Mailings to Stockholders. MSB shall cause the MSB Proxy Statement to
be mailed to its stockholders as soon as practicable in accordance with
applicable Federal and state law; provided, however, that MSB shall not mail or
otherwise furnish the MSB Proxy Statement to its stockholders unless and until
Lakeland advises MSB that the Registration Statement is effective under the
Securities Act of 1933 and Lakeland advises MSB that it has received all
approvals required under applicable state securities and banking laws. Neither
Lakeland nor MSB will use any proxy material, other than the MSB Proxy Statement
and the other proxy material filed with the SEC prior to or concurrently with
the filing of the MSB Proxy Statement, without giving prior notice to the other.
7.5. Blue Sky. Lakeland will use its best efforts to obtain all necessary
blue sky permits and approvals required to carry out the transactions
contemplated by this Agreement. MSB will provide Lakeland with such information
as Lakeland shall reasonably request in order to enable Lakeland to comply with
this Section 7.5.
7.6. Tax Opinion. The Registration Statement shall contain (if required) an
opinion from Lowenstein, Sandler, Kohl, Fisher and Boylan, P.A., or other
counsel reasonably satisfactory to Lakeland, regarding the federal tax
consequences of the Merger to MSB stockholders.
7.7 Comfort Letter. At Lakeland's request and expense, MSB shall cause its
accountants to deliver to Lakeland and to its officers and directors who sign
the Registration Statement a short form "comfort letter" or "agreed upon
procedures" letter, dated the date of the mailing of the Proxy Statement, in the
form customarily issued by such accountants at such time in transactions
comparable to the Merger.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF LAKELAND
The obligations of Lakeland to consummate the transactions contemplated
hereby are subject to the satisfaction of the following conditions unless waived
by Lakeland:
8.1. Representations and Warranties; Deliveries. The representations and
warranties of MSB set forth in Article II and Article VII hereof shall be true
and correct in all material respects (provided that any such representations and
warranties which are qualified as to materiality shall be true and correct in
all respects) as of the date of this Agreement and as of the date of the Closing
contemplated by Article X hereof (the "Closing Date") as though made on and as
of the Closing Date. MSB shall have delivered to Lakeland during the Delivery
Period all of the information which MSB is required to deliver to Lakeland
pursuant to Article II hereof, which information shall have been accurate and
complete when delivered. No act or omission shall have occurred subsequent to
the Delivery Period which, if it had occurred prior to the end of the Delivery
Period, would have necessitated MSB's providing information to Lakeland which
was not actually provided to Lakeland during the Delivery Period.
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8.2. Covenants. MSB shall have performed and complied in all material
respects with each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by it prior to the Closing Date.
8.3. Certificates. MSB shall have furnished to Lakeland a certificate of
its President in form and substance reasonably satisfactory to Lakeland to the
effect that (i) the representations and warranties of MSB contained in Article
II and Article VII of this Agreement are true and correct in all material
respects (provided that any such representations and warranties which are
qualified as to materiality shall be true and correct in all respects) at and as
of the Closing Date as though such representations and warranties were made on
the date thereof, (ii) all information furnished to Lakeland by MSB pursuant to
Article II of this Agreement is true and correct in all material respects at and
as of the Closing Date as though such information was furnished on the Closing
Date, (iii) no act or omission has occurred subsequent to the Delivery Period
which, if it had occurred prior to the end of the Delivery Period, would have
necessitated MSB's providing information to Lakeland which was not actually
provided to Lakeland during the Delivery Period, (iv) MSB has complied with all
agreements, covenants and provisions of this Agreement required to be performed
or complied with by MSB prior to the Closing Date and (v) the condition set
forth in Section 8.6 hereof and, to the knowledge of such President, the
condition set forth in Section 8.7 hereof are each satisfied as of the Closing
Date. MSB shall also have furnished such other certificates as Lakeland's
counsel shall have reasonably requested.
8.4. Intentionally omitted.
8.5. Affiliates. Lakeland shall have received the letter identifying the
MSB Affiliates and the Affiliate Agreements required by Section 4.6 hereof.
8.6. Approval of Shareholders of MSB. The Subsidiary Bank Merger Agreement
and this Merger Agreement shall have been approved at a meeting of the
stockholders of MSB by the requisite vote of stockholders.
8.7. No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency (including without limitation any banking
regulatory authority) shall be in effect which restrains or prohibits any
transaction contemplated hereby or which would limit or otherwise affect in a
material respect Lakeland's ownership of MSB; no suit, action, or proceeding by
any governmental body or other person or entity, or investigation or inquiry by
any governmental body, shall be pending or threatened against Lakeland or MSB,
which challenges the validity or legality, or seeks to restrain the
consummation, of any transaction contemplated hereby or which seeks to limit or
otherwise affect Lakeland's ownership of MSB; and no written advice shall have
been received by Lakeland or MSB or their respective counsel from any
governmental body, and remain in effect, stating that an action or proceeding
will, if the Merger is consummated or sought to be consummated, be filed seeking
to invalidate or restrain said transaction or limit or otherwise affect
Lakeland's ownership of MSB.
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8.8. Approvals and Consents. All approvals and authorizations of the public
authorities referred to in Sections 2.4, 2.5, 3.4 and 3.5 hereof or otherwise
required to consummate the Merger shall have been obtained, and no such consents
or approvals shall have imposed a condition to such consent or approval which in
the reasonable opinion of Lakeland is unduly burdensome, and all waiting periods
specified by law shall have passed. MSB shall have obtained all approvals and
consents as Lakeland's counsel shall reasonably request under any contract,
lease or agreement of MSB or the MSB Subsidiary to assure that MSB shall
continue to retain all of the benefits of such contract, lease or agreement
after the Effective Time.
8.9. Registration Statement Effective. The Registration Statement shall
have become effective prior to the mailing of the Proxy Statement by MSB to its
stockholders, no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
8.10. Accountants' Opinion. Lakeland shall have received an opinion of
Radics & Co., L.L.C., in form and substance satisfactory to Lakeland, that the
Merger will qualify to be treated for accounting purposes as a pooling of
interests.
8.11. Tax Opinion. Lakeland shall have received an opinion of Lowenstein,
Sandler, Kohl, Fisher and Boylan, P.A., dated the Closing Date, to the effect
that the Merger constitutes a tax-free reorganization under Section 368(a) of
the Code. Such opinion shall be based upon assumptions standard for transactions
comparable to the Merger.
8.12. Fairness Opinions. The Board of Directors of MSB shall have received
an opinion of Capital Consultants of Princeton, Inc. in form and substance
reasonably satisfactory to said Board of Directors, dated as of the date of the
MSB Proxy Statement, that the Merger is fair to the stockholders of MSB from a
financial point of view. The opinion to be dated as of the date of the MSB Proxy
Statement shall be included in the MSB Proxy Statement.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF MSB
The obligations of MSB to consummate the transactions contemplated hereby
are subject to the satisfaction of the following conditions unless waived by
MSB:
9.1. Representations and Warranties. The representations and warranties of
Lakeland set forth in Article III and Article VII hereof shall be true and
correct in all material respects (provided that any such representations and
warranties which are qualified as to materiality shall be true and correct in
all respects) as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date.
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9.2. Covenants. Lakeland shall have performed and complied in all material
respects with each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by it prior to the Closing Date.
9.3. Certificates. Lakeland shall have furnished to MSB a certificate of
its President in form and substance reasonably satisfactory to MSB to the effect
that (i) the representations and warranties of Lakeland contained in Article III
and Article VII of this Agreement are true and correct in all material respects
(or, with respect to representations and warranties which are qualified as to
materiality, in all respects) at and as of the Closing Date as though such
representations and warranties were made on the date thereof, (ii) Lakeland has
complied with all terms, covenants and provisions of this Agreement required to
be performed or complied with by Lakeland prior to the Closing Date and (iii) to
the knowledge of Lakeland, the condition set forth in Section 9.7 hereof is
satisfied as of the Closing Date. Lakeland shall also have furnished such other
certificates as MSB's counsel shall have reasonably requested.
9.4. Intentionally omitted.
9.5. Tax Opinion. MSB shall have received an opinion of Lowenstein,
Sandler, Kohl, Fisher and Boylan, P.A., dated the Closing Date, to the effect
that the Merger constitutes a tax-free reorganization under Section 368(a) of
the Code. Such opinion shall be based upon assumptions standard for transactions
comparable to the Merger.
9.6. Approval of Shareholders of MSB. The Subsidiary Bank Merger Agreement
and this Merger Agreement shall have been approved at a meeting of the
stockholders of MSB by the requisite vote of stockholders.
9.7. No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency (including, without limitations any banking
regulatory authority) shall be in effect which restrains or prohibits any
transaction contemplated hereby or which would limit or otherwise affect in a
material respect Lakeland's ownership of MSB; no suit, action, or proceeding by
any governmental body or other person or entity, or investigation or inquiry by
any governmental body, shall be pending or, in the case of a governmental body,
threatened against Lakeland or MSB, which challenges the validity or legality,
or seeks to restrain the consummation, of any transaction contemplated hereby or
which seeks to limit or otherwise affect Lakeland's ownership of MSB; and no
written advice shall have been received by Lakeland or MSB or their respective
counsel from any governmental body, and remain in effect, stating that an action
or proceeding will, if the Merger is consummated or sought to be consummated, be
filed seeking to invalidate or restrain said transaction or limit or otherwise
affect Lakeland's ownership of MSB.
9.8. Approvals and Consents. All approvals and authorizations of the public
authorities referred to in Sections 2.4, 2.5, 3.4 and 3.5 hereof or otherwise
required to consummate the Merger shall have been obtained, and all waiting
periods specified by law shall have passed.
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9.9. Registration Statement Effective. The Registration Statement shall
have become effective prior to the mailing of the Proxy Statement by MSB to its
stockholders, no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
9.10. Fairness Opinions. The Board of Directors of MSB shall have received
an opinion of Capital Consultants of Princeton, Inc. in form and substance
reasonably satisfactory to said Board of Directors, dated as of the date of the
MSB Proxy Statement, that the Merger is fair to the stockholders of MSB from a
financial point of view. The opinion to be dated as of the date of the MSB Proxy
Statement shall be included in the MSB Proxy Statement.
9.11. Affiliates. MSB shall have received the letter identifying the
Lakeland Affiliates and the Affiliate Agreements required by Section 5.3 hereof.
9.12 Accountants' Opinion. Lakeland shall have received an opinion of
Radics & Co., L.L.C., in form and substance reasonably satisfactory to MSB, that
the Merger will qualify to be treated for accounting purposes as a pooling of
interests.
ARTICLE X
CLOSING
Unless this Agreement shall have been terminated pursuant to a provision of
Article XI hereof, a closing (the "Closing") will be held, as soon as
practicable after the satisfaction or waiver of the conditions set forth in
Articles VIII and IX hereof, at the offices of Lowenstein, Sandler, Kohl, Fisher
and Boylan, P.A., 65 Livingston Avenue, Roseland, New Jersey, or at such other
location to which the parties may agree. At the Closing, the documents referred
to in Articles VIII and IX hereof will be exchanged by the parties and,
immediately thereafter, the Bank Subsidiary Merger Agreement will be filed by
MSB and Lakeland with the Department of Banking of the State of New Jersey.
ARTICLE XI
TERMINATION
11.1. Termination. This Agreement may be terminated at any time prior to
Closing:
(a) by the mutual consent of Lakeland and MSB; or
(b) by Lakeland, by written notice to MSB, if (i) any representation or
warranty of MSB set forth in Article II or Article VII hereof shall not be true
and correct in all material respects (or, with respect to any such
representation or warranty that is
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qualified as to materiality, shall not be true and correct in all respects),
(ii) MSB shall breach any covenant or agreement made by it herein or (iii) any
other condition set forth in Article VIII hereof shall not have been satisfied
by April 30, 1998, provided that the failure of such condition shall not be
caused by a breach by Lakeland of any covenant or agreement made by it herein;
or
(c) by MSB, by written notice to Lakeland, if (i) any representation or
warranty of Lakeland set forth in Article III or Article VII hereof shall not be
true and correct in all material respects (or, with respect to any such
representation or warranty that is qualified as to materiality, shall not be
true and correct in all respects), (ii) Lakeland shall breach any covenant or
agreement made by it herein or (iii) any other condition set forth in Article IX
hereof shall not have been satisfied by April 30, 1998, provided that the
failure of such condition shall not be caused by a breach by MSB of any covenant
or agreement made by it herein; or
(d) by MSB, by written notice to Lakeland, if MSB, without violating any of
its covenants hereunder, shall have received an unsolicited offer to enter into
an Acquisition Transaction and the Board of Directors of MSB, after consulting
with counsel, shall have determined in the exercise of its fiduciary duties that
it should terminate this Agreement and pursue the potential Acquisition
Transaction; in the event that MSB shall exercise its right of termination under
this paragraph (d), MSB shall pay to Lakeland a termination fee of $500,000
(plus any legal fees and expenses incurred by Lakeland in enforcing its right to
such fee) concurrent with the delivery of its notice of termination and prior to
executing any agreement pertaining to the Acquisition Transaction; or
(e) by Lakeland or MSB if, at the Special Meeting, the stockholders of MSB
do not approve the Merger Agreement and the Subsidiary Bank Merger Agreement by
the requisite vote; or
(f) by Lakeland pursuant to Section 6.1 hereof; or
(g) by either party pursuant to Sections 1.1(c) or 1.11(c) hereof; or
(h) by Lakeland if there shall have occurred a material adverse change (as
defined with respect to MSB in Section 2.9 hereof) in the business, prospects,
financial condition or results of operations of MSB and the MSB Subsidiary,
taken as a whole, at any time since June 30, 1997; or
(i) by MSB if there shall have occurred a material adverse change in the
business, prospects, financial condition or results of operations of Lakeland
and its subsidiaries, taken as a whole, at any time since June 30, 1997.
11.2 Effect of Termination. In the event of the termination of this
Agreement by either Lakeland or MSB pursuant to Section 11.1, this Agreement
(other than all provisions herein regarding confidentiality, all provisions
herein regarding expenses and Article XI) and the Subsidiary Bank Merger
Agreement shall forthwith become void and
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<PAGE>
have no effect, without liability on the part of any party or its officers,
directors, stockholders or agents, except as otherwise provided in Section
11.1(d), 11.3 and 11.4 hereof.
11.3 Breach. Notwithstanding any provision in this Agreement to the
contrary, in the event that either of the parties shall willfully default in its
obligations hereunder, the non-defaulting party may pursue any remedy available
at law or in equity to enforce its rights and shall be paid by the willfully
defaulting party for all damages, costs and expenses, including without
limitation legal, accounting, investment banking and printing expenses, incurred
or suffered by the non-defaulting party in connection herewith or in the
enforcement of its rights hereunder if such non-defaulting party prevails. With
respect to the immediately preceding sentence, a misrepresentation shall provide
a basis for a suit to recover monetary damages (as distinguished from a basis
for terminating this Agreement) only if the party making such misrepresentation
shall have acted with the intention to defraud or to deliberately mislead the
other party.
11.4 Acquisition Transaction. If
(a) this Agreement is terminated by Lakeland due to a breach of a covenant
by MSB, by Lakeland or MSB pursuant to Section 11.1(e) hereof or by MSB due to a
failure to satisfy the condition set forth in Section 9.10 hereof; and
(b) at the time of such termination, a proposed Acquisition Transaction has
been publicly announced; and
(c) before or within twelve months after this Agreement is terminated, (i)
MSB shall have entered into an agreement to engage in an Acquisition Transaction
with any person other than Lakeland, or (ii) the Board of Directors of MSB shall
have approved an Acquisition Transaction or shall have recommended that the
stockholders of MSB approve or accept any Acquisition Transaction; and
(d) an Acquisition Transaction between MSB and another person shall have
closed (the "Acquisition Closing") within twenty-four (24) months after the
termination of this Agreement;
then MSB or its successor in interest shall pay to Lakeland, concurrent with the
Acquisition Closing, a termination fee equal to $500,000 (the "Termination Fee")
plus the legal fees and expenses incurred by Lakeland in enforcing its right to
the Termination Fee.
A-36
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1. Parties in Interest. Nothing expressed or implied in this Agreement
is intended or shall be construed to confer upon or give to any person, firm or
corporation other than the parties hereto any rights or remedies under or by
reason of this Agreement or any transaction contemplated hereby, except as
specifically provided in this Agreement.
12.2. Entire Agreement; Amendments. This Agreement contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter, except as specifically provided to the contrary
herein. This Agreement may be amended only by a written instrument duly executed
by the parties, and any condition to a party's obligations hereunder may only be
waived in writing by such party.
12.3. Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.4. Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally or mailed (by registered or certified
mail, return receipt requested and postage prepaid) as follows:
If to Lakeland:
Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, New Jersey 07438
Attention: John W. Fredericks, President
with copy to:
Peter H. Ehrenberg, Esq.
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
If to MSB:
Metropolitan State Bank
166 Changebridge Road
P.O. Box 425
Montville, New Jersey 07045-0425
Attention: Mr. Paul P. Lubertazzi, President
A-37
<PAGE>
with copy to:
Robert J. Romano, Jr., Esq.
Robert J. Romano, Jr. & Associates
15 Essex Road
Paramus, New Jersey 07652
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. If mailed as
aforesaid, any such communication shall be deemed to have been given on the
third business day following that on which the piece of mail containing such
communication is posted; provided that any communication sent by telecopy or
telex and confirmed by mail (postage prepaid) shall be deemed to have been given
at the time of transmission.
12.5. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
12.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of New Jersey, without giving
effect to the choice of laws provisions thereof.
12.7. Gender and Number; Person. Any reference expressed in any gender
shall be deemed to include each of the other genders, and the singular shall be
deemed to include the plural and vice versa, unless the context otherwise
requires. The term "person" as used in this Agreement, unless the context
otherwise requires, shall include any individual and any corporation,
partnership, association, or other entity or group.
12.8. Waivers. Any party to this Agreement may, by written notice to the
other parties hereto, waive any provision of this Agreement. The waiver by any
party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach.
12.9. Assignments. This Agreement and all of the provisions hereof shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either
party hereto without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
LAKELAND BANCORP, INC. METROPOLITAN STATE BANK
By: /s/ JOHN W. FREDERICKS By: /s/ PAUL P. LUBERTAZZI
------------------------------ ---------------------------------
Name: John W. Fredericks Name: Paul P. Lubertazzi
Title: President Title: President
A-38
<PAGE>
APPENDIX B
____________________, 1998 DRAFT
PRIVATE AND CONFIDENTIAL
Board of Directors
Metropolitan State Bank
166 Changebridge Road
Montville, NJ 07045-0425
Members of the Board:
Metropolitan State Bank ("METROPOLITAN") has entered into an Agreement and Plan
of Merger dated September 16, 1997, ("MERGER AGREEMENT") with Lakeland Bancorp,
Inc. ("LAKELAND") which provides for the acquisition of METROPOLITAN by means of
a transaction ("MERGER") pursuant to which METROPOLITAN would become a
wholly-owned subsidiary of LAKELAND.
If the MERGER is approved and consummated, subject to the provisions of MERGER
AGREEMENT, each share of METROPOLITAN Common Stock issued and outstanding shall
be converted at the Effective Time into the right to receive shares of common
stock, par value $2.50 per share, of LAKELAND, under the following exchange
ratio: (a) in the event that the "Market Value" (as defined in the MERGER
AGREEMENT) is equal to or greater than $22.50 per share but not greater than
$31.00 per share, the Exchange Number shall equal $26.20 divided by the Market
Value; (b) in the event that the Market Value is less than $22.50 per share, the
Exchange Number shall be 1.164; (c) in the event that the Market Value is
greater than $31.00 per share, the Exchange Number shall be 0.845.
In lieu of the issuance of applicable fractional shares, LAKELAND will make a
cash payment therefor equal to such fraction multiplied by the Market Value.
You have requested our opinion as to whether the consideration offered in the
MERGER is fair, from a financial point of view, to the shareholders of
METROPOLITAN.
Capital Consultants of Princeton, Inc. ("CAPITAL CONSULTANTS"), as a customary
part of its investment banking business, is engaged in the valuation of
commercial banking and thrift institutions and their securities in connection
with mergers and acquisitions, private placements and valuations for estate,
corporate and other purposes.
In arriving at our opinion we have reviewed and analyzed, among other things:
(i) the MERGER AGREEMENT; (ii) the LAKELAND Registration Statement on Form S-4
of which this Proxy Statement-Prospectus is a part; (iii) publicly available
information relating to LAKELAND and METROPOLITAN including, for LAKELAND,
annual reports to shareholders and annual reports on Form 10-K filed with the
SEC for the years ended December 31, 1994 through 1996, the Consolidated
Financial Statements of December 31, 1996, 1995, and 1994, and the quarterly
reports to shareholders and quarterly reports on Form 10-Q filed with the SEC
for the periods ended March 31, June 30, and September 30, 1997, and for
METROPOLITAN annual reports to shareholders for the years ended December 31,
1994 through 1996, Consolidated Financial Statements as of December 31, 1996,
1995, and 1994 together with the Report of
B-1
<PAGE>
Independent Public Accountants and quarterly reports of Consolidated Conditions
and Income as filed with the Federal Deposit Insurance Corporation for the
periods ended March 31, June 30, and September 30, 1997; (iv) certain historical
operating and financial information provided to CAPITAL CONSULTANTS by the
managements of METROPOLITAN and LAKELAND; (v) historical and current market data
for the METROPOLITAN Common Stock and the LAKELAND Common Stock; (vi) the
publicly available financial data and stock market performance data of publicly
traded banking and thrift institutions which CAPITAL CONSULTANTS deemed
generally comparable to METROPOLITAN and LAKELAND; (vii) the nature and terms of
recent acquisitions and merger transactions involving banking institutions and
bank and thrift holding companies that CAPITAL CONSULTANTS considered reasonably
similar to METROPOLITAN and LAKELAND in financial character, operating
character, historical performance, geographic market and economy; and (viii)
such other studies, analyses, inquiries and reports as CAPITAL CONSULTANTS
deemed appropriate. In addition, CAPITAL CONSULTANTS conducted meetings with
members of senior management of METROPOLITAN and LAKELAND for purposes of
reviewing the future prospects of METROPOLITAN and LAKELAND. CAPITAL CONSULTANTS
evaluated the pro forma ownership of the LAKELAND Common Stock by METROPOLITAN
shareholders, relative to the pro forma contribution of METROPOLITAN assets,
deposits, equity, and earnings to the pro forma resulting company in the MERGER.
CAPITAL CONSULTANTS also took into account its experience in other transactions,
as well as its knowledge of the banking and thrift industries and its experience
in securities valuations.
While we have taken care in our investigation and analysis, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us or publicly available, and have not attempted to
verify same. We have not made or obtained any independent evaluations or
appraisals of the assets or liabilities of METROPOLITAN or LAKELAND.
In conducting our analysis and arriving at our opinion, we have considered such
financial and other factors as we have deemed appropriate in the circumstances.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary regulatory approvals for the MERGER, no conditions will be imposed
that would have a material adverse effect on the contemplated benefits of
MERGER. Our opinion is necessarily based upon market, economic, and other
conditions as they exist and can be evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that the consideration to be paid in the MERGER is fair, from a financial point
of view, to the shareholders of METROPOLITAN.
Very truly yours,
CAPITAL CONSULTANTS OF PRINCETON, INC.
B-2
<PAGE>
APPENDIX C
TITLE 17. CORPORATIONS AND INSTITUTIONS FOR FINANCE AND INSURANCE
SUBTITLE 2. FINANCIAL INSTITUTIONS
PART 1A. BANKING INSTITUTIONS
CHAPTER 9A. BANKING ACT OF 1948, SUPPLEMENTED
ARTICLE 21. BANK MERGERS
N.J. Stat. ss. 17:9A-140 (1997)
ss. 17:9A-140. Rights of dissenting stockholders; settlement by agreement
A. A stockholder who
(1) is entitled to vote at the meeting of stockholders prescribed by
section 137; and who
(2) serves a written notice of dissent from the merger agreement, in the
manner, at the place, and within the time prescribed in subsections B and C of
this section; and who
(3) does not vote to approve the merger agreement at the meeting prescribed
by section 137, or at any adjournment thereof, may, within thirty days after the
filing of the agreement in the department as provided by section 137, serve a
demand upon the receiving bank at its principal office, for the payment to him
of the value of his shares of stock. The receiving bank may, within ten days
after the receipt of such demand, offer to pay the stockholder a sum for his
shares, which, in the opinion of the board of directors of the receiving bank,
does not exceed the amount which would be paid upon such shares if the business
and assets of the bank whose stock such stockholder holds were liquidated on the
day of the filing of the agreement pursuant to section 137.
B. Service of the notice of dissent prescribed by paragraph (2) of
subsection A of this section shall be made at the principal office of the bank
whose stock is held by the dissenting stockholder, and shall be made not later
than the third day prior to the day fixed for the meeting of the stockholders of
such bank pursuant to section 137.
C. Service of the notice of dissent and of the demand for payment
prescribed by this section may be made by registered mail or personally by the
dissenting stockholder or his agent.
N.J. State. ss. 17:9A-141 (1997)
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<PAGE>
ss. 17:9A-141. Appointment of appraisers
If a stockholder fails to accept the sum offered for his shares pursuant to
section one hundred forty, he may, within three weeks after the receipt by him
of the bank's offer of payment, or, if no offer is made by the bank, within
three weeks after the date upon which his demand was served upon the bank as
specified in section one hundred forty, institute an action in the Superior
Court for the appointment of a board of three appraisers to determine the value
of his shares of stock as of the day of the filing of the merger agreement
pursuant to section one hundred thirty-seven. The court may proceed in the
action in a summary manner or otherwise. Any other stockholder who has the right
to institute a similar action may intervene. The court shall, in respect to any
one bank, appoint a single board of three appraisers to determine the value of
the shares of all stockholders of such bank who are parties to such action.
N.J. Stat. ss. 17:9A-142 (1997)
ss. 17:9A-142. Duties of appraisers; report; objections; compensation;
vacancies
A. The appraisers shall be sworn to the faithful discharge of their duties.
They shall meet at such place or places, and shall give such notice of their
meetings as the court may prescribe. The bank and each stockholder who is a
party to the action instituted pursuant to section one hundred forty-one, may be
represented by attorneys in the proceedings before such appraisers, and may
present some evidence to them as shall be material to the issue. The
determination of any two of the appraisers shall control. Upon the conclusion of
their deliberations, the appraisers shall file in the Superior Court a report
and appraisal of the value of the shares of stock, and shall mail a copy thereof
to the bank and to each stockholder who is a party to said action.
B. The bank and each stockholder who is a party to said action shall have
ten days after the filing of the report and appraisal within which to object
thereto in the Superior Court. In the absence of any objections, the report and
appraisal shall be binding upon the bank and upon such stockholders, and the
bank shall pay each such stockholder the value of his shares, as reported by the
appraisers, with interest from the date of the filing of the merger agreement
pursuant to section one hundred thirty-seven, at such rate, not in excess of the
legal rate, as shall be fixed by the appraisers. If objections are made, the
court shall make such order or judgment thereon as shall be just.
C. The Superior Court shall fix the compensation of the appraisers, which
shall be paid by the bank, and shall be vested with full jurisdiction over all
matters arising out of an action instituted pursuant to section one hundred
forty-one. In the case of a vacancy in the board of appraisers, the Superior
Court shall, on its own motion, or upon motion of a stockholder, or of the
receiving bank, fill such vacancy.
C-2
<PAGE>
N.J. Stat. ss. 17:9A-143 (1997)
ss. 17:9A-143. Assignment of stock to bank
Upon payment by the bank of the value of shares of stock pursuant to this
article, the holder thereof shall assign such shares to the bank.
N.J. Stat. ss. 17:9A-144 (1997)
ss. 17:9A-144. Effect of stockholder's failure to act
A stockholder who fails to act pursuant to sections 140 and 141 shall be
forever barred from bringing any action to enforce his right to be paid the
value of his shares in lieu of continuing his status as a stockholder in the
receiving bank.
N.J. Stat. ss. 17:9A-145
ss. 17:9A-145. Obligation of bank to pay stockholder
An offer by the bank and an acceptance thereof by the stockholder pursuant
to section 140 and the determination of value upon proceedings brought pursuant
to sections 141 and 142 shall constitute a debt of the receiving bank for the
recovery of which an action will lie.
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (2) of Section 3-5, Title 14A of the New Jersey Business
Corporation Act empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a corporate agent (i.e., a
director, officer, employee or agent of the corporation or a director, officer,
trustee, employee or agent of another related corporation or enterprise),
against reasonable costs (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement incurred by such person in connection
with such action, suit or proceeding if such person 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, with respect to any criminal proceedings, had no
reasonable cause to believe that such conduct was unlawful.
Subsection (3) of the Section 3-5 empowers a corporation to indemnify a
corporate agent against reasonable costs (including attorneys' fees) incurred by
him in connection with any proceeding by or in the right of the corporation to
procure a judgment in its favor which involves such corporate agent by reason of
the fact that he is or was a corporate agent if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct unless and only to the extent that the Superior
Court of New Jersey or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Subsection (4) of Section 3-5 provides that to the extent that a corporate
agent has been successful in the defense of any action, suit or proceeding
referred to in subsections (2) and (3) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) incurred by him in connection therewith; subsection (8) of Section 3-5
provides that indemnification provided for by Section 3-5 shall not be deemed
exclusive of any rights to which the indemnified party may be entitled; and
subsection (9) of Section 3-5 empowers a corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or expenses incurred by him in any such capacity
or arising out of his status as such whether or not the corporation would have
the power to indemnify him against such liabilities and expenses under Section
3-5.
The Registrant's Certificate of Incorporation contains the following
provision concerning indemnification:
"10. Indemnification of Directors. Directors of the Corporation, to the
fullest extent permitted by the New Jersey Business Corporation Act, as now or
hereafter in effect, and any successor statute, 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. Also, any expenses incurred by a
Director in connection with a proceeding involving the Director may be paid by
the Corporation in advance of final disposition of the proceeding, provided the
Director undertakes to repay such amount unless it shall ultimately be
determined that he or she is entitled to indemnification."
The Registrant has obtained directors' and officers' liability insurance
providing coverage of up to $10.0 million.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Agreement and Plan of Reorganization, dated as of September 16,
1997, by and among Lakeland Bancorp, Inc. and Metropolitan State
Bank, is incorporated by reference to Exhibit 99.2 to the
Registrant's Current Report on Form 8-K filed with the Commission on
September 22, 1997.
4.1 -- Certificate of Incorporation of Lakeland Bancorp, Inc., as
amended.
4.2 -- By-laws of Lakeland Bancorp, Inc. are incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form S-3
(No. 33-34099) filed with the Commission on March 30, 1990.
5.1 -- Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
8.1 -- Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.,
concerning tax matters
23.1 -- Consent of Radics & Co., LLC.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
(contained in Exhibit 5.1 and Exhibit 8.1).
23.4 -- Consent of Capital Consultants of Princeton, Inc.
24.1 -- Power of Attorney.
99.1 -- Form of Metropolitan State Bank Proxy Card
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
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
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE>
The undersigned registrant hereby undertakes:
(1) 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 a 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment that contains a
form of prospectus 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) 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.
(4) 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.
(5) 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 became effective.
(6) 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.
(7) That every prospectus (i) that is filed pursuant to the
paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as 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.
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<PAGE>
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 Oak Ridge, State of
New Jersey, on December 19, 1997.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
--------------------------
Arthur L. Zande
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the date indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ ARTHUR L. ZANDE
- ---------------------------- December 19, 1997
Arthur L. Zande Executive Vice President
& Director (Chief
Executive Officer) December 19, 1997
/s/ JOHN W. FREDERICKS*
- ----------------------------
John W. Fredericks President & Director December 19, 1997
/s/ ROBERT B. NICHOLSON*
- -----------------------------
Robert B. Nicholson Chairman & Director December 19, 1997
/s/ BRUCE G. BOHUNY*
- -----------------------------
Bruce G. Bohuny Director December 19, 1997
/s/ MARY ANN DEACON*
- -----------------------------
Mary Ann Deacon Director December 19, 1997
/s/ MARK J. FREDERICKS*
- -----------------------------
Mark J. Fredericks Director December 19, 1997
/s/ JOHN PIER*
- -----------------------------
John Pier Director December 19, 1997
/s/ WILLIAM J. ECKHARDT*
- -----------------------------
William J. Eckhardt Vice President &
Treasurer (Principal
Financial & Accounting December 19, 1997
Officer)
*/s/ ARTHUR L. ZANDE
--------------------
Arthur L. Zande,
Attorney-In-Fact
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Agreement and Plan of Reorganization, dated as of September 16, 1997,
by and among Lakeland Bancorp, Inc. and Metropolitan State Bank, is
incorporated by reference to Exhibit 99.2 to the Registrant's Current
Report on Form 8-K filed with the Commission on September 22, 1997.
4.1 -- Certificate of Incorporation of Lakeland Bancorp, Inc., as amended.
4.2 -- By-laws of Lakeland Bancorp, Inc. are incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form
S-3 (No. 33-3499) filed with the Commission on March 30, 1990.
5.1 -- Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
8.1 -- Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.,
concerning tax matters.
23.1 -- Consent of Radics & Co., LLC.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A
(contained in Exhibit 5.1 and Exhibit 8.1).
23.4 -- Consent of Capital consultants of Princeton, Inc.
24.1 -- Power of Attorney.
99.1 -- Form of Metropolitan State Bank Proxy Card.
II-5
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
The undersigned, being over the age of 18 years old, for the purpose of
forming a corporation under the New Jersey Business Corporation Act, does hereby
execute the following Certificate of Incorporation:
1. Name. The name of the corporation is Lakeland Bancorp, Inc.
2. Purpose. The principal purpose for which the corporation is organized is
to exercise all powers of a banking holding company, which is registered with
the Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended, and to engage in banking and non-banking
activities allowed for such a bank holding company under New Jersey and federal
law.
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 3,000,000 shares of common stock, which
shall have a par value of $2.50 each.
4. Issuance of Stock. The capital stock of the corporation may be issued
for valid corporate purposes upon authorization by the Board of Directors of the
corporation without prior stockholder approval. Such authorization by the Board
of Directors may be made by a majority or other vote of the Board as may be
provided in the Bylaws of the corporation. The provisions of this Article may
only be amended or repealed by the affirmative vote of the holders of not less
than eighty percent (80%) of the outstanding voting stock of the Corporation.
5. Office and Registered Agent. The address of the registered office of the
corporation in the State of New Jersey shall be One Lakeland Plaza,
Newfoundland, New Jersey 07534, and the name of its New Jersey registered agent
at such address shall be Arthur L. Zande.
6. Number and Terms of Directors. The corporation shall have not less than
five (5) or more than twenty-five (25) Directors. The Board of Directors of the
corporation shall, at a regular meeting prior thereto, fix by resolution the
number of Directors for the succeeding year to be elected at the next annual
meeting of the shareholders. One-third of the Directors shall be elected by a
majority of the votes cast at each annual meeting of the shareholders or by
similar vote at any special meeting called for the purpose, to serve three-year
terms. Each Director shall hold office until the expiration of the term for
which he is elected, except as otherwise stated in the Bylaws, and thereafter
until his successor has been elected and qualified. Election of Directors need
not be by written ballot. The affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding voting stock of the corporation is
required to amend or repeal the provisions of this Article.
<PAGE>
7. First Board. The first Board of Directors shall be six (6) in number,
and the names and addresses are:
Name Address
Bruce G. Bohuny 913 Cherokee Lane
Franklin Lakes, NJ 07417
John W. Fredericks 382 Osprey Lane
Mantoloking, NJ 08739
Robert B. Nicholson 309 East Mountain Road
Sparta, NJ 07871
John Pier, Jr. P. O. Box 38
Vernon, NJ 07462
Albert S. Riggs Milton Road
Oak Ridge, NJ 07438
Arthur L. Zande 55 Fox Trail Road
Sparta, NJ 07871.
The terms of the first Board of Directors shall be set so as to implement
staggered terms of 3 years each. The initial terms of Messrs. Nicholson and
Zande shall expire in 1990, those of Messrs. Bohuny and Riggs in 1991 and those
of Messrs. Fredericks and Pier in 1992.
8. Vacancies on Board of Directors. Any and all vacancies on the Board of
Directors, including those resulting from an increase in the number of Directors
or the removal, resignation, or death of a Director, shall be filled by the
Board of Directors.
9. Removal of a Director. A Director of the corporation may only be removed
during his or her term of office for cause, as defined as final conviction of a
felony, unsound mind, adjudication of bankruptcy, non-acceptance of office or
conduct prejudicial to the interests of the corporation, by the affirmative vote
of a majority of the entire Board of Directors of the corporation or by the
requisite shareholder vote. Shareholders shall not have the right to remove
Directors without such cause. Shareholders may only attempt to remove a director
for cause after service of specific charges, adequate notice, and full
opportunity to refute the charges.
10. Indemnification of Directors. Directors of the Corporation, to the
fullest extent permitted by the New Jersey Business Corporation Act, as now or
hereafter in effect, and any successor statute, 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. Also, any expenses incurred by a
Director in connection with a proceeding involving the Director may be paid by
the Corporation in advance of final disposition of the proceeding, provided the
Director undertakes
-2-
<PAGE>
to repay such amount unless it shall ultimately be determined that he or she is
entitled to indemnification.
11. By-Laws. The Board of Directors shall have the right to enact, alter,
amend or repeal the Bylaws of the Corporation. Also, the By-Laws may be amended,
altered or repealed by the affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding voting stock of the corporation.
12. Considerations in Evaluating Acquisition Offer. The Directors of the
Corporation shall consider all factors they deem relevant in evaluating any
proposed tender offer or exchange offer for the corporation or any subsidiary's
stock, any proposed merger or consolidation of the corporation or subsidiary
with or into another entity and any proposal to purchase or otherwise acquire
all or substantially all the assets of the corporation or any subsidiary. The
Directors shall evaluate whether the proposal is in the best interests of the
corporation and its subsidiaries by considering the best interests of the
shareholders and other factors the Directors determine to be relevant, including
the social, legal and economic effects on employees, customers, depositors, and
communities served by the corporation and any subsidiary. The Directors shall
evaluate the consideration being offered to the shareholders in relating to the
then current market value of the corporation or any subsidiary, the then current
market value of the stock of the corporation or any subsidiary in a freely
negotiated transaction, and the Directors' estimate of the future value of stock
of the corporation or any subsidiary as an independent entity. The affirmative
vote of the holders of not less than eighty percent (80%) of the outstanding
voting stock of the corporation is required to amend or repeal the provisions of
this Article.
13. Votes Required to Approve Acquisition.
(a) Unapproved by Board. The affirmative vote of the holders of not Less
than eighty percent (80%) of the outstanding voting stock of the corporation is
required to approve of either (1) a merger or consolidation of the corporation
with, or (2) a sale, exchange or lease of all or substantially all of the assets
of the corporation to, any person or entity provided that the Board of Directors
of the corporation, by a majority vote of the entire Board, does not recommend
to the stockholders of the corporation a vote in favor of the same. For purposes
of this provision, substantially all of the assets shall mean assets having a
fair market value or book value, whichever is greater, of 25 per cent or more of
the total assets as reflected on a balance sheet of the corporation as of a date
no earlier than 45 days prior to any acquisition of such assets.
(b) Acquisition by Controlling Party. The affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of all voting
stock of the corporation and the affirmative vote of the holders of not less
than sixty-seven percent (67%) of the outstanding shares of voting stock held by
stockholders other than the Controlling Party (as defined below) shall be
required for the approval or authorization of any merger, consolidation, sale,
exchange or lease of all of substantially all the assets of the corporation (as
defined above). Controlling Party is any stockholder owning or controlling
twenty per cent (20%) or more of the
-3-
<PAGE>
corporation's voting stock at the time of the proposed transaction. However,
these voting requirements shall not be applicable in such transactions in which:
(a) the cash or fair market value of the property, securities or other
consideration to be received (which includes common stock of this corporation
retained by its existing stockholders in such a transaction in which the
corporation is the surviving entity) per share by holders of common stock of the
corporation in such transaction is not less than the highest per share price
(with appropriate adjustments for recapitalizations, stock splits, stock
dividends and distributions), paid by the Controlling Party in the acquisition
of any of its holdings of the corporation's common stock in the three years
preceding the announcement of the proposed transaction; or (b) the transaction
is recommended by a majority of the entire Board of Directors. The requirements
of this paragraph are in addition to and separate from any consent or approval
that may be required by this Certificate to authorize any merger, consolidation
or sale, exchange or lease of all or substantially all of the assets of the
corporation as in paragraph (a) of this Article.
(c) Meetings of Shareholders. Any meeting of shareholders, whether annual
or special, called to consider a vote in favor of a merger or consolidation of
the corporation with, or a sale, exchange or lease of substantially all of the
assets of the corporation to, any person or entity, as defined in paragraphs (a)
and (b) of this Article, which is not recommended by the Board of Directors of
the corporation by the required vote, shall require attendance in person or by
proxy of eighty percent (80%) of the shareholders of the corporation in order
for a quorum for the conduct of business to exist. Such a meeting may not be
adjourned absent notice if a quorum is not present.
(d) Amendment or Repeal of this Article. The affirmative vote of not less
than eighty percent (80%) of the outstanding voting stock of the corporation is
required to amend or repeal any part of paragraphs (a) or (b) of this Article.
14. Incorporator. The name of the sole incorporator is Walter J. Hunziker,
Jr. and the address of the incorporator is 125 Ellison Street, Paterson, New
Jersey 07505.
Dated: February 3, 1989
/s/ WALTER J. HUNZIGER, JR.
------------------------------
Walter J. Hunziker, Jr.
Sole Incorporator
-4-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF JANUARY 10, 1990
The undersigned corporation, having adopted an amendment to its certificate
of incorporation in connection with a stock dividend, hereby certifies as
follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 3% stock dividend was January 10, 1990.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,017,855. The number of shares issued in connection the 3%
stock dividend was 30,535.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,000,000 to 3,030,535. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
--------------------
Arthur L. Zande
Executive Vice President
-5-
<PAGE>
EXHIBIT A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 3,030,535 shares of common stock, which
shall have a par-value of $2.50 each.
-6-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF FEBRUARY 12, 1992
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 3% stock dividend was February 12, 1992.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,048,390. The number of shares issued in connection the 3%
stock dividend was 31,452.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,030,535 to 3,061,987. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-7-
<PAGE>
EXHIBIT A
3. Shares Authorized, The maximum number of shares which the corporation
shall have the authority to issue is 3,061,987 shares of common stock, which
shall have a par value of $2.50 each.
-8-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF NOVEMBER 12, 1992
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 10% stock dividend was November 12, 1992.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,079,842. The number of shares issued in connection the 10%
stock dividend was 107,984.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,061,987 to 3,169,971. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-9-
<PAGE>
Exhibit A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 3,169,971 shares of common stock, which
shall have a par value of $2.50 each.
-10-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF MAY 26, 1993
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 6% stock dividend was May 26, 1993.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,187,826. The number of shares issued in connection the 6%
stock dividend was 71,269.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,169,971 to 3,241,240. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-11-
<PAGE>
Exhibit A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 3,241,240 shares of common stock, which
shall have a par value of $2.50 each.
-12-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF MAY 11, 1994
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 10% stock dividend was May 11, 1994.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,382,483. The number of shares issued in connection with the
10% stock dividend was 138,248.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,241,240 to 3,379,488. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-13-
<PAGE>
EXHIBIT A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 3,379,488 shares of common stock, which
shall have a par value of $2.50 each.
-14-
<PAGE>
LAKELAND BANCORP, INC.
Certificate of Amendment
to
Certificate of Incorporation
In accordance with the provisions of Section 14A:9-4(3) of the New Jersey
Statutes, LAKELAND BANCORP, INC., a corporation organized under the laws of the
State of New Jersey, does hereby certify the following facts in amendment of its
Certificate of Incorporation as filed on February 7, 1989:
FIRST: The name of the corporation is
LAKELAND BANCORP, INC.
SECOND: The Certificate of Incorporation is hereby amended by inserting a
revised Article 6 in place of the original text, to read as
follows:
6. Number and Terms of Directors. The corporation shall have not less
than five (5) or more than twenty-five (25) Directors. The Board of
Directors of the corporation shall, at a regular meeting prior thereto, fix
by resolution the number of Directors for the succeeding year to be elected
at the annual meeting of the shareholders. The Board shall be divided into
three (3) classes of Directors, each of equal number, or in the event the
total number of Directors is not divisible by three (3) then of nearly
equal number as is possible. Unless they are elected to fill vacancies, the
Directors in each class shall be elected to hold office until the third
successive annual meeting of shareholders after their election and until
their successors shall have been elected and shall have qualified, such
that at each annual meeting of shareholders, only one class of Directors
shall be elected. In the event that a Director is elected to fill a
vacancy, the term of such Director shall expire at the next annual meeting
of shareholders. Any vacancy, however caused, occurring in the Board, and
newly created Directorships resulting from an increase in the authorized
number of Directors, may be filled by the affirmative vote of a majority of
the remaining Directors, even though less than a quorum of the Board, or by
a sole remaining Director. The Board of Directors shall specify the class
in which a Director so elected shall serve. Any Director so elected by the
Board of Directors shall hold office only until the next annual meeting of
the shareholders and until his successor shall have been elected and
qualified, notwithstanding that the term of office of the other Directors
in the class of which he is a member does not expire at the time of such
meeting. His successor shall be elected by the shareholders to a term of
office which shall expire at the same time as the term of office of the
other Directors in the class to which he is elected.
-15-
<PAGE>
Election of Directors need not be by written ballot. The affirmative vote
of the holders of not less than eighty per cent (80%) of the outstanding
voting stock of the corporation is required to amend or repeal the
provisions of this Article.
THIRD: The date of adoption of the foregoing amendment by the Shareholders
of this corporation was April 28, 1995, after its prior adoption by the Board of
Directors and due notice, on which date 1,277,175 shares were voted in favor of
the amendment, representing over 83% of the 1,531,531 total shares outstanding
and entitled to vote. Such vote complied with the minimum 80% majority required
for such amendment as contained in the original Article 6 of the Certificate of
Incorporation. No shares were voted against the amendment.
FOURTH: This amendment is to be effective immediately upon its filing with
the Secretary of State of New Jersey.
IN WITNESS WHEREOF, we have executed this Certificate on behalf of LAKELAND
BANCORP, INC. this 18th day of May, 1995.
/s/ ARTHUR L. ZANDE
-----------------------------------------
Arthur L. Zande, Executive Vice President
-16-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF MAY 24, 1995
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
l. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors or the corporation of the
resolution approving the 5% stock dividend was May 24, 1995.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,535,931. The number of shares issued in connection with the
5% stock dividend was 76,796.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,379,488 to 3,456,284. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-17-
<PAGE>
EXHIBIT A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 3,456,284 shares of common stock, which
shall have a par value of $2.50 each.
-18-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF OCTOBER 25, 1995
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 100% stock dividend was September 13, 1995.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,619,727. The number of shares issued in connection with the
100% stock dividend was 1,619,727.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,456,284 to 6,912,568. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-19-
<PAGE>
EXHIBIT A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 6,912,568 shares of common stock, which
shall have a par value of $2.50 each.
-20-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF NOVEMBER 13, 1996
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 2% stock dividend was November 13, 1996.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remains unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 3,309,259. The number of shares issued in connection with the
2% stock dividend was 66,185.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 6,912,568 to 7,050,819. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-21-
<PAGE>
EXHIBIT A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 7,050,819 shares of common stock, which
shall have a par value of $2.50 each.
-22-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
LAKELAND BANCORP, INC.
PURSUANT TO N.J.S. 14A:7-15.1(3)
DATED: AS OF AUGUST 27, 1997
The undersigned corporation, having adopted an amendment to its certificate
of incorporation, as amended, in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation of the
resolution approving the 5% stock dividend was August 27, 1997.
3. The amendment to the certificate of incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series and will not result in the percentage of authorized shares that
remain unissued after the stock dividend exceeding the percentage of authorized
shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 3,392,090. The number of shares issued in connection with the
5% stock dividend was 169,604.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 7,050,819 to 7,403,359. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, in substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
LAKELAND BANCORP, INC.
By: /s/ ARTHUR L. ZANDE
-------------------
Arthur L. Zande
Executive Vice President
-23-
<PAGE>
EXHIBIT A
3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 7,403,359 shares of common stock, which
shall have a par value of $2.50 each.
-24-
Exhibit 5.1
[Letterhead of LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN]
December 19, 1997
Lakeland Bancorp, Inc.
254 Oak Ridge Road
Oak Ridge, NJ 07438
Gentlemen:
You have requested our opinion in connection with the registration with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of shares of the common stock, par value $2.50 per share (the "Common Stock"),
of Lakeland Bancorp, Inc. (the "Company") on a registration statement on Form
S-4 (the "Registration Statement"). The shares of Common Stock to which the
Registration Statement relates are issuable to shareholders of Metropolitan
State Bank ("MSB") upon consummation of the merger (the "Merger") described in
the Agreement and Plan of Reorganization, dated September 16, 1997, between
Lakeland and MSB (the "Merger Agreement").
We have examined and relied upon originals or copies, authenticated or
certified to our satisfaction, of all such corporate records of the Company,
communications or certifications of public officials, certificates of officers,
directors and representatives of the Company, and such other documents as we
have deemed relevant and necessary as the basis of the opinions expressed
herein. In making such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents tendered to us as originals, and
the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
<PAGE>
Lakeland Bancorp, Inc. December 19, 1997
Based upon the foregoing and relying upon statements of fact contained in
the documents which we have examined, we are of the opinion that the shares of
Common Stock to be issued by the Company pursuant to the Merger Agreement, when
issued in accordance with the Merger Agreement, will be legally issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto. In giving this consent, we do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
LOWENSTEIN, SANDLER, KOHL,
FISHER & BOYLAN, P.A.
By: /s/ LAURA R. KUNTZ
------------------
Laura R. Kuntz
-2-
Exhibit 8.1
[Letterhead of LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN]
December 19, 1997
Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, NJ 07438
Gentlemen:
As counsel for Lakeland Bancorp, Inc. ("Lakeland"), you have asked us to
render our opinion with respect to certain federal income tax consequences of
the Agreement and Plan of Reorganization (the "Merger Agreement"), dated
September 16, 1997, between Lakeland and Metropolitan State Bank ("MSB").
Pursuant to the Merger Agreement, Lakeland will establish a new subsidiary bank
("New Bank"), New Bank will merge (the "Merger") with and into MSB, with MSB
surviving the Merger, and the shareholders of MSB (other than shareholders who
properly exercise their dissenters' rights) will receive Lakeland Common Stock
("Lakeland Stock") in exchange for their MSB Common Stock ("MSB Stock"). No
fractional shares of Lakeland Stock will be issued; rather, any shareholder of
MSB entitled to a fractional interest will receive a cash payment from Lakeland.
In addition, pursuant to applicable law, shareholders of MSB who comply with
applicable notice requirements and follow certain other procedures will have the
right to dissent from the Merger and be paid cash for the value of their shares
of MSB Stock.
We have reviewed the terms of the proposed transaction as set forth in the
Merger Agreement and have received representations from certain executive
officers of Lakeland and MSB relating to various factual matters relevant to the
opinions expressed herein. Our opinion is based on the Merger Agreement, the
facts set forth in such representations of officers, and on our
<PAGE>
Lakeland Bancorp, Inc. December 19, 1997
Page 2
analysis of the applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service Rulings,
and judicial decisions interpreting the Code as in effect on the date hereof. We
have not independently verified the factual matters set forth in the
representations of officers.
We have reviewed the description of the federal income tax consequences of
the Merger set forth under the caption "THE MERGER - Federal Income Tax
Consequences" in the Registration Statement on Form S-4 to be filed by Lakeland
with the Securities and Exchange Commission (the "Registration Statement").
Based upon and subject to the foregoing, it is our opinion that such description
is accurate and complete in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto and to the references to this
firm under the captions "THE MERGER - Federal Income Tax Consequences" and
"LEGAL OPINION" in the Registration Statement. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
LOWENSTEIN, SANDLER, KOHL,
FISHER & BOYLAN, P.A.
By: /s/ LAURA R. KUNTZ
-----------------
Laura R. Kuntz
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-4 of our
report dated January 9, 1997 on our audits of the financial statements of
Lakeland Bancorp, Inc. ("Lakeland") and subsidiaries as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
included in Lakeland's Annual Report on Form 10-K for the year ended December
31, 1996, which is incorporated by reference in this Registration Statement and
to the reference to our firm under the caption "Experts" in the Registration
Statement.
RADICS & CO., LLC
Pine Brook, New Jersey
December 19, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 23, 1997, on the financial statements for Metropolitan
State Bank as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, and all references to our Firm included in
or made part of this proxy/prospectus.
Roseland, New Jersey ARTHUR ANDERSEN LLP
December 19, 1997
Exhibit 23.4
December 19, 1997
To Whom it May Concern:
We hereby consent to the use of our fairness opinion letter attached as
Appendix B and to the reference to our firm under the heading "Opinion of MSB's
Financial Advisor" in the Registration Statement filed by Lakeland Bancorp, Inc.
with the Securities and Exchange Commission in connection with the proposed
acquisition of Metropolitan State Bank by Lakeland Bancorp, Inc.
Very truly yours,
CAPITAL CONSULTANTS OF
PRINCETON, INC.
Exhibit 24.1
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of Lakeland Bancorp, Inc.
desire to authorize John W. Fredericks and Arthur L. Zande to act as their
attorneys-in-fact and agents, for the purpose of executing and filing a
registration statement on Form S-4, including all amendments thereto,
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John W. Fredericks and Arthur L. Zande, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to sign a Registration Statement on Form S-4
registering shares of the Common Stock of Lakeland Bancorp, Inc. to be issued in
connection with Lakeland's acquisition of Metropolitan State Bank, including any
and all amendments and supplements thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney in
the following capacities on this 10th day of December, 1997.
SIGNATURES TITLE
---------- -----
/s/ARTHUR L. ZANDE Executive Vice President and
------------------ Director (Chief Executive
Arthur L. Zande Officer)
/s/JOHN W. FREDERICKS President and Director
---------------------
John W. Fredericks
/s/ROBERT B. NICHOLSON Chairman and Director
----------------------
Robert B. Nicholson
/s/BRUCE G. BOHUNY Director
------------------
Bruce G. Bohuny
/s/MARY ANN DEACON Director
------------------
Mary Ann Deacon
/s/MARK J. FREDERICKS Director
---------------------
Mark J. Fredericks
<PAGE>
/s/JOHN PIER Director
------------
John Pier
/s/WILLIAM J. ECKHARDT Vice President and Treasurer
---------------------- (Principal Financial and Accounting
William J. Eckhardt Officer)
-2-
PROXY FOR THE SHARES OF METROPOLITAN STATE BANK
A NEW JERSEY BANKING CORPORATION
The undersigned appoints Allan Sedler and Joseph O'Dowd, and each of them,
as the proxy of the undersigned with the power of substitution, to vote and
otherwise represent all the shares of the undersigned at the Special Meeting of
Shareholders of the Corporation on _________, 1998, and at any adjournments of
the meeting, with the same effect as if the undersigned were present and voting
the shares on the following matters and in the following manner:
1. To approve an Agreement and Plan of Reorganization, dated September 16,
1997 with Lakeland Bancorp, Inc. ("Lakeland") providing for the merger of
Metropolitan State Bank with a newly formed subsidiary of Lakeland.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To vote or otherwise represent the shares, in their discretion, on any
other business or on any other matters that may properly come before the meeting
or any adjournments of the meeting according to their decision or according to
the decision of the majority of them.
The shares represented by this proxy will be voted in accordance with the
specifications made. If no specification is made, the shares represented by this
proxy will be voted for proposal 1.
This Proxy is solicited on behalf of the board of directors of Metropolitan
State Bank.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned. If no direction is given, this proxy will be voted as
described above.
The undersigned acknowledges receipt of the notice of the Special Meeting
and Proxy Statement/Prospectus for the Special Meeting.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full coporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Whether or not you plan to attend the Special Meeting, you are urged to
execute, date and return this proxy, which may be revoked at any time prior to
its use.
Signature(s)
----------------------------
Date:
-----------------------
