<PAGE>
As Filed with the Securities and Exchange Commission on June 3, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LAKELAND BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 6712 22-2953275
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
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)
John W. Fredericks
Chairman
Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, New Jersey 07438
(973) 697-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with copies to
Peter H. Ehrenberg, Esq. Joseph Lunin, Esq.
Lowenstein Sandler PC Pitney, Hardin, Kipp & Szuch
65 Livingston Avenue P.O. Box 1945
Roseland, New Jersey 07068 Morristown, New Jersey 07962-1945
(973) 597-2500 (973) 966-6300
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
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. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Maximum
maximum aggregate Amount of
Title of each class of securities to be Amount to be offering price offering price registration
registered registered (1) per unit (2) (2) fee (3)
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<S> <C> <C> <C> <C>
Common Stock, $2.50 par value............. 4,325,073 $15.35 $66,383,820 $18,455
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</TABLE>
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(1) Represents the maximum number of shares of the Registrant's common stock
issuable to High Point Financial Corp. stockholders, excluding the
Registrant, after applying the exchange ratio set forth in the merger
agreement described in this registration statement, plus an indeterminate
number of additional shares of the Registrant's common stock which may be
issuable pursuant to the anti-dilution provision of the merger agreement.
(2) Calculated pursuant to Rule 457(f)(1) and 457(c) promulgated under the
Securities Act of 1933, as amended, and estimated solely for purposes of
calculating the registration fee. The proposed maximum aggregate offering
price is $66,383,820, which equals the average of the high and low prices
of High Point's common stock as reported on Nasdaq on June 1, 1999,
multiplied by the total number of shares of High Point common stock to be
received by the Registrant or cancelled in the merger. The proposed
maximum offering price per unit is equal to the proposed maximum aggregate
offering price divided by the maximum number of shares of the Registrant's
common stock that could be issued in the merger based on an exchange ratio
of 1.2.
(3) Of which $12,795.01 was paid in connection with the filing by the
Registrant on March 9, 1999 of preliminary proxy materials on Schedule 14A
in connection with the proposed merger.
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, as amended, or until this
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
[Lakeland Logo]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
You are invited to attend Lakeland's annual meeting of stockholders on July
14, 1999. At the meeting you will be asked to approve a proposal to merge High
Point Financial Corp. into Lakeland. In the merger:
. outstanding Lakeland shares would not change;
. High Point stockholders would receive 1.2 shares of Lakeland common
stock for each share of High Point common stock they own; and
. High Point stockholders would receive cash instead of fractional shares
of Lakeland common stock.
We expect that High Point stockholders, other than Lakeland, would receive a
total of 4,325,073 shares of Lakeland common stock in the merger. This would
represent 33.6% of Lakeland common stock after the merger.
The value of 1.2 shares of Lakeland common stock was $ , based on the
closing sale price of Lakeland common stock on , 1999. This value will
fluctuate until the merger occurs, even after you vote on the merger. Lakeland
common stock is traded in the over-the-counter market under the symbol "LBAI."
Your vote is very important. Whether or not you plan to attend the annual
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. The annual meeting will be held on July 14, 1999, at 5:00
p.m., at Lakeland's Corporate Headquarters, 250 Oak Ridge Road, Oak Ridge, New
Jersey 07438.
At the meeting, we will also ask you to elect directors and vote on a
proposal to increase the number of authorized shares of Lakeland common stock.
This joint proxy statement/prospectus gives you detailed information about the
proposed merger and the other matters to be voted on at the meeting.
We suggest that you pay special attention to the section entitled "Risk
Factors" beginning on page 13.
I strongly support this strategic combination of Lakeland and High Point,
and I join with the other members of our board of directors in recommending
that you vote in favor of the proposed merger.
/s/ John W. Fredericks
--------------------
John W. Fredericks
Chairman
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this joint proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 1999, and is first being
mailed to High Point and Lakeland stockholders on or about June 9, 1999.
<PAGE>
[High Point Logo]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
You are invited to attend High Point's special meeting of stockholders on
July 14, 1999, at Perona Farms, 350 Andover-Sparta Road (Route 517), Andover,
New Jersey, at 3:00 p.m. At the special meeting you will be asked to vote on a
proposal to approve a merger of High Point Financial Corp. into Lakeland
Bancorp, Inc.
In the merger, High Point stockholders would receive 1.2 shares of
Lakeland's common stock for each share of High Point common stock. Lakeland
common stock trades in the over-the-counter market under the symbol "LBAI."
Based on , 1999 closing prices, 1.2 shares of Lakeland common stock
had a value of $ . This value may fluctuate after you vote depending on
the price of Lakeland's common stock at the time of the merger. Cash would be
paid to High Point stockholders instead of fractional shares.
If the merger is completed, High Point stockholders would own 4,325,073
shares or 33.6% of Lakeland's common stock, assuming that each existing High
Point option is exercised prior to the merger. High Point's subsidiary, The
National Bank of Sussex County, would become a wholly owned subsidiary of
Lakeland.
Based upon an opinion of Lakeland's counsel, High Point stockholders would
not be taxed on the merger, except with respect to any cash received instead of
fractional shares.
We encourage you to read the entire joint proxy statement/prospectus
carefully. Please pay special attention to the section entitled "Risk Factors"
beginning on page 13.
The merger cannot be completed unless the stockholders of both companies
approve it. Each Board of Directors has approved the merger and unanimously
recommends that its stockholders vote FOR the merger.
Your vote is very important, especially because the approval by High Point's
stockholders requires the affirmative vote of the holders of two-thirds of the
High Point common stock outstanding. Whether or not you plan to attend the
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card to us.
/s/ Charles L. Tice /s/ Michael A. Dickerson
------------------- --------------------------
Charles L. Tice Michael A. Dickerson
Chairman of the Board President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this joint proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 1999, and is first being
mailed to High Point and Lakeland stockholders on or about June 9, 1999.
<PAGE>
LAKELAND BANCORP, INC.
250 Oak Ridge Road
Oak Ridge, New Jersey 07438
Notice of Annual Meeting of Stockholders
To be Held July 14, 1999
To the Stockholders of Lakeland Bancorp, Inc.:
The annual meeting of stockholders of Lakeland Bancorp, Inc. will be held at
Lakeland's corporate offices at 250 Oak Ridge Road, Oak Ridge, New Jersey, on
July 14, 1999, at 5:00 p.m., for the following purposes:
. to vote on the proposed merger agreement which provides for the merger
of High Point Financial Corp. into Lakeland;
. to elect four directors for terms of three years;
. to vote on a proposal to amend Lakeland's certificate of incorporation
to increase the number of shares of Lakeland common stock which Lakeland
is authorized to issue from 14,806,718 shares to 40,000,000 shares and
to eliminate the stock's par value; and
. to conduct other business if properly raised.
Only stockholders of record on June 7, 1999 are entitled to receive notice
of, and to vote at, the annual meeting.
Information regarding the merger, the election of directors and the
amendment to the certificate of incorporation is contained in the accompanying
joint proxy statement/prospectus and its annexes.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
envelope. It is important that your interests be represented at the meeting.
By order of the Board of Directors,
Bruce G. Bohuny
Secretary
Oak Ridge, New Jersey
, 1999
<PAGE>
HIGH POINT FINANCIAL CORP.
P.O. Box 460
Branchville Square
Branchville, New Jersey 07826
Notice of Special Meeting of Stockholders
To be Held July 14, 1999
To the Stockholders of High Point Financial Corp.:
A special meeting of stockholders of High Point Financial Corp. will be
held at Perona Farms, 350 Andover-Sparta Road (Route 517), Andover, New
Jersey, on July 14, 1999 at 3:00 p.m., for the following purposes:
. to vote on the proposed merger agreement which provides for the merger
of High Point into Lakeland Bancorp, Inc.;
. to adjourn the special meeting, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the time of
the special meeting to approve the merger agreement; and
. to conduct other business if properly raised.
Only stockholders of record on June 7, 1999 are entitled to notice of, and
to vote at, the special meeting.
Accompanying this notice is a joint proxy statement/prospectus and its
annexes regarding the merger.
By order of the Board of Directors,
Michael A. Dickerson
President and Chief Executive Officer
Branchville, New Jersey
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY:
The Companies........................................................... 3
We Recommend that You Vote for the Merger............................... 3
High Point's Financial Advisor Considers the Merger Exchange Ratio Fair
to High Point Stockholders............................................. 4
Lakeland's Financial Advisor Considers the Merger Exchange Ratio Fair to
Lakeland Stockholders.................................................. 4
The Meetings............................................................ 4
Vote Required to Approve Merger Agreement............................... 4
The Merger.............................................................. 5
High Point Granted Lakeland a Stock Option to Make the Merger More
Likely to Occur........................................................ 6
The Merger Will be Tax Free to High Point and Lakeland Stockholders..... 6
Differences in the Rights of Stockholders............................... 7
Market Price and Dividend Data.......................................... 7
Summary Historical and Unaudited Pro Forma Financial Information........ 8
Comparative Per Share Data.............................................. 12
RISK FACTORS:
High Point Stockholders Will Not Know The Value Of The Shares They Will
Receive Until The Merger Is Completed.................................. 13
If We Do Not Successfully Integrate Our Businesses, The Combined Company
May Be Adversely Affected.............................................. 13
The Expected Benefits Of The Merger May Not Be Realized If We Do Not
Achieve Certain Cost Savings And Other Benefits........................ 13
If Our Systems Experience Interruption Due To Year 2000 Problems, Our
Business And Financial Results May Be Adversely Affected............... 13
Since Lakeland's Stock Is Not Actively Traded, Stockholders May Be
Unable To Sell Their Shares............................................ 13
If We Lack Sufficient Quality Commercial Loan Demand, The Combined
Company May Be Adversely Affected...................................... 14
High Point Officers And Directors May Have Conflicts Of Interest And
Will Receive Benefits In The Merger That Other High Point Stockholders
Will Not Receive....................................................... 14
A WARNING ABOUT FORWARD-LOOKING STATEMENTS................................ 15
THE MEETINGS:
General................................................................. 16
Matters to be Considered at the Meetings................................ 16
Record Date; Quorum; Vote Required; Voting at the Meetings.............. 16
Voting of Proxies....................................................... 17
Solicitation of Proxies................................................. 18
Principal Stockholders.................................................. 18
Appraisal Rights........................................................ 21
THE MERGER:
Background of the Merger................................................ 22
Reasons for the Merger; Recommendations of the Boards of Directors...... 24
Opinion of High Point's Financial Advisor............................... 27
Opinion of Lakeland's Financial Advisor................................. 31
Estimates of Cost Savings............................................... 36
Estimates of Future Operations.......................................... 37
Financial Interests of High Point Directors and Officers in the Merger.. 38
</TABLE>
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<TABLE>
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Page
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Accounting Treatment..................................................... 41
Regulatory Approvals..................................................... 42
Federal Securities Law Consequences...................................... 42
THE MERGER AGREEMENT:
The Merger............................................................... 43
Merger Consideration; Conversion of Securities........................... 43
Exchange Procedures...................................................... 43
Representations and Warranties........................................... 43
Covenants................................................................ 44
Pooling of Interests..................................................... 46
Acquisition Proposals and Termination Right.............................. 46
Conditions............................................................... 47
Stock Options............................................................ 48
Operations of NBSC After the Merger...................................... 49
High Point and Lakeland Dividend Reinvestment Plans...................... 49
Termination.............................................................. 49
Effect of Termination.................................................... 50
Amendment and Waiver..................................................... 50
Fees and Expenses........................................................ 50
THE STOCK OPTION AGREEMENT................................................. 51
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.............................. 52
THE COMPANIES:
High Point............................................................... 53
Lakeland................................................................. 53
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............... 85
COMPARISON OF STOCKHOLDER RIGHTS:
Authorized Preferred Stock............................................... 92
Directors................................................................ 92
Removal of Directors..................................................... 92
Stockholder Vote on Mergers; Business Combinations....................... 92
DESCRIPTION OF LAKELAND'S CAPITAL STOCK.................................... 93
ELECTION OF DIRECTORS...................................................... 94
PROPOSED AMENDMENT TO LAKELAND'S CERTIFICATE OF INCORPORATION.............. 105
OTHER ACTION TO BE TAKEN AT THE HIGH POINT SPECIAL MEETING................. 106
LEGAL MATTERS.............................................................. 106
EXPERTS.................................................................... 106
OTHER MATTERS.............................................................. 107
STOCKHOLDER PROPOSALS...................................................... 107
WHERE YOU CAN FIND MORE INFORMATION........................................ 107
LAKELAND CONSOLIDATED FINANCIAL STATEMENTS................................. F-1
ANNEXES:
Agreement and Plan of Merger............................................. A-1
Opinion of Capital Consultants of Princeton, Inc......................... B-1
Opinion of Ryan, Beck & Co., Inc......................................... C-1
Stock Option Agreement................................................... D-1
Proposed Amendment to Lakeland's Certificate of Incorporation............ E-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are High Point and Lakeland merging?
A: Both companies believe that by merging we can create a company which can
provide expanded services while retaining a community banking focus. We
expect the combined company to provide significant benefits to our
stockholders and our customers.
Q: Are there risks that I should consider?
A: Yes. There are risks associated with all business combinations,
including the merger. These risks, described more fully beginning on page
13, include:
. The number of shares to be issued to High Point's stockholders is fixed.
Accordingly, reductions in the market price of Lakeland common stock
prior to the merger will reduce the value of the shares to be issued to
High Point's stockholders. Similarly, increases in the market price of
Lakeland common stock will increase the value of the shares to be issued
in the merger; and
. We may not realize the benefits we expect from the merger to the extent
that, or as promptly as, we currently anticipate.
You should review the section of this joint proxy statement/prospectus
entitled "Risk Factors" with particular care.
Q: What will High Point stockholders receive for their High Point shares?
A: You will receive 1.2 shares of Lakeland common stock for each share of
High Point common stock that you own when the merger is completed. You will
also receive cash instead of any fractional shares. For example, a holder
of 101 shares of High Point common stock will receive 121 shares of
Lakeland common stock, plus a cash payment for the 0.2 fractional share.
The cash payment will represent the value of the fractional share based
upon the average closing bid prices of Lakeland common stock during a
specified period shortly before the merger occurs. Overall, we expect that
the current stockholders of High Point, other than Lakeland, will receive a
total of 4,325,073 shares of Lakeland common stock in the merger. This will
represent 33.6% of the shares of Lakeland common stock outstanding
immediately after the merger.
Q: What happens as the market price of Lakeland common stock and High Point
common stock fluctuates between now and completion of the merger?
A: Fluctuations in the market price of Lakeland common stock will affect
the value of the stock received by High Point's stockholders in the merger.
High Point stockholders will not know at the time they vote on the merger
the exact value of the Lakeland shares that they will receive. Fluctuations
in the market price of Lakeland common stock and High Point common stock
will not affect the number of shares that will be received by High Point
stockholders. This number is fixed at 1.2 shares of Lakeland common stock
for each share of High Point common stock.
Q: What do I need to do now?
A: After carefully reviewing this joint proxy statement/prospectus, just
mail your completed, signed and dated proxy card in the enclosed return
envelope as soon as possible.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, we will send High Point stockholders
written instructions for exchanging their share certificates. Lakeland
stockholders will keep their existing certificates.
1
<PAGE>
Q: Will dividends be paid on Lakeland common stock after the merger?
A: Yes, Lakeland currently expects to pay quarterly cash dividends after
the merger. The payment of dividends by Lakeland in the future, however,
will depend on Lakeland's future earnings, financial condition, capital
requirements and other factors. Lakeland's current quarterly cash dividend
is $0.075 per share.
Q:When do you expect to complete the merger?
A: We currently expect to complete the merger during the third quarter of
1999, once all the conditions to the merger are fulfilled.
Q:If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on
how to vote your shares. Without instructions, your broker will not vote
your shares. You should instruct your broker to vote your shares, following
the directions provided by your broker.
Q:May I change my vote even after returning a proxy card?
A: Yes. You may change your vote at any time before your stockholder
meeting by sending to the Secretary of your company either a written notice
saying that you are revoking your proxy or a later-dated proxy card showing
your new vote. In addition, you can attend your stockholder meeting in
person and vote your shares yourself provided you notify the Secretary of
your company at the meeting.
High Point stockholders who require assistance in changing or revoking a
proxy should contact Rita A. Myers, High Point's Comptroller, by writing
Ms. Myers c/o High Point Financial Corp., P.O. Box 460, Branchville, New
Jersey 07826 or calling Ms. Myers at 973-948-3300.
Lakeland stockholders who require assistance in changing or revoking a
proxy should contact Bruce G. Bohuny, Lakeland's Secretary, by writing Mr.
Bohuny c/o Lakeland Bancorp, 250 Oak Ridge Road, Oak Ridge, New Jersey
07438 or calling Mr. Bohuny at 973-697-2000.
Q:Will High Point stockholders be taxed on the merger?
A: No. We believe that for U.S. federal income tax purposes High Point
stockholders will not have taxable gain or loss on the exchange of High
Point common stock for Lakeland common stock, except with respect to any
cash received instead of fractional shares of Lakeland common stock. Our
belief is based upon a tax opinion from Lakeland's counsel.
Nevertheless, the tax consequences of the merger will depend on your
individual circumstances and may differ from those explained here. You
should consult with your own tax advisor to ascertain the tax consequences
the merger will have for you.
Q: If I have any more questions about the companies and the merger, where can I
find answers?
A: You can find more information about our companies and the merger in this
joint proxy statement/prospectus and in our companies' filings with the
SEC. See "Where You Can Find More Information" on page .
2
<PAGE>
SUMMARY
This summary highlights selected information from this joint proxy
statement/ prospectus and the documents incorporated by reference in this joint
proxy statement/prospectus. This summary does not contain all of the
information that is important to you. To fully understand the merger and the
other matters to be presented at the High Point and Lakeland stockholders
meetings, you should carefully read this entire joint proxy
statement/prospectus and the other documents to which we refer you. For more
information about our two companies, see "Where You Can Find More Information"
(page ).
On October 15, 1997, Lakeland paid a 5% stock dividend to stockholders of
record on October 1, 1997. On October 1, 1998, Lakeland declared and
distributed a 2 for 1 stock split in the form of a 100% stock dividend to
stockholders of record on September 15, 1998. All share and per share data
concerning Lakeland common stock contained in this joint proxy
statement/prospectus have been retroactively adjusted to reflect all stock
dividends and splits paid by Lakeland through the date of this joint proxy
statement/prospectus, as though the payment of these dividends occurred prior
to the date to which the information relates.
The Companies
High Point Financial Corp. (See page )
P.O. Box 460
Branchville Square
Branchville, New Jersey 07826
(973) 948-3300
High Point Financial Corp. is a bank holding company with one bank
subsidiary, The National Bank of Sussex County (NBSC). NBSC is a full service
commercial bank that operates nine branches, an operations center and an
administration center within Sussex County, New Jersey. At March 31, 1999, High
Point and its subsidiaries had assets of $269.2 million, deposits of $228.8
million and stockholders' equity of $24.5 million. At December 31, 1998, High
Point and its subsidiaries had $259.0 million in assets, deposits of $222.9
million and stockholders' equity of $24.3 million.
Lakeland Bancorp, Inc. (See page )
250 Oak Ridge Road
Oak Ridge, New Jersey 07438
(973) 697-2000
Lakeland is a bank holding company whose principal operating subsidiaries
are Lakeland Bank and Metropolitan State Bank, both of which are New Jersey-
chartered commercial banks. Both banks are full service commercial banks which
offer a wide range of consumer and commercial services from 18 branches in
Morris, Passaic, Sussex, Essex and Bergen counties in New Jersey. At March 31,
1999, Lakeland and its subsidiaries had assets of $556.3 million, deposits of
$496.8 million and stockholders' equity of $53.9 million. At December 31, 1998,
Lakeland and its subsidiaries had assets of $548.6 million, deposits of $488.9
million and stockholders' equity of $53.3 million.
We Recommend that You Vote for the Merger (See page )
High Point Stockholders. The Board of Directors of High Point believes that
the merger is fair to you and in your best interests and recommends that you
vote FOR the merger.
Lakeland Stockholders. The Board of Directors of Lakeland believes that the
merger is fair to and in the best interests of Lakeland and recommends that you
vote FOR the merger.
3
<PAGE>
High Point's Financial Advisor Considers the Merger Exchange Ratio Fair to
High Point Stockholders (See page 27)
Capital Consultants of Princeton, Inc., High Point's financial advisor,
delivered an opinion to the High Point Board of Directors stating that, as of
the date of this joint proxy statement/prospectus, the exchange ratio in the
merger is fair to High Point's stockholders from a financial point of view. We
have attached this opinion as annex B to this joint proxy
statement/prospectus. You should read this opinion completely to understand
the assumptions made, matters considered and limitations of Capital
Consultant's review.
Lakeland's Financial Advisor Considers the Merger Exchange Ratio Fair to
Lakeland Stockholders (See page 31)
Ryan, Beck & Co., Inc., Lakeland's financial advisor, delivered an opinion
to the Lakeland Board of Directors stating that, as of the date of this joint
proxy statement/prospectus, the exchange ratio in the merger is fair from a
financial point of view to Lakeland's stockholders. We have attached this
opinion as annex C to this joint proxy statement/prospectus. You should read
this opinion completely to understand the assumptions made, matters considered
and limitations of Ryan, Beck's review.
The Meetings (See page 16)
High Point Stockholders. At the High Point special meeting, stockholders of
High Point will be asked:
. to approve the merger agreement with Lakeland;
. to adjourn the special meeting to permit further solicitation of proxies
if there are not sufficient votes at the time of the special meeting to
approve the merger agreement; and
. to conduct other business if properly raised.
Lakeland Stockholders. At the Lakeland annual meeting, stockholders of
Lakeland will be asked:
. to approve the merger agreement with High Point;
. to elect four nominees to the Board of Directors of Lakeland for terms
of three years;
. to approve an amendment to Lakeland's certificate of incorporation
increasing the number of authorized shares of Lakeland common stock from
14,806,718 to 40,000,000 and eliminating par value; and
. to conduct other business if properly raised.
Vote Required to Approve Merger Agreement (See page 16)
High Point Stockholders. The holders of two-thirds of the outstanding
shares of High Point common stock must vote in favor of the merger agreement
to approve it. shares of High Point common stock were outstanding at the
close of business on June 7, 1999. Those shares are entitled to vote at the
High Point special meeting.
On the record date, directors and executive officers of High Point and
their affiliates owned shares or % of the outstanding High Point common
stock. On the record date, Lakeland owned 344,252 or 9.0% of the outstanding
shares of High Point common stock. In addition, certain affiliates of Lakeland
owned an additional 24,852 shares, or .65% of the outstanding shares of High
Point common stock.
Lakeland Stockholders. The holders of a majority of the shares voted at the
Lakeland annual meeting must vote in favor of the merger agreement to approve
it. shares of Lakeland common stock were outstanding at the close of
business on June 7, 1999. Those shares are entitled to vote at the Lakeland
annual meeting.
4
<PAGE>
On the record date, directors and executive officers of Lakeland and their
affiliates owned shares or % of the outstanding Lakeland common stock.
The Merger (See page 22)
We have attached the merger agreement as annex A to this joint proxy
statement/prospectus. Please read the merger agreement. The merger agreement is
the legal document that governs the merger.
High Point Stockholders Will Receive 1.2 Shares of Lakeland Common Stock
(See page )
Each of your shares of High Point common stock will automatically become
exchangeable for 1.2 shares of Lakeland common stock. Lakeland will not issue
fractional shares. Instead, you will receive the value of any fractional share
in cash, based on the average closing bid prices of Lakeland common stock
during a period shortly before the merger is completed. Lakeland will issue
approximately 4,325,073 shares of Lakeland common stock to High Point
stockholders in the merger. This will represent approximately 33.6% of the
outstanding Lakeland common stock after the merger.
Because the number of shares of Lakeland common stock that you will receive
in the merger is based on a fixed exchange ratio of 1.2, the value of the
shares that you will receive will fluctuate as the market price of Lakeland
common stock changes. Accordingly, the value of the Lakeland shares received by
the High Point stockholders will not be known until the merger is completed.
Lakeland common stock is quoted on the over-the-counter bulletin board and High
Point common stock is listed on the Nasdaq National Market System. On December
4, 1998, the last trading day before we announced the merger, the closing sale
price of Lakeland common stock was $15.50 and the closing sale price of High
Point common stock was $13.375. On June , 1999, the closing sale price of
Lakeland common stock was $ and the closing sale price of High Point common
stock was $ . Based on the 1.2 exchange ratio, the market value of the
consideration that High Point stockholders will receive for each share of High
Point stock would be $18.60 based on the closing sale price of a share of
Lakeland common stock on December 4, 1998 and would be $ based on the
closing sale price of Lakeland common stock on June , 1999. You should obtain
current stock price quotations for Lakeland and High Point common stock. These
quotations are available from your stock broker, in certain newspapers and on
the Internet.
How to Exchange Shares (See page )
High Point Stockholders. Following the merger, Lakeland's exchange agent
will ask you to exchange your shares of High Point common stock for shares of
Lakeland common stock by sending in your High Point stock certificates and a
form that the exchange agent will send you.
Lakeland Stockholders. You will not have to exchange your shares because
each outstanding share of Lakeland common stock will remain the same.
High Point Stock Options Will Become Fully Vested (See page )
When we complete the merger, stock options to purchase High Point common
stock granted under High Point's stock option plans that are outstanding and
not yet exercised will become fully vested options to purchase shares of
Lakeland common stock. The stock options will have the same value immediately
before and immediately after the merger and will continue to be governed by the
terms of the original High Point options.
Management and Operations After the Merger (See page )
After the merger, the Lakeland Board of Directors will continue to manage
the business of Lakeland, which will then include the business of NBSC as a
wholly owned subsidiary. After the merger, NBSC will operate as a wholly owned
subsidiary of Lakeland for a period of two years. Initially, the directors and
executive officers of NBSC will remain in their positions after the merger.
Thereafter, Lakeland anticipates that NBSC will be merged into one of its other
bank subsidiaries.
5
<PAGE>
We May Agree to Terminate the Merger (See page )
We can agree at any time to terminate the merger, even if the stockholders
of both of our companies have approved it.
Financial Interests of High Point Directors and Officers in the Merger that
are Different From Your Interests (See page )
Some of High Point's directors and officers have financial interests in the
merger that are different from, or in addition to, their interests as
stockholders of High Point. The members of our Boards of Directors knew about
these additional interests, and considered them, when we approved the merger.
These financial interests include:
. While Lakeland has made no employment commitments or arrangements with
any High Point or NBSC employees, we expect that the current directors
and officers of NBSC will remain in those positions after the merger
while NBSC is a separate subsidiary of Lakeland. The aggregate annual
compensation of NBSC directors and officers in 1998 was $690,900;
. Both Michael A. Dickerson and Robert A. Vandenbergh have change in
control agreements with High Point which entitle them to $608,074 and
$301,185, respectively, if they terminate their employment within six
months of the merger; and
. Both Mr. Dickerson and Mr. Vandenbergh have salary continuation
agreements with NBSC which entitle them to $722,000 and $381,000,
respectively, upon their retirement.
Stockholders Will Not Have Appraisal Rights (See page 21)
Under New Jersey law, stockholders of High Point and Lakeland will not have
dissenters' or appraisal rights with respect to the merger.
High Point Granted Lakeland a Stock Option to Make the Merger More Likely to
Occur (See page )
Lakeland required High Point to enter into a stock option agreement to
provide High Point with an incentive to complete the merger and to deter other
parties from making a competing offer. Lakeland believes that the stock option
agreement will make the merger more likely to occur. The option grants Lakeland
the right to purchase up to 772,243 shares of High Point common stock at a
price of $13.25 per share if the merger is terminated following certain events.
If Lakeland were to exercise the option in full it would beneficially own,
including the shares of High Point stock it currently owns, 24.9% of the High
Point common stock then outstanding. The full text of the stock option
agreement is set forth in annex D.
The Merger Will Be Tax Free To High Point and Lakeland Stockholders (See page
)
High Point Stockholders. We believe that, for U.S. federal income tax
purposes, your exchange of shares of High Point common stock for shares of
Lakeland common stock generally will not cause you to recognize any gain or
loss. You will, however, have to recognize income or gain for any cash received
instead of fractional shares. Our belief is based on an opinion from Lakeland's
counsel, Lowenstein Sandler PC, that the U.S. federal income tax treatment will
be as we have described it in this joint proxy statement/prospectus. We have
conditioned the merger on the receipt of this legal opinion. If we waive the
tax opinion condition, then we will resolicit you and Lakeland's stockholders
to approve the merger. This opinion will not bind the Internal Revenue Service,
which could take a different view. The opinion has been filed as an exhibit to
the registration statement of which this joint proxy statement/prospectus forms
a part.
Lakeland Stockholders. Since shares of Lakeland common stock remain
unchanged, the merger will not cause you to recognize any gain or loss for
purposes of the U.S. federal income tax.
6
<PAGE>
Differences in the Rights of Stockholders (See page )
Both Lakeland and High Point are incorporated in New Jersey. The rights of
High Point's stockholders are currently governed by High Point's certificate of
incorporation and bylaws. The rights of Lakeland's stockholders are governed by
Lakeland's certificate of incorporation and bylaws. After the merger,
stockholders of Lakeland and stockholders of High Point will both be
stockholders of Lakeland, and your rights will be governed by Lakeland's
certificate of incorporation and bylaws. There are several material differences
between the rights of High Point and Lakeland stockholders, including:
. High Point's certificate of incorporation imposes certain age
limitations on directors; Lakeland's certificate of incorporation has no
age limitations; and
. High Point's certificate of incorporation requires the approval of
holders of two-thirds of its shares for a merger or sale of its assets;
Lakeland's certificate of incorporation requires only the approval of
holders of a majority of the shares voted for the transaction.
Market Price and Dividend Data
Lakeland common stock is traded on the over-the-counter bulletin board under
the symbol "LBAI." High Point common stock is traded on the Nasdaq National
Market System under the symbol "HPFC." The following table sets forth the high
and low closing sale prices of Lakeland and High Point common stock as reported
by their respective markets. In addition, the table includes the per share
dividends paid on Lakeland and High Point common stock for the previous ten
quarters.
<TABLE>
<CAPTION>
Lakeland High Point
----------------------- ----------------------
High Low Dividends High Low Dividends
Calendar year ------ ------ --------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
1997:
Quarter ended March 31......... $12.62 $11.67 $.057 $10.88 $8.63 $--
Quarter ended June 30.......... 13.33 11.67 .057 10.63 9.63 --
Quarter ended September 30..... 13.51 12.38 .060 11.38 9.63 --
Quarter ended December 31...... 15.00 13.50 .060 13.13 10.88 --
1998:
Quarter ended March 31......... 16.00 13.75 .063 14.00 11.69 --
Quarter ended June 30.......... 15.75 14.25 .075 14.13 12.50 --
Quarter ended September 30..... 16.00 14.50 .075 13.50 10.00 .02
Quarter ended December 31...... 17.25 14.25 .075 17.00 10.88 .02
1999:
Quarter ended March 31......... 20.00 16.00 .075 18.75 16.50 .02
Quarter ending June 30 (through
June , 1999)................
</TABLE>
As of December 31, 1998, Lakeland had 2,531 holders of record and High Point
had 1,592 holders of record.
The following table sets forth the closing sale price of Lakeland common
stock, the closing sale price of High Point common stock and the equivalent
price per High Point common share on
. December 4, 1998, the last business day preceding public announcement of
the merger, and
. June , 1999, a date shortly prior to the mailing of this joint proxy
statement/prospectus:
<TABLE>
<CAPTION>
Equivalent
Price Per
Lakeland High Point High Point
Common Stock Common Stock Common Share
------------ ------------ ------------
<S> <C> <C> <C>
December 4, 1998......................... $15.50 $13.375 $18.60
June , 1999.............................
</TABLE>
7
<PAGE>
The equivalent price per High Point common share at each date represents the
closing sale price of a share of Lakeland common stock multiplied by the
exchange ratio of 1.2.
High Point stockholders should obtain current market quotations for Lakeland
and High Point common stock.
Lakeland has agreed to consider listing its common stock on Nasdaq following
the merger.
Lakeland currently anticipates that it will continue to pay quarterly cash
dividends after the merger. However, the Lakeland Board of Directors has
discretion to decide whether or not Lakeland will pay any dividends and, if so,
the timing and amount of any future dividends. This decision will depend on
Lakeland's future earnings, financial condition, capital requirements and other
factors.
High Point agreed that until the merger is completed or the merger agreement
is terminated, it will not make, declare or pay any dividend or distribution on
High Point common stock other than regular quarterly dividends of $.02 per
share with record and payment dates consistent with past practice.
Summary Historical and Unaudited Pro Forma Financial Information
Summary Historical Financial Information
High Point Summary Historical Financial Information. High Point's summary
historical financial information is based on its Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, its Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1999, and other financial information
incorporated by reference in this joint proxy statement/prospectus. A copy of
High Point's Annual Report on Form 10-K and Quarterly Report on Form 10-Q is
being mailed with this joint proxy statement/prospectus. You should read this
financial information in conjunction with the information in those High Point
reports and the other information incorporated by reference in this joint proxy
statement/prospectus. See "Where You Can Find More Information."
8
<PAGE>
<TABLE>
<CAPTION>
As of and for the
three months
ended March 31, As of and for the Years Ended December 31,
------------------ ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands except for per share and ratio information)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected balance sheet
data:
Securities, including
those available for
sale.................. $ 86,638 $ 72,312 $ 77,383 $ 77,620 $ 76,242 $ 64,696 $ 54,231
Short-term
investments(1)........ 19,605 16,200 17,825 11,200 4,148 11,275 7,424
Loans including those
available for
sale(2)............... 139,004 132,809 138,558 126,810 114,819 105,461 105,983
Allowance for possible
loan losses(2)........ 4,071 4,156 4,087 4,120 3,973 4,609 5,234
Assets................. 269,153 239,992 259,001 236,328 217,182 200,184 184,641
Deposits............... 228,840 201,399 222,930 198,430 188,854 178,325 165,572
Note payable........... -- -- -- -- 846 1,270 1,482
Redeemable
subordinated
debentures............ -- -- -- -- 127 511 510
Employee Stock
Ownership Plan debt... -- -- -- -- -- -- 150
Stockholders' equity... 24,471 22,907 24,280 22,343 19,977 14,558 11,963
Selected operating data:
Interest income........ $ 4,209 $ 4,205 $ 17,294 $ 16,519 $ 14,429 $ 13,653 $ 12,017
Interest expense....... 1,704 1,688 6,867 6,325 5,758 5,550 4,492
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 2,505 2,517 10,427 10,194 8,671 8,103 7,525
Provision for possible
loan losses(2)........ -- -- -- -- -- 225 1,327
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
possible loan
losses................ 2,505 2,517 10,427 10,194 8,671 7,878 6,198
Non-interest income.... 669 694 2,608 2,938 2,552 2,420 2,220
Non-interest
expenses(2)........... 2,495 2,350 9,281 9,241 9,097 9,472 9,630
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision (benefit)
for income taxes and
cumulative effect for
change in accounting
principle............. 679 861 3,754 3,891 2,126 826 (1,212)
Provision (benefit)
for income taxes...... 255 347 1,508 1,586 (2,681) (249) (97)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect for
change in accounting
principle............. 424 514 2,246 2,305 4,807 1,075 (1,115)
Cumulative effect of
change in accounting
principle............. -- -- -- -- -- (370) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 424 $ 514 $ 2,246 $ 2,305 $ 4,807 $ 705 $ (1,115)
-------- -------- -------- -------- -------- -------- --------
Average number of
shares outstanding:
Basic................ 3,811 3,786 3,798 3,786 3,779 3,746 3,066
Diluted.............. 3,873 3,871 3,848 3,852 3,787 3,746 3,066
Net income (loss)
before cumulative
effect for change in
accounting
principle............. $ 0.11 $ 0.14 $ 0.59 $ 0.61 $ 1.27 $ 0.29 $ (0.36)
Cumulative effect of
change in accounting
principle............. -- -- -- -- -- (0.10) --
-------- -------- -------- -------- -------- -------- --------
Basic earnings (loss)
per share............. $ 0.11 $ 0.14 $ 0.59 $ 0.61 $ 1.27 $ 0.19 $ ( 0.36)
-------- -------- -------- -------- -------- -------- --------
Diluted earnings
(loss) per share...... $ 0.11 $ 0.13 $ 0.58 $ 0.60 $ 1.27 $ 0.19 $ ( 0.36)
-------- -------- -------- -------- -------- -------- --------
Other selected data:
Return on average
assets(6)............. 0.65% 0.86% 0.90% 1.00% 2.31% 0.37% (0.61%)
Return on average
equity(6)............. 6.92 9.00 9.53 10.91 28.52 5.26 (9.72)
Average stockholders'
equity to average
assets................ 9.35 9.52 9.45 9.17 8.09 7.02 6.32
Net interest
spread(6)............. 3.54 3.81 3.82 4.07 3.66 3.82 3.92
Net interest
margin(6)............. 4.23 4.59 4.59 4.85 4.49 4.61 4.55
Efficiency ratio(3).... 78.61 73.19 71.20 70.37 81.06 90.01 98.82
Cash dividend per
share................. $ 0.02 $ -- $ 0.04 $ -- $ -- $ -- $ --
Dividend payout
ratio................. 18.18% -- % 6.76% -- % -- % -- % -- %
Non-performing loans
to total loans(4)..... 1.52 2.59 1.77 2.57 3.80 6.47 12.20
Non-performing assets
to total loans plus
other real
estate(5)............. 1.99 3.40 2.42 3.42 4.74 8.80 15.82
Allowance for possible
loan losses/non-
performing loans(4)... 192.21 120.85 167.50 126.38 91.23 67.94 40.61
Allowance for possible
loan losses/total
loans................. 2.93 3.13 2.97 3.25 3.47 4.40 4.96
Net charge-offs to
average loans,
net(6)................ 0.04 (0.11) 0.02 (0.12) 0.59 0.82 1.37
</TABLE>
- --------
(1) Short-term investments are federal funds sold and an interest bearing
account at another financial institution.
(2) The information for 1994 has been restated per the requirements of SFAS No.
114 which was adopted by High Point effective January 1, 1995.
(3) The efficiency ratio is non-interest expense as a percent of net interest
income plus non-interest income.
(4) Non-performing loans include loans past due 90 days or more, non-accrual
loans, and restructured loans.
(5) Non-performing assets include non-performing loans plus other real estate
owned.
(6) Interim ratios have been annualized for purposes of comparability with year
end data.
9
<PAGE>
Lakeland Summary Historical Financial Information. Lakeland's summary
historical financial information is based on its Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, its Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1999, and other Lakeland financial
information. You should read this financial information in conjunction with the
information in those Lakeland reports. See "Where You Can Find More
Information."
<TABLE>
<CAPTION>
As of and for
the three
months ended
March 31, As of and for the Years Ended December 31,
------------------ ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands except for per share and ratio information)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected balance sheet
data:
Investment securi-
ties(1)............... $192,023 $150,647 $184,150 $159,343 $140,882 $143,507 $147,205
Short-term invest-
ments(2).............. 10,939 23,578 11,079 12,827 9,900 27,175 2,825
Loans.................. 316,117 291,133 311,493 291,145 268,546 232,064 219,520
Allowance for possible
loan losses........... 3,943 3,974 3,897 4,142 3,585 3,470 3,547
Total assets........... 556,339 506,583 548,557 507,725 457,717 437,079 401,768
Deposits............... 496,814 451,758 488,881 453,471 409,710 391,996 364,121
Stockholders' equity... $ 53,903 $ 49,915 $ 53,314 $ 48,662 $ 43,579 $ 38,600 $ 32,215
Selected operating data:
Interest income........ $ 8,928 $ 8,608 $ 34,935 $ 33,405 $ 30,731 $ 28,956 26,697
Interest expense....... 3,388 3,227 13,009 12,925 11,787 11,244 9,296
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 5,540 5,381 21,926 20,480 18,944 17,712 17,401
Provision for loan
losses................ 105 49 698 1,026 908 357 571
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses........... 5,435 5,332 21,228 19,454 18,036 17,355 16,830
Other income........... 732 775 3,165 3,023 2,671 2,434 2,225
Other expenses......... 4,130 4,057 15,752 14,508 12,692 12,201 11,565
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 2,037 2,050 8,641 7,969 8,015 7,588 7,490
Income taxes........... 612 685 2,916 2,648 2,665 2,351 2,232
======== ======== ======== ======== ======== ======== ========
Net income............. $ 1,425 $ 1,365 $ 5,725 $ 5,321 $ 5,350 $ 5,237 $ 5,258
======== ======== ======== ======== ======== ======== ========
Weighted average com-
mon shares outstand-
ing(3)
Basic................ 8,502 8,488 8,493 8,405 8,304 8,187 8,010
Diluted.............. 8,502 8,488 8,493 8,435 8,337 8,220 8,014
Net income per common
share(3)
Basic................ $ 0.17 $ 0.16 $ 0.67 $ 0.63 $ 0.64 $ 0.64 $ 0.66
-------- -------- -------- -------- -------- -------- --------
Diluted.............. $ 0.17 $ 0.16 $ 0.67 $ 0.63 $ 0.64 $ 0.64 $ 0.66
-------- -------- -------- -------- -------- -------- --------
Other selected data:
Return on average as-
sets(5)............... 1.03% 1.08% 1.11% 1.10% 1.22% 1.28% 1.33%
Return on average
stockholders' equi-
ty(5)................. 10.61 11.07 11.28 11.46 13.15 14.91 17.27
Average stockholders'
equity to average as-
sets.................. 9.70 9.76 9.86 9.63 9.29 8.60 7.69
Net interest
spread(5)............. 3.56 3.89 3.78 3.81 3.88 3.88 4.21
Net interest mar-
gin(5)................ 4.35 4.69 4.62 4.61 4.68 4.64 4.73
Efficiency ratio(4).... 65.85 65.90 62.78 61.73 58.72 60.56 58.93
Cash dividend per
share(3).............. $ 0.08 $ 0.06 $ 0.29 $ 0.24 $ 0.21 $ 0.19 $ 0.15
Dividend payout ra-
tio................... 44.17% 39.22% 42.72% 37.36% 31.85% 30.04% 23.16%
Non-performing loans
to total loans........ 1.89 2.00 2.24 1.69 2.46 2.31 2.48
Non-performing assets
to total loans plus
other real estate..... 2.02 1.36 2.57 1.91 2.53 2.71 3.05
Allowance for possible
loan losses/non-per-
forming loans......... 65.82 68.19 55.89 83.91 54.22 64.62 65.24
Allowance for possible
loan losses/total
loans................. 1.25 1.37 1.25 1.42 1.34 1.49 1.62
Net charge-offs to av-
erage loans, net(5)... 0.08 0.28 0.32 0.17 0.32 0.19 0.23
</TABLE>
- --------
(1)Includes securities available for sale and held to maturity.
(2)Comprised of federal funds sold and certificates of deposit.
(3) Weighted average common shares outstanding and per share figures are based
on the weighted average number of shares outstanding during the periods
after giving retroactive effect to a 2 for 1 stock split effected in the
form of a 100% stock dividend distributed on October 1, 1998, a 5% stock
dividend distributed on October 15, 1997, a 2% stock dividend distributed
on December 10, 1996, a 2 for 1 stock split effected in the form of 100%
stock dividend distributed on October 25, 1995, and a 5% stock dividend
distributed on June 30, 1995.
(4)The efficiency ratio is non-interest expense as a percent of net interest
income plus non-interest income.
(5)Interim ratios have been annualized for purposes of comparability with year
end data.
10
<PAGE>
Unaudited Pro Forma Condensed Combined Summary Financial Information
We have included this unaudited pro forma condensed combined summary
information only for the purposes of illustration. It does not necessarily
indicate what the operating results or financial position of the combined
company would have been if the merger had been completed at the dates
indicated. Moreover, this information does not necessarily indicate what the
future operating results or financial position of the combined company will be.
You should read this unaudited pro forma condensed combined summary financial
information in conjunction with the "Unaudited Pro Forma Condensed Combined
Financial Information" included elsewhere in this joint proxy
statement/prospectus. This unaudited pro forma condensed combined summary
financial information does not reflect any adjustments to conform accounting
practices or any cost savings or other synergies which may result from the
merger or any future merger-related expenses. The unaudited pro forma balance
sheet data gives effect to the merger as if it had occurred on March 31, 1999
and December 31, 1998, respectively. The unaudited pro forma results of
operations data gives effect to the merger as if it occurred on January 1,
1999, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
For the Three Months For the Years
Ended March 31, Ended December 31,
--------------------------------- -----------------------
1999 1998 1998 1997 1996
---------------- ---------------- ------- ------- -------
(in thousands except for per share information)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Net interest income..... $ 8,036 $ 7,898 $32,339 $30,674 $27,615
Provision for possible
loan losses............ 105 49 698 1,026 908
Net interest income
after provision for
possible loan losses... 7,931 7,849 31,641 29,648 26,707
Income before income
taxes.................. 2,707 2,911 12,381 11,860 10,141
Net income.............. 1,840 1,879 7,957 7,626 6,296
Net income per common
share--diluted......... $ 0.14 $ 0.15 $ 0.63 $ 0.60 $ 0.50
<CAPTION>
As of As of
March 31, December 31,
---------------- ----------------
1999 1998
---------------- ----------------
(in thousands (in thousands
except per share except per share
amounts) amounts)
<S> <C> <C> <C> <C> <C>
Balance Sheet:
Total assets.......... $819,467 $803,024
Total deposits........ 725,654 711,811
Total shareholders'
equity............... 74,213 73,763
Book value per common
share................ 5.86 5.82
</TABLE>
11
<PAGE>
Comparative Per Share Data
We are providing information concerning earnings, cash dividends declared
and book value per share for High Point and Lakeland on both historical and pro
forma combined bases and on a per share equivalent pro forma basis for High
Point. We have derived the pro forma combined earnings per share from the
"Unaudited Pro Forma Condensed Combined Financial Information" presented
elsewhere in this joint proxy statement/prospectus. Pro forma combined cash
dividends declared per share reflect Lakeland cash dividends per share declared
in the periods indicated. Book value per share for the pro forma combined
presentation is based upon outstanding Lakeland common shares, adjusted to
include the estimated number of shares of Lakeland common stock to be issued in
the merger. The per share equivalent pro forma combined data for shares of High
Point common stock is based on the conversion of each share of High Point
common stock into 1.2 shares of Lakeland common stock based upon the exchange
ratio. See "The Merger Agreement--Merger Consideration; Conversion of
Securities." You should read this information in conjunction with the
respective audited and unaudited financial statements of Lakeland and High
Point accompanying, included and incorporated by reference in this joint proxy
statement/prospectus and the "Unaudited Pro Forma Condensed Combined Financial
Information" presented elsewhere in this joint proxy statement/prospectus. See
"Where You Can Find More Information."
<TABLE>
<CAPTION>
Three months Ended Year Ended
March 31, December 31,
------------------- -----------------
1999 1998 1998 1997 1996
--------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Lakeland--Historical
Earnings per share:
Basic................................. $ .17 $ .16 $ .67 $ .63 $ .64
Diluted............................... .17 .16 .67 .63 .64
Cash dividends declared per share....... .08 .06 .29 .24 .21
Book value per share.................... 6.33 5.87 6.26 5.74 5.16
High Point--Historical
Earnings per share:
Basic................................. $ .11 $ .14 $ .59 $ .61 $1.27
Diluted............................... .11 .13 .58 .60 1.27
Cash dividends declared per share....... .02 -- .04 -- --
Book value per share.................... 6.42 6.05 6.37 5.90 5.28
Lakeland and High Point--Pro Forma
Combined
Earnings per common share
Basic................................. $ .15 $ .15 $ .63 $ .61 $ .51
Diluted............................... .14 .15 .63 .60 .50
Cash dividends declared per share....... .05 .04 .21 .16 .14
Book value per share.................... 5.86 5.56 5.82 5.42 4.89
Equivalent Pro Forma Combined Per Share
of
High Point Common Stock
Earnings per common share:
Basic................................. $ .18 $ .18 $ .76 $ .73 $ .61
Diluted............................... .17 .18 .76 .72 .60
Cash dividends declared per share....... .06 .05 .25 .19 .17
Book value per share.................... 7.03 6.67 6.98 6.50 5.87
</TABLE>
12
<PAGE>
RISK FACTORS
In considering whether to vote in favor of the merger, you should consider
all of the information we have included in this joint proxy
statement/prospectus and its annexes, all of the accompanying information and
all of the information included in the documents we have incorporated by
reference in this joint proxy statement/prospectus. In addition, you should pay
particular attention to the following risk factors related to the merger. These
factors are important, although we have not been able to quantify their
potential effects on the combined company that will result from the merger.
High Point Stockholders Will Not Know The Value Of The Shares They Will Receive
Until The Merger Is Completed
Fluctuations in the market price of Lakeland common stock will affect the
value of the stock received by High Point stockholders. Accordingly, High Point
stockholders will not know at the time they vote on the merger the exact value
of the Lakeland shares that they will receive if the merger is completed. The
price of Lakeland common stock at the time of the merger may be higher or lower
than its price on the date of this joint proxy statement/prospectus or on the
date of the meetings of stockholders. There are many factors which may affect
the price of Lakeland common stock, including changes in, or the market's
assessments of, the business, operations or prospects of either company,
regulatory considerations and general market and economic conditions. Many of
these factors are beyond Lakeland's control. We urge you to obtain current
market quotations for both Lakeland common stock and High Point common stock.
If We Do Not Successfully Integrate Our Businesses, The Combined Company May Be
Adversely Affected
The success of Lakeland following the merger will depend, in part, on its
ability to integrate NBSC into Lakeland, including its ability to centralize
certain administrative functions and eliminate unnecessary duplication of other
functions. No assurance can be given that Lakeland will be able to accomplish
this integration successfully or manage effectively the combined company.
Lakeland has agreed that NBSC will be operated independently of Lakeland's
other subsidiary banks for two years after the merger.
The Expected Benefits Of The Merger May Not be Realized If We Do Not Achieve
Certain Cost Savings And Other Benefits
Our belief that cost savings and revenue enhancements are achievable is a
forward-looking statement that is inherently uncertain. The combined company's
actual cost savings and revenue enhancements, if any, cannot be quantified at
this time. Any actual cost savings or revenue enhancements will depend on
future expense levels and operating results, the timing of certain events and
general industry, regulatory and business conditions. Many of these events will
be beyond the control of the combined company.
If Our Systems Experience Interruption Due to Year 2000 Problems, Our Business
And Financial Results May Be Adversely Affected
Our systems or the systems of our vendors, customers or other third-parties
may encounter difficulties when we approach or reach Year 2000. The
difficulties in integrating the hardware and software systems of our two
companies may be increased by the need to resolve Year 2000 issues at the same
time that integration plans are progressing.
Since Lakeland's Stock Is Not Actively Traded, Stockholders May Be Unable To
Sell Their Shares
Lakeland common stock is not traded on a stock exchange or quoted on Nasdaq
or actively traded by any market makers. Lakeland common stock is traded on the
over-the-counter bulletin board. An active trading market in Lakeland common
stock is not expected to develop. In the absence of an active trading market,
the stockholders of the combined entity may be unable to sell their shares
quickly or efficiently.
13
<PAGE>
If We Lack Sufficient Quality Commercial Loan Demand, The Combined Company May
Be Adversely Affected
Both Lakeland and High Point have experienced periods in which their banking
subsidiaries' capacity and desire to make commercial loans exceeded demand. No
assurances can be given that future demand will be sufficient to take advantage
of the combined company's increased lending capacity.
High Point Officers And Directors May Have Conflicts of Interest And Will
Receive Benefits In The Merger That Other High Point Stockholders Will Not
Receive
The directors and executive officers of High Point may have conflicts of
interest with respect to the merger because they will receive benefits from the
merger that other High Point stockholders will not receive. Both Boards of
Directors considered these interests, together with other relevant factors, in
deciding to recommend that you approve the merger.
14
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
High Point and Lakeland make forward-looking statements in this joint proxy
statement/prospectus and in the public documents to which we refer you. These
forward-looking statements are subject to risks and uncertainties, and there
can be no assurance that such statements will prove to be correct. Forward-
looking statements include:
. statements relating to cost-savings and synergies which may result from
the merger;
. statements relating to integration and other costs estimated to be
incurred in connection with the merger; and
. statements anticipating future performance in the sections entitled "The
Merger--Reasons for the Merger; Recommendations of the Boards of
Directors," "The Merger--Opinion of High Point's Financial Advisor" and
"The Merger--Opinion of Lakeland's Financial Advisor."
Our forward-looking statements are also identified by words such as "believes,"
"expects," "anticipates," "estimates," "plans," "intends," "objectives,"
"goals," "aims" or "projects" or similar words or expressions.
Many possible events or factors could affect the future financial results
and performance of our combined company after the merger. This could cause
actual results or performance to differ materially from those expressed in our
forward-looking statements. We have described the risks and uncertainties that
could materially impact our respective businesses in the public documents to
which we refer you and elsewhere in this joint proxy statement/prospectus. In
addition, we have listed below other risks and uncertainties relating to the
merger, the order of which does not necessarily reflect their relative
significance, which could cause actual results or performance to differ
materially from those expressed in our forward-looking statements:
. costs or difficulties related to the integration of our businesses prove
to be greater than we expected;
. cost savings from the merger are not realized or are not realized within
the expected time frame or additional or unexpected costs are incurred;
. key customer relationships are lost or adversely impacted as a result of
the merger;
. technological changes, including integration and "Year 2000" compliance
issues, are more difficult or expensive than we anticipated; and
. the possibility that our analyses of these risks and forces are
incorrect and/or that the strategies developed to address them will be
unsuccessful.
You should consider these risks and uncertainties when you vote on the
merger. Stockholders of High Point and Lakeland are cautioned not to place
undue reliance on our forward-looking statements, which speak only as of the
date of this joint proxy statement/prospectus or, in the case of documents
accompanying or incorporated by reference in this joint proxy
statement/prospectus, the date of such documents.
All subsequent written and oral forward-looking statements regarding the
merger attributable to High Point or Lakeland or any person acting on their
behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to in this section. Neither High Point nor Lakeland
undertake any obligation to update publicly any forward-looking statements to
reflect events, circumstances or new information after the date of this joint
proxy statement/prospectus or to reflect the occurrence of unanticipated
events.
15
<PAGE>
THE MEETINGS
General
High Point's Board of Directors is using this joint proxy
statement/prospectus to solicit proxies from the stockholders of High Point
for use at the High Point special meeting to be held on July 14, 1999, at
Perona Farms, 350 Andover-Sparta Road (Route 517), Andover, New Jersey,
commencing at 3:00 p.m., and at any adjournment or postponement of the special
meeting.
Lakeland's Board of Directors is also using this joint proxy
statement/prospectus to solicit proxies from the stockholders of Lakeland for
use at the Lakeland annual meeting to be held on July 14, 1999, at Lakeland's
Corporate Headquarters at 250 Oak Ridge Road, Oak Ridge, New Jersey,
commencing at 5:00 p.m., and at any adjournment or postponement of the annual
meeting.
Matters to be Considered at the Meetings
High Point Special Meeting. At the special meeting, High Point's
stockholders will consider and vote on:
. a proposal to approve the merger agreement;
. a proposal for the adjournment of the special meeting to permit further
solicitation of proxies if there are not sufficient votes to approve the
merger agreement; and
. such other business as may properly come before the special meeting.
Lakeland Annual Meeting. At the annual meeting, Lakeland's stockholders
will consider and vote on:
. a proposal to approve the merger agreement;
. a proposal to elect four directors to serve on the Board of Directors of
Lakeland for terms of three years;
. a proposal to amend Lakeland's certificate of incorporation to increase
the number of shares of Lakeland common stock which Lakeland is
authorized to issue from 14,806,718 shares to 40,000,000 shares and to
eliminate the stock's par value; and
. such other business as may properly come before the annual meeting.
Record Date; Quorum; Vote Required; Voting at the Meetings
High Point. The High Point Board of Directors has fixed June 7, 1999 as the
record date for determination of High Point's stockholders entitled to notice
of and to vote at the special meeting. Each holder of record of High Point
common stock on the record date is entitled to cast one vote per share at the
special meeting. On the record date there were shares of High Point
common stock outstanding and entitled to vote.
The presence at the special meeting, either in person or by proxy, of the
holders of a majority of the outstanding High Point common stock entitled to
vote at the special meeting constitutes a quorum. Assuming a quorum is
present, the affirmative vote of holders of two-thirds of the outstanding
shares of High Point common stock entitled to vote is required to approve the
merger. The affirmative vote of holders of a majority of the shares of High
Point common stock voted at the special meeting is required to approve the
adjournment proposal.
As of the record date, the directors and executive officers of High Point
beneficially owned or % of the outstanding shares of High Point common
stock. In addition, Lakeland beneficially owned 344,252 or 9.0% of the
outstanding shares of High Point common stock and Lakeland's directors and
executive officers and other affiliates beneficially owned an additional
24,852 or .65% of the outstanding shares of High Point common stock. High
Point's directors and executive officers, Lakeland, and the Lakeland executive
officers, directors, and affiliates have advised High Point that they intend
to vote their shares in favor of the merger.
16
<PAGE>
Lakeland. The Lakeland Board of Directors has fixed June 7, 1999 as the
record date for determination of Lakeland's stockholders entitled to notice of
and to vote at the annual meeting. Each holder of record of Lakeland common
stock on the record date is entitled to cast one vote per share at the annual
meeting. On the record date there were shares of Lakeland common stock
outstanding and entitled to vote.
The presence at the annual meeting, either in person or by proxy, of the
holders of a majority of the outstanding Lakeland common stock entitled to vote
at the annual meeting constitutes a quorum. Assuming a quorum is present, the
affirmative vote of holders of a majority of the shares of Lakeland common
stock voted at the annual meeting is required to approve the merger and the
amendment to Lakeland's certificate of incorporation. The affirmative vote of a
plurality of the shares of Lakeland common stock voted is required to elect
directors to Lakeland's Board of Directors.
As of the record date, the directors and executive officers of Lakeland and
certain of their affiliates beneficially owned approximately or % of the
outstanding shares of Lakeland common stock. Each of these persons has advised
Lakeland that they intend to vote in favor of the merger, each of the nominees
for election to Lakeland's Board of Directors and the amendment to Lakeland's
certificate of incorporation.
Voting of Proxies
All proxies must be received prior to the applicable stockholder meeting.
All High Point and Lakeland stockholders who are entitled to vote and are
represented at their applicable stockholder meeting by properly executed
proxies will have their proxies voted at such meeting in accordance with the
instructions indicated in the proxies. If no instructions are indicated, the
proxies will be voted:
. In the case of the High Point special meeting, FOR the merger and the
adjournment of the special meeting if necessary.
. In the case of the Lakeland annual meeting, FOR the merger, the four
nominees for director and the amendment to Lakeland's certificate of
incorporation.
If any other matters are properly presented at the High Point or Lakeland
meetings for consideration, the persons named in the enclosed form of proxy
will have discretion to vote on these matters in accordance with their best
judgment, unless you specifically withhold that authorization when you complete
your proxy card. Neither High Point nor Lakeland is aware of any matters
expected to be presented at its respective meeting other than as described in
its respective Notice of Meeting.
You may revoke your proxy before it is voted by:
. filing with your company's Secretary (1) written notice of revocation
bearing a later date than the date of the proxy or (2) a later-dated
proxy relating to the same shares; or
. attending the applicable meeting and voting in person.
In order to vote in person at a meeting, High Point stockholders and
Lakeland stockholders, respectively, must attend the applicable meeting and
cast their votes in accordance with the voting procedures established for such
meeting. Attendance at either the special meeting or the annual meeting will
not alone constitute a revocation of a proxy. Any written notice of revocation
or subsequent proxy must be delivered at or before the taking of the vote at
the applicable meeting as follows:
<TABLE>
<CAPTION>
FOR LAKELAND STOCKHOLDERS: FOR HIGH POINT STOCKHOLDERS:
<S> <C>
Lakeland Bancorp, Inc. High Point Financial Corp.
250 Oak Ridge Road P.O. Box 460
Oak Ridge, New Jersey 07438 Branchville, New Jersey 07826
Attn: Bruce G. Bohuny, Secretary Attn: Robert A. Vandenbergh, Secretary
(973) 697-2000 (973) 948-3300
</TABLE>
17
<PAGE>
High Point stockholders who require assistance in changing or revoking a
proxy should contact Rita A. Myers, High Point's Comptroller, at the address or
phone number above. Lakeland stockholders who require assistance in changing or
revoking a proxy should contact Bruce G. Bohuny, Lakeland's Secretary, at the
address or phone number above.
Pursuant to applicable law, broker non-votes and abstaining votes are
counted in determining whether a quorum is present but are not counted as votes
cast with respect to particular matters. Abstentions and broker non-votes by
High Point stockholders will have the same effect as votes against the merger.
Assuming a quorum is present, abstentions and broker non-votes will not affect
the outcome of the other matters to be voted on by the High Point stockholders
and will not affect the outcome of the matters to be voted on by the Lakeland
stockholders.
Solicitation of Proxies
Each of High Point and Lakeland is responsible for their own solicitation
costs, subject to the parties' obligations to share the costs of filing,
printing and mailing this joint proxy statement/prospectus. In addition to
solicitation by mail, proxies may be solicited by directors, officers and
employees of High Point and Lakeland in person or by telephone, telegram or
other means. These persons will receive no additional compensation for
solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses. High Point has retained Corporate Investor Communications, Inc. to
assist in its solicitation of proxies from brokers, nominees, institutions and
individuals. High Point will pay Corporate Investor Communications
approximately $4,500 for these services and pay their expenses. Arrangements
will also be made by High Point and Lakeland with custodians, nominees and
fiduciaries for forwarding proxy solicitation materials to beneficial owners of
shares held of record by such custodians, nominees and fiduciaries. High Point
and Lakeland will reimburse such entities for reasonable expenses incurred in
connection with this activity.
Principal Stockholders
High Point. The following tables list the beneficial ownership of High Point
securities by:
. each person or group who owns, to High Point's knowledge, more than five
percent of High Point's outstanding voting securities;
. each named executive officer in High Point's Annual Report on Form 10-K;
. each High Point director; and
. all High Point executive officers and directors as a group (11 persons).
The information in these tables is based on the number of shares outstanding as
of February 1, 1999.
18
<PAGE>
TABLE I
5% BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Outstanding
Beneficial Owner Ownership Shares
---------------- ---------- -----------
<S> <C> <C>
Lakeland Bancorp, Inc. ........................... 351,152(a) 9.2%
250 Oak Ridge Road
Oak Ridge, NJ 07438
Franklin Mutual Insurance Co. .................... 250,976 6.6%
P.O. Box 400
Branchville, NJ 07826
High Point Financial Corp. and Affiliated 205,846 5.4%
Subsidiaries.....................................
Employee Stock Ownership Plan
P.O. Box 460
Branchville, NJ 07826
Stephen Tilton.................................... 192,300 5.0%
288 Upper Mountain Avenue
Montclair, NJ 07043
George H. Guptill, Jr. ........................... 277,261(b) 7.3%
P.O. Box 400
Branchville, NJ 07826
</TABLE>
19
<PAGE>
TABLE II
HIGH POINT DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Outstanding
Beneficial Owner Ownership Shares
---------------- ---------- -----------
<S> <C> <C>
Larry R. Condit................................. 41,845(c) 1.1%
Michael A. Dickerson............................ 31,575(d) *
William A. Dolan, II............................ 32,482(e) *
Rhea C. Fountain, III........................... 28,438(f) *
George H. Guptill, Jr. ......................... 277,261(b) 7.3%
Stanley A. Koza................................. 29,029(g) *
Charles L. Lain................................. 32,375(h) *
Richard M. Roy.................................. 76,224(i) 2.0%
Charles L. Tice................................. 12,609(j) *
Robert A. Vandenbergh........................... 33,979(k) *
Gregory W. A. Meehan............................ 38,428(l) 1.0%
All executive officers and directors as a group 608,452(m) 15.7%
(11 persons)...................................
</TABLE>
- --------
*Indicates less than 1%
(a) Includes 6,900 shares held in Lakeland Bank's Profit Sharing Plan.
(b) Includes 250,976 shares held by Franklin Mutual Insurance Co. of which Mr.
Guptill is president. All voting and investment decisions made by Franklin
Mutual Insurance Co. with respect to the shares are made by a board of
directors' committee of which Mr. Guptill is not a member. Also includes
1,500 shares issuable pursuant to stock options presently exercisable by
Mr. Guptill.
(c) Includes 19,798 shares held by Condit Auto Lease Corp. over which Mr.
Condit has sole voting and investment power. Also includes 496 shares held
by Mr. Condit's wife as to which Mr. Condit disclaims beneficial ownership.
Also includes 6,000 shares issuable pursuant to stock options presently
exercisable by Mr. Condit.
(d) Includes 12,994 shares in Mr. Dickerson's account in the ESOP as of
December 31, 1998, under which Mr. Dickerson has voting power, but not
investment power.
(e) Includes 7,279 shares held by Mr. Dolan's wife as to which Mr. Dolan
disclaims beneficial ownership. Also includes shares held by a trust of
which Mr. Dolan is a trustee. Also includes 1,500 shares issuable pursuant
to stock options presently exercisable by Mr. Dolan.
(f) Includes 6,000 shares issuable pursuant to stock options presently
exercisable by Mr. Fountain. Also includes 10,000 shares held by van den
Heuvel & Fountain, Inc. Employee Profit Sharing Plan over which Mr.
Fountain has sole voting and investment power.
(g) Includes 6,000 shares issuable pursuant to stock options presently
exercisable by Mr. Koza.
(h) Includes 6,000 shares issuable pursuant to stock options presently
exercisable by Mr. Lain.
(i) Includes 330 shares held by Mr. Roy's wife as to which Mr. Roy disclaims
beneficial ownership. Also includes 1,500 shares issuable pursuant to stock
options presently exercisable by Mr. Roy.
(j) Includes 2,000 shares held in a trust of which Mr. Tice is a trustee. Also
includes 6,000 shares issuable pursuant to stock options presently
exercisable by Mr. Tice.
(k) Includes 6,038 shares in Mr. Vandenbergh's account in the ESOP as of
December 31, 1998, under which Mr. Vandenbergh has voting power, but not
investment power. Also includes 25,000 shares issuable pursuant to stock
options presently exercisable by Mr. Vandenbergh.
(l) Includes 13,428 shares in Mr. Meehan's account in the ESOP as of December
31, 1998, under which Mr. Meehan has voting power, but not investment
power. Mr. Meehan's employment with High Point ended in May, 1998.
(m) See footnotes (b) through (k) above.
20
<PAGE>
Lakeland. The following table lists the beneficial ownership of each person
or group who owns, to Lakeland's knowledge, more than five percent of its
outstanding voting securities based on the number of shares outstanding as of
February 1, 1999. For tables listing the beneficial ownership of each of
Lakeland's directors and nominees, each Named Executive Officer (as defined in
this joint proxy statement/prospectus) and all executive officers and directors
of Lakeland as a group, see "Election of Directors" on page .
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Outstanding
Beneficial Owner Ownership Shares
---------------- ---------- -----------
<S> <C> <C>
John W. Fredericks................................. 469,198(a) 5.5%
P.O. Box 448
Oak Ridge, NJ 07438
</TABLE>
- --------
(a) Includes 117,994 shares owned by Mr. Fredericks' wife, Jane D. Fredericks;
117,816 shares held in the name of John W. Fredericks, Jane D. Fredericks
and Mark J. Fredericks, Trustees for Fredericks Fuel and Heating Service
Employee Profit Sharing Plan; and 97,996 shares held in the name of Edward
J. Fredericks and John W. Fredericks Trustees U/W Wilbur Fredericks Trust.
Appraisal Rights
High Point stockholders and Lakeland stockholders will not be entitled to
any appraisal rights in connection with the merger under the New Jersey
Business Corporation Act or any other applicable law.
21
<PAGE>
THE MERGER
Background of the Merger
Lakeland's interest in High Point began in 1994 when Lakeland and certain of
its affiliates acquired approximately a 9.9% interest in High Point by
purchasing shares directly from High Point. High Point used the proceeds of
this sale for general corporate purposes.
When Lakeland initially invested in High Point no arrangements were made
regarding an eventual acquisition of High Point by Lakeland. However,
Lakeland's management understood that if High Point were to consider a business
combination, Lakeland would be given an opportunity to submit a proposal if it
desired.
Since mid-1997, the High Point Board regularly considered the possibility of
a business combination as part of High Point's ongoing strategy of enhancing
stockholder value. During the end of 1997 and the beginning of 1998, the High
Point Board considered the acquisition of smaller banks and existing branches.
At the September 22, 1998 High Point Board retreat, Michael A. Dickerson,
President and Chief Executive Officer of High Point, discussed the possibility
of his retirement within approximately 15 months. During the retreat, the High
Point Board met with representatives of the investment banking firms of Sandler
O'Neill & Partners, L.P. and Capital Consultants to generally discuss the
banking market in New Jersey and the mid-Atlantic region. Some strategic
alternatives that were discussed with Capital Consultants included remaining
independent and enhancing stockholder value, pursuing opportunities to buy
financial institutions and/or financial service companies, considering a merger
of equals, and selling to a larger acquirer. At the conclusion of this retreat,
the Board determined that it was prudent to simultaneously explore options for
a successor for Mr. Dickerson and to consider the possibility of affiliating
with another banking institution. The Board established a search committee to
pursue these objectives although no firm determinations were made.
On October 14, 1998, High Point's search committee met with a representative
of Capital Consultants. At that meeting the search committee discussed
potential business combination partners, target prices and recent transactions.
The search committee further discussed the strategic alternatives raised at the
September 22, 1998 retreat. The search committee discussed High Point's desire
to engage in a transaction in which High Point stockholders would not have
taxable gain or loss. The search committee also considered the independence of
NBSC and the opportunities for High Point employees to retain their jobs after
a business combination. At the October 14th meeting, no determination was made
as to which alternative to pursue, although Capital Consultants was engaged as
High Point's financial advisor.
After October 14, 1998, the High Point Board requested Michael Dickerson and
Capital Consultants to produce a list of approximately ten candidates for
potential business combinations. By October 19, 1998 the list was produced and
by October 22, 1998 the list was narrowed to four entities that were deemed
appropriate for the search committee to explore further. Between October 22,
1998 and November 11, 1998, High Point's search committee and representatives
of Capital Consultants met with or spoke with each of the four potential
candidates. Three of these candidates, one of which was Lakeland, were
interested in pursuing discussions with High Point. All three potential offers
were in common stock and the valuations of all three offers were based on
market prices.
Lakeland's offer was the highest offer among the group of interested
candidates. High Point considered the fact that Lakeland common stock trades on
the over-the-counter bulletin board. Although the common stock of one other
potential candidate was trading on Nasdaq, Lakeland's trading volume was
greater. The High Point Board considered Lakeland's trading activity and the
probability that it would increase with the additional shares issued following
a business combination with High Point. Lakeland also indicated that it would
consider listing its common stock on Nasdaq. The High Point Board believed that
a potential transaction with Lakeland would increase stockholder value due to,
in part, an increase in liquidity, whereas this increased value would not be so
immediately available in a transaction with the other potential candidates.
22
<PAGE>
Lakeland's Board decided to pursue the acquisition of High Point because it
believed that the merger would be an excellent opportunity for Lakeland to
continue to expand while maintaining its community banking focus.
Lakeland's strategic plan calls for developing a larger, contiguous market
and for increasing Lakeland's penetration in its existing markets. As part of
this plan, the Lakeland Board thought that penetration and growth in the Sussex
County market was essential to maximize stockholder value. The Board believed
that acquiring NBSC would provide Lakeland stockholders with greater value, at
less cost, than would opening new Lakeland branches in Sussex County. In
addition, the Lakeland Board believed that a combined entity would create
greater franchise value for its stockholders. The Board also believed that the
consolidation of branch office operations, advertising and administration
expenses would result in cost savings over time. Lakeland's Board also
considered that NBSC's management was experienced and familiar with Lakeland's
community bank culture. Finally, the Board believed that the increased asset
base, the experience of NBSC personnel in financial services not currently
offered by Lakeland and the stronger capital base would enable Lakeland to
better compete with the larger financial institutions in the area. For these
reasons, the Lakeland Board believed that the acquisition of High Point
provided Lakeland stockholders with the potential for increased stockholder
value and was in their stockholders' best long term interests.
On November 25, 1998, Lakeland formally engaged Ryan, Beck & Co., Inc. to
assist Lakeland in evaluating the merger. These parties had previously executed
a confidentiality agreement on November 11, 1998.
With the approval of their respective Boards of Directors, Michael
Dickerson, John Fredericks, Lakeland's then President, other representatives of
the High Point and Lakeland Boards, and representatives of Capital Consultants
spoke on a number of occasions between October 22, 1998 and December 3, 1998 to
discuss potential terms of a merger.
Both Lakeland and High Point were interested in a tax-free transaction
involving common stock. High Point proposed that NBSC remain independent for a
period of time following the merger. High Point sought 2 or 3 seats on
Lakeland's Board following the merger. Lakeland recommended a fixed rate of
exchange, although High Point initially sought a variable rate.
Throughout these preliminary discussions, the members of both Boards were
aware of potential conflicts of interest. Lakeland's ownership of High Point
common stock was known to both Boards. Members of both Boards were aware of the
continued tenure of NBSC board members if NBSC were kept independent for a
period of time and, subject to approval by the Lakeland stockholders, the
placement of 2 or 3 members of High Point's current Board on Lakeland's Board
for a period of time. Both Boards of Directors unanimously approved the
continued discussion of the potential merger and were aware that potential
conflicts would be disclosed to the stockholders of Lakeland and High Point
when the stockholders would be asked to approve the transaction.
Lakeland's Board reviewed the preliminary merger discussions at meetings
held on December 1, 1998 and December 3, 1998. High Point's Board reviewed the
preliminary merger discussions at a meeting held on November 17, 1998.
Draft copies of the proposed merger agreement were circulated, negotiated
and revised during the period between November 19, 1998 and December 7, 1998.
Negotiations of that agreement were pursued both in telephone conversations and
at a meeting conducted on November 23, 1998 attended by John Fredericks and
Bruce Bohuny of Lakeland, representatives of Ryan, Beck, Lakeland's special
counsel, Michael Dickerson, Charles L. Tice, a representative of Capital
Consultants and High Point's special counsel.
In evaluating the proposed business combination, Lakeland and High Point
reviewed public reports and certain confidential information about each other.
However, given the parties' long-standing relationship and their concerns that
extensive due diligence could lead to rumors regarding a potential business
combination, the
23
<PAGE>
parties agreed that each would have an opportunity to perform due diligence
after the merger agreement was signed, with the understanding that either party
would have the right to terminate the merger agreement in the event that their
due diligence review uncovered any information that would justify termination.
At a meeting on December 3, 1998, the Lakeland Board discussed its proposal
to acquire High Point. The Lakeland Board received reports from Lakeland's
management, as well as from representatives of Ryan, Beck, its special counsel
and its outside auditors. After receiving these reports and evaluating the
results of operations and future prospects of the combined entity, the Lakeland
Board concluded that the merger would be in the best interests of Lakeland's
stockholders. Upon conclusion of that meeting, the Lakeland Board authorized
management to execute the merger agreement, subject to satisfactory completion
of the applicable documentation and subject to the completion of a due
diligence review to be conducted after the agreement was executed.
At a meeting on December 4, 1998, the High Point Board evaluated the
Lakeland proposal with input received from Capital Consultants and High Point's
special counsel. Capital Consultants reviewed the exchange ratio, certain
financial multiples arising from the exchange ratio and the trading volume of
Lakeland common stock with the High Point Board. Upon conclusion of that
meeting, the High Point Board authorized management to execute the merger
agreement, subject to satisfactory completion of the applicable documentation
and subject to the completion of a due diligence review to be conducted after
the agreement was executed.
The exchange ratio was arrived at based on the closing prices of Lakeland
and High Point common stock on November 23, 1998, following negotiations by the
parties of a purchase price per share of High Point common stock. During the
negotiations, High Point requested that the exchange ratio be adjusted upward
in the event there was a decline in the market value of Lakeland common stock.
Lakeland countered with a request that if there was to be an upward adjustment
for a price decline, there should also be a downward adjustment of the exchange
ratio in the event of an increase in the price of the Lakeland common stock.
High Point and Lakeland agreed on a fixed exchange ratio rather than a ratio
which would be affected by subsequent market forces. High Point believed that a
fixed exchange ratio would provide certainty as to the number of shares to be
received by the High Point stockholders in the merger, equally balance the risk
between the companies that the market price of Lakeland common stock would
fluctuate after the announcement of the merger, and reflect, from High Point's
standpoint, the historical improvement in the price of Lakeland common stock
and the fact that the proposed merger would not be completed for approximately
six months.
The parties also negotiated a stock option agreement which granted Lakeland
the right to purchase up to 772,243 shares of High Point common stock if the
proposed merger was terminated under certain conditions. Lakeland required High
Point to enter into the stock option agreement as a condition to the merger.
The parties executed the merger agreement and the stock option agreement on
December 7, 1998.
The merger agreement provided for a due diligence period extending through
January 19, 1999. During the due diligence period, the parties exchanged
financial information and information regarding their businesses and prospects.
At a meeting held on January 19, 1999, Lakeland's Board received a report from
its management regarding its due diligence review and received an opinion from
Ryan, Beck that in its view the exchange ratio was fair to Lakeland's
stockholders from a financial point of view. Similarly, the High Point Board
conducted a meeting on January 19, 1999 to review the due diligence that had
been performed during the due diligence period and received several reports,
including an opinion from Capital Consultants that the exchange ratio was fair
to High Point's stockholders from a financial point of view. Both Boards
determined to continue pursuing the merger.
Reasons for the Merger; Recommendations of the Boards of Directors
High Point. High Point's Board of Directors approved the merger because it
believes that the merger is in the best interests of High Point's stockholders.
In reaching this decision, the Board considered information
24
<PAGE>
pertaining to the financial structures, results of operations and future
prospects of both High Point 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 did not consider potential cost savings as a reason
for approving the merger.
The High Point Board, in deciding to approve the merger, consulted with High
Point's legal and financial advisors, as well as with High Point's management.
The High Point Board considered a number of factors. The High Point Board did
not quantify or attempt to assign relative weights to the specific factors
considered. Individual directors may have given different weights to different
factors. The following is a list of all material factors considered by the High
Point Board:
. the consideration to be received by High Point's stockholders in the
merger, including the fact that the exchange ratio represents, in the
High Point Board's opinion, an attractive price based on High Point's
historical performance and also represents a significant premium (on a
per share basis) over the recent market price of the High Point common
stock;
. the ability of High Point's stockholders to participate in the growth of
the business conducted by High Point and Lakeland after the merger and
to benefit from the potential appreciation in the value of Lakeland
common stock, while obtaining tax-free treatment for the shares of
Lakeland common stock received in the merger;
. the ability to receive the higher dividend paid by Lakeland on its
common stock;
. the continuing pressures on High Point's business if High Point were to
remain independent, including pressures attributable to the trend toward
consolidation in the New Jersey banking community;
. the potential for High Point, by becoming part of a larger entity, to
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;
. the belief that Lakeland has a similar customer service culture to the
culture that High Point has sought to foster;
. the opportunities that exist for High Point's employees to retain their
jobs and expand their career options;
. the presence that the combined company will have in Lakeland's and High
Point's market areas; and
. the presentation and opinion of Capital Consultants that the exchange
ratio is fair, from a financial point of view, to High Point's
stockholders. Capital Consultants reissued its opinion as of the date of
this joint proxy statement/prospectus. Capital Consultant's opinion is
subject to the factors and assumptions in the merger agreement.
The High Point Board has determined that the merger is fair to, and in the
best interests of, High Point's stockholders. However, all business
combinations, including the merger, include certain risks and disadvantages.
The material potential risks and disadvantages to High Point's stockholders
identified by the High Point Board and management include the following:
. the merger may not be consummated;
. the value of the Lakeland common stock may fluctuate;
. the perceived benefits of the merger may not be realized;
. the impact of the merger on High Point employees and customers may be
adverse; and
. other matters described under "Risk Factors" and "A Warning About
Forward Looking Statements."
25
<PAGE>
The High Point Board believes that these potential risks and disadvantages are
outweighed by the potential benefits anticipated from the merger.
For the reasons discussed above, the High Point Board has determined that
the merger is fair to, and in the best interests of, High Point's stockholders.
Accordingly, the High Point Board recommends that High Point's stockholders
vote for the merger and the adjournment proposal.
Lakeland. Lakeland's Board of Directors approved the merger because it
believes that the merger is in Lakeland's best interests. In reaching this
decision, the Board considered information pertaining to the financial
structures, results of operations and future prospects of both High Point and
Lakeland. This included the long-term outlook for both organizations in a
rapidly changing banking and financial services industry and the opportunity
for Lakeland to continue the expansion reflected in Lakeland's recent
acquisition of Metropolitan State Bank.
In deciding to approve the merger, the Lakeland Board consulted with its
legal and financial advisors and Lakeland's management. The Lakeland Board
considered a number of factors. The Lakeland Board did not quantify or attempt
to assign relative weights to the specific factors considered. Individual
directors may have given different weights to different factors. The following
is a list of all material factors considered by the Lakeland Board:
. the opportunity to build a greater presence in the Sussex County, New
Jersey market with a large customer base;
. management's expectation that efficiencies from the merger should have a
positive effect on the earnings of the combined company;
. the addition of certain members of High Point's management team; and
. the presentation and opinion of Ryan, Beck that the exchange ratio is
fair, from a financial point of view, to Lakeland's stockholders. Ryan,
Beck reissued its opinion as of the date this joint proxy
statement/prospectus. Ryan, Beck's opinion is subject to the factors and
assumptions in its opinion.
The Lakeland Board has determined that the merger is fair to, and in the
best interests of, Lakeland's stockholders. However, all business combinations,
including the merger, include certain risks and disadvantages. The material
potential risks and disadvantages to Lakeland's stockholders identified by
Lakeland's Board and management include the following:
. the time and resources required to complete the merger;
. the difficulties associated in integrating financial institutions that
historically have operated independently;
. the possibility that the combined enterprise may not realize the
economies anticipated by the Lakeland Board; and
. other matters described under "Risk Factors" and "A Warning About
Forward Looking Statements."
The Lakeland Board believes that these potential risks and disadvantages are
outweighed by the potential benefits anticipated to result from the merger.
26
<PAGE>
For the reasons discussed above, the Lakeland Board of Directors determined
that the merger is fair to, and in the best interests of, Lakeland.
Accordingly, the Lakeland Board recommends that Lakeland stockholders vote for
the merger.
Opinion of High Point's Financial Advisor
As of October 27, 1998, the High Point Board retained Capital Consultants to
act as High Point's financial advisor to assist management in connection with
the merger and related matters. If negotiations resulted in the execution of a
definitive agreement, Capital Consultants would also render an opinion
regarding the fairness, from a financial point of view, of the consideration to
be received by High Point's stockholders in the 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.
Capital Consultants was selected by High Point 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 High Point
common stock.
On December 4, 1998, the date the Board of Directors of High Point approved
the merger, Capital Consultants delivered to the Board its opinion that, based
on and subject to various items discussed in the presentations, the
consideration to be received by High Point's stockholders pursuant to the
merger agreement is fair from a financial point of view to High Point's
stockholders. High Point's 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 joint proxy statement/prospectus.
The full text of Capital Consultants' written opinion, which sets forth
assumptions made and matters considered, is attached as annex B to this joint
proxy statement/ prospectus. High Point stockholders are urged to read this
opinion in its entirety. Capital Consultants' opinion is directed only to the
financial terms of the merger and is not a recommendation to any High Point
stockholder as to how to vote at the High Point special meeting. The summary
information regarding Capital Consultants' opinion and the procedures followed
in rendering such opinion set forth in this joint proxy statement/ prospectus
is qualified in its entirety by reference to the full text of the opinion.
In arriving at its opinion, Capital Consultants reviewed and analyzed, among
other things, the following documents:
. the merger agreement;
. the Lakeland registration statement on Form S-4 of which this joint
proxy statement/prospectus is a part;
. publicly available information relating to Lakeland and High Point
including annual reports to stockholders and Annual Reports on Form 10-K
filed with the SEC for the years ended December 31, 1995 through 1998,
the Consolidated Statement of Financial Condition as of December 31,
1998, 1997, 1996 and 1995, and the related Consolidated Statements of
Income, Changes in Stockholders Equity and Cash Flows for the four year
period ended December 31, 1998 included therein, and the quarterly
reports to stockholders and Quarterly Reports on Form 10-Q filed with
the SEC for the periods ended March 31, 1999 and March 31, June 30, and
September 30, 1998;
. certain historical operating and financial information provided to
Capital Consultants by High Point and Lakeland;
27
<PAGE>
. historical and current market data for High Point common stock and
Lakeland common stock;
. the publicly available financial data and stock market performance data
of publicly traded banking and thrift institutions which Capital
Consultants deemed generally comparable to High Point and Lakeland;
. 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 High Point and
Lakeland in financial character, operating character, historical
performance, geographic market and economy; and
. such other studies, analyses, inquiries and reports as Capital
Consultants deemed appropriate.
In addition, Capital Consultants:
. conducted meetings with members of senior management of High Point and
Lakeland for purposes of reviewing possible future performance--See "--
Estimates of Future Operations;"
. evaluated the pro forma ownership of the Lakeland common stock by High
Point's stockholders, relative to the pro forma contribution of High
Point's assets, deposits, equity and earnings to the pro forma resulting
company in the merger; and
. 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 High Point and Lakeland.
Capital Consultants did not conduct a physical inspection of any of the
properties or assets of High Point or Lakeland and has not made any independent
evaluations or appraisal of any properties, assets or liabilities of High Point
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 High Point and
Lakeland made in the merger agreement, and has not independently attempted to
verify any of this information. All material documents reviewed by Capital
Consultants are listed above.
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 High Point.
Capital Consultants believes that its analyses must be considered as a whole
and that consideration of portions of such analyses and the factors considered
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 stockholders 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 High Point's and Lakeland's industry performance, business and economic
conditions and other matters, many of which are beyond the control of High
Point 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.
28
<PAGE>
In connection with its opinion, Capital Consultants performed various
analyses with respect to High Point and Lakeland. The following is a brief
summary of such analyses, some of which were presented to the High Point Board
by Capital Consultants.
Valuation Analysis. Using a valuation analysis, Capital Consultants
estimated the present value of theoretical values of High Point based on a
range of price-to-earnings ("P/E") multiples between 16.0x and 20.0x and a
range of discount rates between 8% and 10%. The range of values were 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 High Point between $10.81 per share (15.0%
earnings growth rate; P/E of 16.0x; 10% discount rate) and $16.20 per share
(20.0% earnings growth rate; P/E of 18.0x; 8% discount rate).
Capital Consultants also prepared a net present value analysis that
indicated theoretical values for High Point based on a range of terminal book
value multiples between 2.25x and 2.75x and a range of discount rates between
8% and 10%. A dividend payout ratio from current earnings of 30% was used 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 Transaction Analysis
provided 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 stockholders of High Point common stock in these
economic times. The range of present values per share of High Point resulting
from the above-referenced assumptions were $13.57 to $17.54 per share.
Comparable Company Analysis. Capital Consultants compared the operating
performance of High Point to publicly traded commercial banks that Capital
Consultants deemed to be similar to High Point. The group consists of the
following twelve publicly traded New Jersey based commercial banks with total
assets of between $129.7 million and $725.7 million (the "Peer Group").
<TABLE>
<S> <C>
Bridge View Bancorp Ramapo Financial Corporation
Broad National Bancorporation Skylands Community Bank
Center Bancorp, Inc. Sussex Bancorp
Greater Community Bancorp Unity Bancorp, Inc.
Interchange Financial Services Corporation Vista Bancorp, Inc.
Prestige Financial Corp. Yardville National Bancorp
</TABLE>
Capital Consultants compared High Point with the Peer Group based on
selected operating fundamentals, including capital adequacy, profitability and
asset quality. The table below sets forth the comparative data for the twelve
months ended September 30, 1998, with market price data as of November 30,
1998.
<TABLE>
<CAPTION>
Peer Group
High Point Median
---------- ----------
<S> <C> <C>
Market Price to Stated Book Value................... 199% 187%
Stated Equity to Total Assets....................... 9.56% 7.98%
Non-Performing Assets/Total Assets.................. 1.70% 0.61%
Return on Average Assets............................ 0.90% 1.07%
Return on Average Equity............................ 9.63% 13.26%
</TABLE>
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 the Peer Group. The analysis also compared
returns on average assets and average equity of Lakeland to those of the
selected financial institutions and the medians of the comparable group. The
table below sets forth the comparative data for the twelve months ended
September 30, 1998, with market price data as of November 30, 1998.
29
<PAGE>
<TABLE>
<CAPTION>
Lakeland Peer Group
-------- ----------
<S> <C> <C>
Market Price to Earnings.............................. 22.8x 16.9x
Market Price to Stated Book Value..................... 260% 187%
Return on Average Assets.............................. 1.21% 1.07%
Return on Average Equity.............................. 12.49% 13.26%
</TABLE>
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 High Point.
Contribution Analysis. Capital Consultants prepared a contribution analysis
showing the percentage of assets, deposits, net common equity and 1998 net
income High Point 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 High Point would contribute 32.7% of pro
forma consolidated total assets, 31.9% of pro forma consolidated deposits,
31.7% of pro forma consolidated stockholders' equity and 28.2% of pro forma
consolidated net income for 1998, while High Point stockholders would hold
32.9% 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 September 30, 1998 financial data for
Lakeland and High Point and indicated that the merger would be (on a pro forma
basis for the nine months ended September 30, 1998, assuming the acquisition
was effective as of January 1, 1998) approximately 6.0% dilutive to the
earnings per share of Lakeland common stock and approximately 4.1% dilutive to
tangible book value per share of Lakeland common stock on a fully diluted
basis.
Comparable Transaction Analysis. Capital Consultants performed an analysis
of prices and premiums offered in recently announced commercial bank and bank
holding company transactions in New Jersey. Multiples of earnings and fully
diluted book value implied by the consideration to be received by High Point's
stockholders in the merger were compared with multiples offered in such New
Jersey transactions, which included ten pending and/or completed acquisitions
announced between January 1, 1997 and December 3, 1998. The median offer price
to book value for this group of comparable transactions was 279%. The
equivalent offer price to book value for High Point was 293% based on the
assumed Lakeland offer price of $18.60 for each outstanding share of High Point
common stock and High Point's book value as of September 30, 1998. Also, the
median price to last twelve months ("LTM") earnings for this regional group was
33x versus Lakeland's offer for High Point at 30x. 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.
High Point was above the median of the comparative group in non-performing
assets as a percentage of total assets and was very comparable on core capital
to total assets ratio.
While Capital Consultants took into account the values shown in the
comparables used in rendering its opinion, no company or transaction used in
these analyses was identical to High Point or the merger. Accordingly, an
analysis of the results in 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 relating to the merger, High Point has
agreed to pay Capital Consultants a fee, if the merger is completed, of
approximately $550,000 plus reimbursement for reasonable out-of-pocket
expenses. High Point has also agreed to indemnify Capital Consultants against
certain liabilities, including liabilities under the federal securities laws.
High Point paid Capital Consultants $75,000 at the time the merger agreement
was signed and paid an additional $75,000 at the time this joint proxy
statement/prospectus was mailed. The balance of Capital Consultants' fee is due
when the merger is completed. The amount of Capital Consultants' fee was
determined by negotiation between High Point and Capital Consultants.
30
<PAGE>
Capital Consultants has in the past two years provided certain other
financial services to High Point and has received a total of $26,250 for such
services. Capital Consultants has not provided any financial services to
Lakeland in the past.
Opinion of Lakeland's Financial Advisor
On November 25, 1998, Lakeland formally retained Ryan, Beck to advise
Lakeland on the acquisition of High Point. Ryan, Beck is regularly engaged in
the valuation of banks, bank holding companies, savings and loan associations,
savings banks and savings and loan holding companies in connection with
mergers, acquisitions and other securities-related transactions. Ryan, Beck has
knowledge of, and experience with, the banking market in which High Point and
Lakeland operate and banking organizations within this market. Ryan, Beck was
selected by Lakeland because of Ryan, Beck's knowledge of, experience with, and
reputation in the financial services industry.
Ryan, Beck did not participate in the negotiations with respect to the
pricing and other terms and conditions of the merger. The decision regarding
the final pricing of the merger was ultimately made by Lakeland's Board of
Directors. Ryan, Beck rendered a formal written opinion to Lakeland's Board on
January 19, 1999, that the merger exchange ratio is "fair" to Lakeland's
stockholders from a financial point of view. Ryan, Beck reissued their opinion
as of the date of this joint proxy statement/prospectus. Ryan, Beck's opinion
is based on and subject to the assumptions, factors and limitations in the
opinion and as described below. No limitations were imposed by the Lakeland
Board of Directors upon Ryan, Beck with respect to the investigations made or
procedures followed by it in arriving at its opinion.
The full text of Ryan, Beck's opinion is attached as annex C to this joint
proxy statement/prospectus. Stockholders of Lakeland are urged to read Ryan,
Beck's opinion in its entirety. Ryan, Beck's opinion is directed only to the
financial fairness of the exchange ratio and is not a recommendation to any
stockholder as to how to vote at the Lakeland annual meeting. The summary of
the Ryan, Beck opinion in this joint proxy statement/prospectus is qualified in
its entirety by reference to the full text of the opinion. In rendering its
opinions, Ryan, Beck does not admit that it is an expert within the meaning of
the term "expert" as used within the Securities Act and the rules and
regulations promulgated thereunder, or that its opinions constitute a report or
valuation within the meaning of Section 11 of the Securities Act and the rules
and regulations promulgated thereunder.
In connection with its opinion, Ryan, Beck reviewed the following documents:
. the merger agreement and related documents;
. this joint proxy statement/prospectus;
. High Point's Annual Report on Form 10-K for the years ended December 31,
1998, 1997, 1996, and 1995, and High Point's Quarterly Reports on Form
10-Q for the periods ended March 31, 1999 and September 30, 1998, June
30, 1998, and March 31, 1998;
. Lakeland's Annual Report on Form 10-K for the years ended December 31,
1998, 1997, 1996 and 1995 and Lakeland's Quarterly Reports on Form 10-Q
for the periods ended March 31, 1999 and September 30, 1998, June 30,
1998, and March 31, 1998;
. certain operating and financial information provided to Ryan, Beck by
Lakeland and High Point relating to their business and prospects;
. publicly available financial data of commercial banking organizations
which Ryan, Beck deemed generally comparable to High Point;
. publicly available financial data of commercial banking organizations
which Ryan, Beck deemed generally comparable to Lakeland; and
31
<PAGE>
. the terms of recent acquisitions of commercial banks which Ryan, Beck
deemed generally comparable to High Point.
Additionally, Ryan, Beck:
. conducted such other studies, analyses, inquiries and examinations as
Ryan, Beck deemed appropriate; and
. met with certain members of Lakeland and High Point's senior management
to discuss Lakeland's and High Point's past and current business
operations, regulatory standing, financial condition, strategic plan,
future possible future performance, including any potential operating
efficiencies and synergies which may arise from the merger--See "--
Estimates of Future Performance."
In connection with its review, Ryan, Beck relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information regarding Lakeland, High Point, and their subsidiaries
provided to Ryan, Beck by Lakeland and High Point and their representatives.
Ryan, Beck is not an expert in the evaluation of allowances for loan losses.
Therefore, Ryan, Beck has not assumed any responsibility for making an
independent evaluation of the adequacy of the allowances for loan losses set
forth in the balance sheets of Lakeland and High Point at March 31, 1999. Ryan,
Beck assumed such allowances were adequate and complied fully with applicable
law, regulatory policy, sound banking practice and policy of the SEC as of the
date of such financial statements. Ryan, Beck has reviewed certain historical
financial data provided by Lakeland and High Point. Ryan, Beck also discussed
future prospects and performance with the managements of Lakeland and High
Point. Ryan, Beck assumed that these discussions reflected the best currently
available information and judgments of the respective managements. Ryan, Beck
was not retained to nor did it make any independent evaluation or appraisal of
the assets or liabilities of High Point, Lakeland or their respective
subsidiaries. Ryan, Beck did not review any loan files of High Point, Lakeland
or their respective subsidiaries. Ryan, Beck also assumed that the merger in
all respects is, and will be, undertaken and consummated in compliance with all
laws and regulations that are applicable to Lakeland and High Point.
The preparation of a fairness opinion on the merger involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
Therefore, Ryan, Beck's opinion is not readily susceptible to summary
description. In arriving at its opinion, Ryan, Beck performed a variety of
financial analyses. Ryan, Beck believes that its analyses must be considered as
a whole and that the consideration of portions of such analyses and the factors
considered therein, or any one method of analysis, without considering all
factors and analyses, could create an incomplete view of the analyses and the
process underlying Ryan, Beck's opinion. No one method of analysis was assigned
a greater significance than any other.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, general business and economic conditions, and other
matters, many of which are beyond the control of High Point or Lakeland. Any
estimates contained in Ryan, Beck's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals nor do they necessarily reflect the prices at which companies or
their securities may actually be sold. Ryan, Beck expressed no opinion as to
such financial prospects or the assumptions on which they were based.
The following is a brief summary of the analyses and procedures performed by
Ryan, Beck in arriving at its opinion.
Analysis of Selected Publicly Traded Companies. Ryan, Beck compared the
financial data for High Point as of, or for the twelve months ended, September
30, 1998 to a peer group of twenty-six selected commercial banks. These twenty-
six banks are located in the Mid-Atlantic region of the United States, have
assets between $200 million and $300 million and had available public trading
and pricing information. Ryan, Beck deemed this group to be generally
comparable to High Point. The following table compares selected statistics of
High
32
<PAGE>
Point with the median ratios and average ratios for the twenty-six selected
commercial banks comprising the peer group:
<TABLE>
<CAPTION>
Peer Peer
High Group Group
Point Median Average
------ ------ -------
<S> <C> <C> <C>
Total Equity/Total Assets......................... 9.56% 9.82% 10.66%
Return on Average Assets.......................... 0.90 1.24 1.25
Return on Average Equity.......................... 9.63 11.41 11.65
Net Interest Margin............................... 4.55 4.58 4.67
Yield on Interest Earning Assets.................. 7.64 8.10 8.09
Cost of Interest Bearing Liabilities.............. 3.85 4.38 4.26
Non-Performing Loans/Total Loans.................. 2.42 0.79 0.96
Loan Loss Reserves/Total Loans.................... 2.87 1.27 1.47
Loan Loss Reserves/Non-Performing Loans........... 118.55 160.49 223.67
Efficiency Ratio.................................. 70.28 59.58 59.82
1-4 Family Loans/Total Loans...................... 63.95 37.17 37.17
Real Estate Loans/Total Loans..................... 93.57 75.15 70.80
Commercial Loans/Total Loans...................... 3.68 13.08 14.62
Consumer Loans/Total Loans........................ 2.60 9.21 10.64
Price/Latest Twelve Months Earnings............... 22.41x 18.69x 19.19x
Price/Book Value.................................. 205.05% 200.02% 212.82%
Price/Tangible Book Value......................... 205.05 195.97 212.21
Dividend Yield.................................... 0.62 1.94 1.85
</TABLE>
Ryan, Beck noted that the performance of the peer group as measured by
return on average assets and return on average equity was superior to that of
High Point. Ryan, Beck also noted that High Point's efficiency ratio was higher
than that of its peers as was High Point's level of non-performing loans. Ryan,
Beck also noted that High Point had a significantly larger loan loss reserve
when measured as a percentage of total loans but that the reserve is less than
its peers when measured as a percentage of non-performing loans. High Point's
cost of interest bearing liabilities and yield on interest earning assets were
both less than that of the peer group. Lastly, Ryan, Beck noted that High Point
was trading at a higher multiple to earnings when compared to its peers. High
Point's dividend yield was significantly less than that of the peer group.
Ryan, Beck also compared Lakeland's reported financial data as of, or for
the twelve months ended, September 30, 1998 with that of a group of nineteen
selected commercial banks. These nineteen banks are located in the Mid-Atlantic
region of the United States, have assets between $400 million and $600 million
and had available public trading and pricing information. Ryan, Beck deemed
this group to be generally comparable to Lakeland. The following table compares
selected statistics of Lakeland with the median ratios and average ratios for
the nineteen selected commercial banks comprising the peer group:
<TABLE>
<CAPTION>
Peer Peer
Group Group
Lakeland Median Average
-------- ------ -------
<S> <C> <C> <C>
Total Equity/Total Assets........................ 10.03% 8.24% 9.43%
Return on Average Assets......................... 1.22 1.06 1.06
Return on Average Equity......................... 12.22 12.62 11.20
Net Interest Margin.............................. 4.83 4.03 4.35
Yield on Interest Earning Assets................. 7.58 8.00 8.05
Cost of Interest Bearing Liabilities............. 3.57 4.32 4.50
Non-Performing Loans/Total Loans(1).............. 1.15 0.41 0.74
Loan Loss Reserves/ Total Loans.................. 1.20 1.26 1.43
Loan Loss Reserves/Non-Performing Loans.......... 104.24 247.99 298.51
Price/Latest Twelve Months Earnings.............. 21.83x 15.60x 19.33x
Price/Book Value................................. 253.27% 183.40% 180.99%
Price/Tangible Book Value........................ 253.27 189.43 184.04
Dividend Yield................................... 1.94 2.09 2.24
</TABLE>
- --------
(1) Non-performing loans includes nonaccrual and renegotiated loans, and
excludes loans more than 90 days past due.
33
<PAGE>
Ryan, Beck noted that Lakeland's performance, as measured by return on
average assets, was better than its peer group. Additionally, Ryan, Beck noted
that Lakeland has a higher percentage of non-performing loans than the
companies comprising Lakeland's peer group and a lower loan loss reserve as a
percentage of non-performing loans. Lakeland's net interest margin was superior
to its peers due to its lower cost of interest bearing liabilities despite the
fact that its yield on interest earning assets was less than its peers. Lastly,
it was noted that Lakeland's common stock was trading at pricing multiples
significantly above those of the companies in the peer group.
Analysis of Selected Transactions. Ryan, Beck compared High Point's
financial data as of September 30, 1998 with that of a group of eleven selected
commercial banking organizations being acquired in pooling of interests
transactions announced since January 1, 1998 and for which pricing data
pertaining to the transactions was publicly available. Ryan, Beck deemed these
companies generally comparable to High Point. The criteria for this group was
commercial banks located in the Mid-Atlantic region of the United States with
assets between $100 million and $500 million. The following table compares
selected statistics of High Point with the median ratios and average ratios for
the eleven acquired companies in these transactions:
<TABLE>
<CAPTION>
High Peer Group Peer Group
Point Median Average
-------- ---------- ----------
<S> <C> <C> <C>
Total Assets............................... $252,746 $176,318 $200,747
Tangible Equity/Tangible Assets............ 9.56% 7.84% 8.56%
Return on Average Assets................... 0.85 1.10 0.97
Return on Average Equity................... 9.01 11.56 11.63
Non-Performing Assets/Assets............... 1.70 0.35 0.42
</TABLE>
Assuming a transaction value of $18.60 per share, determined by multiplying
the exchange ratio by Lakeland's stock price on December 2, 1998, Ryan, Beck
calculated the transaction value as a multiple of stated book value, tangible
book value, last twelve months diluted earnings, and core deposit premium over
tangible equity as follows:
<TABLE>
<S> <C>
Percentage of stated book value................................... 293%
Percentage of tangible book value................................. 293%
Multiple of last twelve months diluted earnings................... 32.77x
Core deposit premium over tangible equity......................... 24.12%
</TABLE>
The mean and median pricing ratios for the comparable transactions are
illustrated in the chart below:
<TABLE>
<CAPTION>
Price/
Price/ Tangible Price/ Core Deposit
Book Value Book Value LTM Earnings Premium
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Peer Group
Mean..................... 315% 319% 33.71x 25.81%
Median................... 315 317 32.21 26.56
Lakeland/High Point........ 293 293 32.77 24.12
</TABLE>
Ryan, Beck then adjusted the peer group statistics to reflect the change in
the NASDAQ Bank Stock Index from the date of announcement of each stock
transaction to the closing value of the index on November 20, 1998. The
adjusted mean and median pricing ratios for the comparable transactions are
illustrated in the chart below:
<TABLE>
<CAPTION>
Price/
Price/ Tangible Price/ Core Deposit
Book Value Book Value LTM Earnings Premium
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Peer Group
Adjusted Mean............ 290% 295% 30.55x 23.61%
Adjusted Median.......... 299 300 28.95 26.26
Lakeland/High Point........ 293 293 32.77 24.12
</TABLE>
34
<PAGE>
The imputed value of High Point, based upon the adjusted mean and median
acquisition multiples, as shown in the table directly above, when applied to
High Point's book value, tangible book value, latest twelve month earnings and
core deposits results in the acquisition values of High Point shown in the
chart below:
<TABLE>
<CAPTION>
Price/
Price/ Tangible Price/ Core Deposit
Book Value Book Value LTM Earnings Premium
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Mean..................... $18.40 $18.69 $17.72 $19.01
Median................... $18.96 $19.05 $16.79 $20.43
</TABLE>
No company or transaction used in the Analysis of Selected Publicly Traded
Companies and Analysis of Selected Transactions sections is identical to High
Point, Lakeland or the merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies involved and other factors that could affect the trading values
of the securities of the company or companies to which they are being compared.
Impact Analysis. Ryan, Beck analyzed the merger in terms of its effect on
Lakeland's projected 1999 and 2000 earnings per share, stated book value and
tangible book value, based on High Point's projected 1999 and 2000 earnings.
The projected 1999 earnings for Lakeland and High Point were derived from
information provided by Lakeland and High Point, using certain assumed growth
rates. The analysis showed that the merger would be accretive to Lakeland's
projected 1999 fiscal year earnings per share by approximately 2.71%, accretive
to projected 2000 fiscal year earnings per share by approximately 10.38%,
dilutive to book value per share by approximately 5.77% and dilutive to
Lakeland's tangible book value by approximately 5.77%. This analysis was based
upon certain assumptions, including those with respect to cost savings and
other synergies from the merger and the stand-alone earnings of Lakeland and
High Point. These forward-looking projections may be effected by many factors
beyond the control of Lakeland and/or High Point, including the future
direction of interest rates, economic conditions in the companies' market
place, the actual amount and timing of cost savings achieved through the
merger, the actual level of revenue enhancements brought about through the
merger, future regulatory changes and various other factors. The actual results
achieved may vary from the projected results and the variations may be
material.
Discounted Dividend Analysis. Using a discounted dividend analysis, Ryan,
Beck estimated the present value of the future dividend stream that High Point
could produce in perpetuity. Projection ranges for High Point's five-year
balance sheet and income statement were provided by High Point's management.
Management's projections were based upon various factors and assumptions, many
of which are beyond the control of High Point. These projections are, by their
nature, forward-looking and may differ materially from the actual future values
or actual future results for the reasons discussed above. The actual future
values or results may be significantly more or less favorable than suggested by
such projections. In producing a range of per share High Point values, Ryan,
Beck utilized the following assumptions: (1) discount rates range from 10.0% to
12.0%; (2) terminal price/earnings multiples range from 15.0x to 17.0x, which,
when applied to terminal year estimated earnings, produces a value which
approximates the net present value of the dividends in perpetuity, given
certain assumptions regarding growth rates and discount rates; and (3) earnings
that include estimated savings in High Point's non-interest expense equal to
19.11% in the first year following the merger, and 32.49% in the second year
following the merger, with 5.00% growth thereafter. The discounted dividend
analysis produced the range of net present values per share of High Point
common stock illustrated in the chart below:
<TABLE>
<CAPTION>
Discount Rate 10.00% 11.00% 12.00%
<S> <C> <C> <C> <C>
Terminal Year............................. 15.00x $17.00 $16.41 $15.85
Multiple.................................. 16.00x $17.76 $17.14 $16.55
Of Earnings............................... 17.00x $18.53 $17.87 $17.25
</TABLE>
35
<PAGE>
These analyses do not purport to be indicative of actual values or expected
values or an appraisal range of the shares of High Point common stock. The
discounted dividend analysis is a widely used valuation methodology, but Ryan,
Beck noted that it relies on numerous assumptions, including expense savings
levels, dividend payout rates, terminal values and discount rates, the future
values of which may be significantly more or less than such assumptions. Any
variation from these assumptions would likely produce different results.
In connection with its opinion, Ryan, Beck confirmed the appropriateness of
its reliance on the analyses used to render its January 19, 1999 opinion. Ryan,
Beck did this by performing procedures to update certain of such analyses and
by reviewing the assumptions and conclusions contained in the January 19th
opinion.
Ryan, Beck's opinion was based solely upon the information available to it
and the economic, market and other circumstances as they existed as of the date
of the opinion. Ryan, Beck did not and does not express any opinion as to the
price or range of prices at which Lakeland common stock might trade subsequent
to the merger. Events occurring after such date could materially affect the
assumptions and conclusions contained in Ryan, Beck's opinion. Ryan, Beck has
not undertaken to reaffirm or revise its opinion or otherwise comment upon any
events occurring after the date of its opinion.
The summary set forth above does not purport to be a complete description,
but is a brief summary of the material analyses and procedures performed by
Ryan, Beck in arriving at its opinion.
With regard to Ryan, Beck's services in connection with the merger, Lakeland
agreed to pay Ryan, Beck $75,000, including a $15,000 retainer fee which has
been paid. In addition, Lakeland agreed to reimburse Ryan, Beck for its
reasonable out-of-pocket expenses, which shall not exceed $5,000 without the
prior consent of Lakeland. Lakeland also agreed to indemnify Ryan, Beck and
certain related persons against certain liabilities, including liabilities
under federal securities law, incurred in connection with its services,
including the opinion. The amount of Ryan, Beck's fees were determined by
negotiation between Lakeland and Ryan, Beck. In addition to the $15,000
retainer fee, Lakeland has paid Ryan, Beck $35,000 over the past two years for
services performed by Ryan, Beck.
Prior to this engagement, Ryan, Beck acted as financial advisor to Lakeland
with respect to Lakeland's acquisition of Metropolitan State Bank. Ryan, Beck's
research department does not follow Lakeland. Ryan, Beck is a market maker in
Lakeland's common stock.
Ryan, Beck has not had an investment banking relationship with High Point in
the past three years. Ryan, Beck's research department does not follow High
Point. Ryan, Beck is a market maker in High Point's common stock.
In the ordinary course of its business, Ryan, Beck actively trades the
equity securities of Lakeland and High Point for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Estimates of Cost Savings
Michael A. Dickerson, High Point's Chief Executive Officer, and Capital
Consultants quantified potential cost savings which might be achieved in the
merger. These potential cost savings were based only upon historical financial
data of both Lakeland and High Point. They were not reviewed by High Point's
Board of Directors, other than by Charles L. Tice High Point's Chairman of the
Board, or by High Point's chief financial officer. Accordingly, High Point's
full Board did not consider these potential cost savings estimates in approving
the merger.
Mr. Dickerson then shared the potential cost savings data with John W.
Fredericks, Lakeland's then President, and Ryan, Beck. Both Mr. Fredericks and
Ryan, Beck believed that the estimated potential cost savings were too
aggressive in terms of how quickly the cost savings could be achieved and the
potential impact on the combined company's operations. Ryan, Beck and Mr.
Fredericks then modified the potential cost savings before they were presented
to the Lakeland Board of Directors.
36
<PAGE>
As part of Ryan, Beck's presentation to the Lakeland Board on December 3,
1998, Ryan, Beck reviewed the modified potential cost savings estimates. The
Lakeland Board believed that the modified potential cost savings estimates were
still too aggressive in terms of how quickly Lakeland would realize these
savings.
The potential cost savings originally prepared by Mr. Dickerson and Capital
Consultants, as modified by Ryan, Beck and presented to Lakeland's Board, are
as follows:
<TABLE>
<CAPTION>
First Full Year Total (1)
--------------- ---------
<S> <C> <C>
Legal Fees.................................... $ 94,335 $ 94,335
Fees--General................................. 61,649 61,649
Printing Services............................. 53,753 53,753
Other Holding Company Expenses................ 24,023 24,023
---------- ----------
Total Holding Company Expenses (2)............ 233,760 233,760
Professional Fees............................. 167,000 167,000
Savings Due to Sale Leaseback Repurchase...... 216,000 216,000
Equipment Expense............................. 115,000 415,000
Other Expenses................................ 115,000 115,000
Miscellaneous Expenses........................ 50,000 50,000
---------- ----------
Total Non Interest Expenses (Bank Level)...... 663,000 963,000
Data Processing............................... 83,067 332,268
Executive Administration...................... 130,000 300,000
Financial Administration...................... 89,003 178,005
Loan Administration........................... 111,000 222,000
Other Payroll Savings......................... 116,255 232,510
Fringe Benefits............................... 132,331 316,196
---------- ----------
Total Personnel & Benefits Expense (3)........ 661,656 1,580,979
Total Cost Savings (1)...................... $1,558,416 $2,777,739
========== ==========
</TABLE>
- --------
(1) Reflects the estimated total achievable cost savings from the merger if
and when the operations of Lakeland and High Point are fully consolidated
regardless of how long it takes to achieve these cost savings.
(2) Includes professional and director fees, printing costs and other
miscellaneous expenses.
(3) Certain of the expense savings are expected to be achieved through the
planned retirement of High Point's chief executive officer.
Our belief that cost savings are achievable is a forward-looking statement
that is inherently uncertain. No assurance can be given that these potential
cost savings or any cost savings or synergies will be achieved as a result of
the merger or as to the timing of any actual cost savings that may be achieved.
Any actual cost savings will depend on future expense levels and operating
results and general industry, regulatory and business conditions. Many of these
events will be beyond the control of the combined company. We have described
some of the risks and uncertainties that could materially impact our respective
businesses under the heading "A Warning About Forward-Looking Statements."
Estimates of Future Operations
In evaluating the merger, Capital Consultants, High Point's financial
advisor, had oral discussions with Lakeland's management regarding the future
performance of Lakeland for the year ending December 31, 1999. These
discussions were based on assumptions which Lakeland's management believed
reasonable at the time relating to the interest rate environment, and to
Lakeland's loan portfolio growth, asset growth and deposit growth. Lakeland
management's belief as to the reasonableness of its assumptions was based on
Lakeland's history of operations. Lakeland's management indicated to Capital
Consultants that it believed that earnings performance in 1999 would be very
similar to that of 1998 because of the continued expense burden of recently
opened branches.
37
<PAGE>
In evaluating the merger, Ryan, Beck, Lakeland's financial advisor, had oral
discussions with High Point's management regarding the future performance of
High Point for the year ending December 31, 1999. These discussions were based
on assumptions which High Point's management believed reasonable at the time
relating to the interest rate environment, and to High Point's loan portfolio
growth, asset growth and deposit growth. High Point management's belief as to
the reasonableness of its assumptions was based on High Point's history of
operations. High Point's management indicated to Ryan, Beck that it believed
that High Point's net income in 1999 would be approximately 7-10% higher than
that reported for 1998.
The expectations of future performance made by High Point and Lakeland did
not give effect to the merger or to merger related expenses. These expectations
should be read together with the unaudited pro forma condensed combined
consolidated financial information contained in this joint proxy
statement/prospectus. The expectations of future performance made by High Point
and Lakeland were not prepared with a view to public disclosure. The
expectations are included in this joint proxy statement/prospectus solely
because the information was discussed by the parties. Neither High Point's nor
Lakeland's independent auditors have examined the expectations.
The expectations as to future operations are forward-looking statements and
neither High Point nor Lakeland assume any responsibility for the accuracy of
the expectations. There can be no assurance that the expectations will be
realized. The expectations are inherently subject to significant economic and
competitive risks and uncertainties many of which are beyond each company's
control. These risks and uncertainties could cause actual results or
performance to differ materially from our expectations as to future
performance. We have described some of the risks and uncertainties that could
materially impact our respective businesses and our expectations as to future
performance under the heading "A Warning About Forward-Looking Statements."
Financial Interests of High Point Directors and Officers in the Merger
High Point and Lakeland stockholders should be aware that the directors and
officers of High Point have interests in the merger that are different from and
in addition to the interests of High Point stockholders generally. These
interests may conflict with interests of the other High Point stockholders. The
High Point Board of Directors was aware of these interests and took them into
account in approving the merger. These interests are summarized below.
Stock Options. As of the date of this joint proxy statement/prospectus, the
directors and executive officers of High Point own options to purchase
shares of High Point common stock granted under High Point's stock benefit
plans. All of these options will be exercisable at the time of the merger. The
difference between the aggregate exercise price and the market value of all
option shares, which represents the economic value of the options, was
$ at , 1999.
Employment Opportunities. While Lakeland has made no employment commitments
or arrangements with any High Point or NBSC employees, we expect that the
current directors and officers of NBSC will remain in those positions after the
merger while NBSC is a separate subsidiary of Lakeland. The aggregate annual
compensation of NBSC directors and executive officers in 1998 was $690,900. In
addition, Lakeland has agreed that Charles L. Tice, Michael A. Dickerson and
George H. Guptill, Jr. will be appointed as directors of Lakeland when the
merger occurs. Messrs. Tice, Dickerson and Guptill currently serve as directors
of High Point. Mr. Tice currently serves as Chairman of High Point and Mr.
Dickerson currently serves as President and Chief Executive Officer of High
Point and Chief Executive Officer of NBSC. For a period of six years after the
merger, the Board of Directors of Lakeland will make nominations to its Board,
subject to the approval by Lakeland stockholders, such that there will be at
least three directors, or after Mr. Dickerson ceases to serve at least two
directors, who were directors of High Point. As directors of Lakeland, Messrs.
Tice, Dickerson and Guptill will be entitled to receive $625 for each meeting
of the Lakeland Board they attend.
38
<PAGE>
Change of Control Agreements. On October 1, 1996, High Point entered into
change of control agreements with Michael A. Dickerson and Robert A.
Vandenbergh, which entitle them to substantial payments if they terminate their
employment within six months of the merger. Lakeland has acknowledged that the
merger will constitute a change in control for Mr. Dickerson and that if he
terminates his employment within six months of the merger he will receive
approximately $608,074. It is currently contemplated that Mr. Vandenbergh will
remain as an officer of NBSC after the merger and that his agreement will not
be triggered. However, if he does terminate his employment, he will then
receive approximately $301,185.
High Point first entered into change in control agreements in 1989 because
of its belief that these agreements tend to increase management independence by
guaranteeing long-term compensation and that the agreements could enhance the
ability of High Point to attract and retain superior managerial talent. The
agreements were also designed to discourage certain executives from ending
their employment with High Point if High Point became a potential target. These
agreements would allow those executives to focus on managing the business and
negotiating the best deal for stockholders rather than on seeking new
employment.
The agreements define a "change of control" as any of the following events:
. a reorganization, merger, consolidation, sale of all or substantially
all of the assets of High Point or NBSC, or a similar transaction in
which NBSC or High Point is not the surviving entity;
. individuals who constitute the incumbent board of NBSC or High Point
cease for any reason to constitute a majority thereof;
. a person other than High Point is or becomes a beneficial owner of
securities of High Point representing 25% or more of High Point's
outstanding securities having the right to vote for directors;
. a proxy statement soliciting proxies from High Point stockholders is
distributed by someone other than High Point which seeks stockholder
approval of a plan of reorganization, merger or consolidation of High
Point with one or more corporations as a result of which the outstanding
shares of High Point are exchanged or converted into cash or property or
securities not issued by High Point; or
. a tender offer is made for 25% or more of the voting securities of High
Point and High Point stockholders owning 25% or more of the outstanding
securities of High Point have tendered or offered to sell their shares
pursuant to the tender offer and the tendered shares have been accepted
by the tender offeror.
Each change in control agreement provides for the payment or provision of
certain compensation and other benefits to the executive if the executive's
employment is terminated upon a change of control. The agreements provide that
the executive's employment is terminated upon a change of control if (A) the
executive's employment is terminated without cause within the six month period
prior to, or at any time within the term of the change of control agreement
subsequent to, a change of control; or (B) the executive resigns within six
months following a change of control after (X) the executive is reassigned to a
position of lesser rank or status, (Y) a reduction in his base salary or a
material reduction in his total benefits, or (Z) the executive's principal
place of employment is relocated by more than thirty miles.
Each change in control agreement provides that, after the date the
executive's employment with High Point is terminated under circumstances
described in the preceding paragraph, High Point will pay as annual
compensation to the executive a sum equal to 2.99 times the executive's
preceding year's annual salary, including bonuses and any other cash
compensation paid or accrued by the executive during such year. In addition,
High Point will pay the amount of any benefits received pursuant to any
employee benefit plans on behalf of the executive maintained by High Point and
NBSC. The agreements provide for payment by High Point of certain job placement
agency fees for an eighteen month period following the termination date. The
agreements obligate High Point to provide to the executive all group insurance
coverage, including health, life and disability for a period beginning on the
termination date and ending three years from the change of control
39
<PAGE>
date. The agreements provide for personal use of the executive's High Point
automobile for a one year period after his termination date. The agreements
also provide that the amounts payable upon a change of control will be reduced
if they would otherwise be excess parachute payments under the Internal Revenue
Code.
Each change in control agreement provides that High Point will pay the
amount of the executive's attorney's fees incurred in enforcing his rights
under the agreement if the executive prevails in any action arising in
connection with his agreement. The agreements further require High Point either
to provide the executive with coverage under a standard directors' and
officers' liability insurance policy at its expense, or to indemnify the
executive to the fullest extent permitted by law and, as provided in High
Point's Restated Certificate of Incorporation and Bylaws, against all expenses
and liabilities reasonably incurred by him in connection with any action, suit
or proceeding in which he may be involved by reason of his having been an
officer or director of High Point and/or NBSC.
The change in control agreement will not apply if the executive is
terminated for cause, as defined in the agreements. The term of each agreement
is five years, but the term is automatically extended for additional one year
periods, unless 60 days prior to the anniversary date, the Boards of Directors
of High Point and NBSC pass a resolution stating their intention not to extend
the term of the agreement. No such resolution has been adopted to date.
Salary Continuation Agreement. During 1996, NBSC entered into a salary
continuation agreement with each of Messrs. Dickerson and Vandenbergh. These
agreements entitle them to certain payments upon their retirement. As part of
the merger, Lakeland has agreed to place in trusts amounts equal to the present
value of the amounts that would be owed to Messrs. Dickerson and Vandenbergh
upon their retirement. These amounts are $722,000 and $381,000 for Mr.
Dickerson and Mr. Vandenbergh, respectively. Lakeland will have no further
obligation to pay additional amounts pursuant to these agreements after the
merger.
The purpose of the salary continuation agreements is to encourage continued
employment of NBSC's executive management by providing retirement benefits to
the executive after retirement or other termination of employment and by
providing death benefits to his beneficiary after death.
Each salary continuation agreement provides that if the executive terminates
his employment on or after his normal retirement date, NBSC will pay to the
executive a monthly benefit. Normal retirement date is defined as age 65 and
the completion of 11 years of service. The monthly payment consists of 72% of
one twelfth of the executive's final pay reduced by:
. one half of the monthly unreduced primary retirement benefit under the
United States Social Security Act that the executive would be eligible
for if an application for such benefits were made as of the executive's
65th birthday;
. the monthly straight life annuity benefit the executive would be
entitled to receive under High Point's qualified ESOP determined by the
number of shares due to the executive multiplied by the average market
bid price of the shares during the last ten trading days prior to the
executive's termination of employment assuming a life expectancy based
on the executive's then current age using the chart published in the US
Treasury Regulations and assuming an interest rate of 7.0%; and
. the monthly straight life annuity benefit the executive would be
entitled to receive under High Point's qualified 401(k) entitlement
accumulated as of the executive's termination of employment relating to
the matching funds only and assuming a life expectancy based on the
executive's then current age using the chart published in the US
Treasury Regulations.
NBSC is required to make these monthly payments to the executive on the first
day of the month following the executive's termination and continuing until the
later of the executive's death or the date on which NBSC has made 179
additional monthly payments.
40
<PAGE>
If the executive terminates his employment after the early retirement date
but before the normal retirement date, or if the executive terminates his
employment for disability prior to the normal retirement date, the benefit
payable is calculated as if the executive's retirement date were the
executive's normal retirement date multiplied by a fraction. The numerator of
the fraction is the executive's actual years of service and the denominator of
the fraction is the executive's years of service determined as if the executive
had continued to the normal retirement date. Early retirement date is defined
as age 62 and the completion of 11 years of service. NBSC is required to make
these monthly payments to the executive on the first day of the month following
the executive's termination and continuing until the later of the executive's
death or the date on which NBSC has made 179 additional monthly payments.
If the executive is in the active service of NBSC and terminates his
employment, voluntarily or involuntarily, other than on account of death,
disability or retirement within the six month period immediately preceding a
change of control or at any time after a change of control, NBSC is required to
pay to the executive a benefit calculated as if the date of the executive's
termination date were the executive's normal retirement date multiplied by a
fraction. The numerator of the fraction is the executive's actual years of
service and the denominator of the fraction is the executive's years of service
determined as if the executive had continued to the normal retirement date. A
change of control and a termination pursuant to change of control are defined
in the same manner as under the change in control agreements. NBSC shall make
these monthly payments to the executive on the first day of the month following
the executive's termination and continuing until the later of the executive's
death or the date on which NBSC has made 179 additional monthly payments.
If the executive terminates his employment before his early retirement date
for reasons other than death, disability or change of control, NBSC is required
to pay the benefits as if the executive's termination date were the executive's
normal retirement date multiplied by a fraction. The numerator of the fraction
is the executive's actual years of service and the denominator of the fraction
is the executive's years of service determined as if the executive had
continued to the normal retirement date. These payments shall commence the
month after the executive attains age 65 and shall continue until 179
additional monthly payments have been made. If the executive terminates his
employment before his early retirement date for reasons other than disability
or change of control and dies prior to attaining age 65, NBSC is required to
pay the benefit to the executive's named beneficiary commencing with the month
after the executive's death and continuing until 179 additional payments have
been made.
If the executive dies while in the active service of NBSC, NBSC is required
to pay to the executive's beneficiary or beneficiaries, or his estate, the
benefit that would have been paid to the executive calculated as if the
executive's death were the normal retirement date. NBSC is required to pay the
benefit to the beneficiary on the first day of each month commencing with the
month following the executive's death and continuing until NBSC has made 179
additional monthly payments. Benefit payments are to be increased in the same
manner as normal retirement benefits would be increased.
NBSC will not pay any benefits under the salary continuation agreements if
NBSC terminates the executive's employment for cause, as defined in the
agreements.
Indemnification and Insurance. Lakeland has agreed to indemnify the
directors and officers of High Point against certain liabilities for a six year
period following the merger. Also, for three years following the merger,
Lakeland will provide directors' and officers' insurance for the directors and
officers of High Point for events occurring before the merger, including events
that are related to the merger.
Accounting Treatment
The merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Completion of the merger is conditioned on
the receipt by Lakeland of a letter from its independent auditors confirming
that the merger will be treated as a pooling of interests for accounting
purposes and of a letter from High Point's independent public accountants
confirming that High Point is a poolable entity. Under the pooling
41
<PAGE>
of interests method of accounting, (1) the recorded assets and liabilities of
Lakeland and High Point will be carried forward to the combined company at
their historical recorded amounts, (2) income of the combined company will
include income of Lakeland and High Point for the entire fiscal year in which
the merger occurs, and (3) the reported income of the separate companies for
previous periods will be combined and restated as income of the combined
company.
Regulatory Approvals
Completion of the merger requires, among other things, prior receipt of all
necessary regulatory approvals, including the approval of the Federal Reserve
Board and the New Jersey Department of Banking and Insurance. Lakeland has
received both approvals.
Federal Securities Law Consequences
High Point stockholders, except persons who are "affiliates" of Lakeland or
High Point prior to the merger, will be able to freely sell or transfer the
shares of Lakeland common stock they receive in the merger. Stockholders who
may be "affiliates" include the executive officers, directors and principal
stockholders of Lakeland and High Point, as well as any person or entity who
controls or is controlled by the companies.
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THE MERGER AGREEMENT
The following summary contains all material aspects of the merger agreement.
However, it is qualified by reference to the complete text of the merger
agreement, which is incorporated by reference and attached as annex A.
The Merger
The merger agreement provides that High Point will be merged into Lakeland.
Lakeland will be the surviving corporation and High Point will not continue as
a separate corporation. The merger requires the approval of Lakeland's and High
Point's stockholders, the receipt of certain regulatory approvals and the
satisfaction or waiver of other conditions. See "--Conditions." The merger will
become effective upon the filing of a certificate of merger with the New Jersey
Secretary of the Treasury. This filing will be made promptly after the closing
of the merger is completed. The closing will be held on a date that is as soon
as practicable following the date upon which all conditions to the merger have
been satisfied or waived, unless High Point and Lakeland agree to a different
date. It is currently anticipated that the merger will become effective shortly
after the stockholder meetings, assuming the merger is approved.
Merger Consideration; Conversion of Securities
Exchange Ratio. Upon completion of the merger, each share of High Point
common stock issued and outstanding will be converted into 1.2 shares of
Lakeland common stock. Shares of High Point common stock held in treasury or by
Lakeland or its subsidiaries will not be exchanged, but will be canceled.
Fractional Shares. No certificates for fractional shares of Lakeland common
stock will be issued in the merger. Instead, High Point stockholders will
receive a cash payment in an amount equal to the value of any fractional
interest. These cash payments will be determined with reference to the average
closing bid prices of Lakeland common stock during a short period prior to the
closing date.
Exchange Procedures
Lakeland's exchange agent will handle the exchange of High Point stock
certificates for Lakeland stock certificates and the payment of cash for
fractional shares of Lakeland stock. Soon after the closing, the exchange agent
will send to each High Point stockholder a letter of transmittal for use in the
exchange and instructions explaining how to surrender High Point stock
certificates to the exchange agent. High Point stockholders that surrender
their certificates to the exchange agent, together with a properly completed
letter of transmittal, will receive the appropriate merger consideration.
After the merger is effective, each High Point stock certificate will
represent only the right to receive a certificate representing shares of
Lakeland common stock and cash instead of fractional shares. Holders of
unexchanged shares of High Point common stock will not be entitled to receive
any dividends or other distributions by Lakeland after the merger until their
certificates are surrendered.
Representations and Warranties
The merger agreement contains customary representations and warranties made
by Lakeland and High Point. Some of these representations and warranties relate
to the following:
. corporate power and authority to enter into the merger agreement;
. consents and approvals required to enter into the merger agreement or to
complete the merger;
. the absence of certain conflicts between the merger agreement, on the
one hand, and governing corporate documents, credit agreements and other
contracts, and laws and regulations, on the other hand;
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. required board votes and recommendations to stockholders in connection
with the merger agreement;
. the accuracy of information supplied for inclusion in this joint proxy
statement/prospectus;
. the accuracy of financial statements and their conformity with generally
accepted accounting principles;
. the adequacy of loan loss reserves;
. the absence, since September 30, 1998, of any material adverse changes
or events;
. the absence of undisclosed material litigation;
. the absence of orders, special agreements, memoranda of understanding or
the like with bank regulators;
. title to and conditions of properties, including environmental matters;
and
. compliance with Year 2000 protocols described in SEC reports.
In addition, High Point makes representations and warranties relating to the
timely filing of all tax returns and the timely payment of all applicable
taxes, the absence of indemnification agreements, certain material contracts,
and change in control rights with respect to its employment contracts.
The representations and warranties made by the companies will not survive
the closing. However, it is a condition to the merger that the other party's
representations and warranties shall, on the date of the merger agreement and
again on and as of the closing date, be true and correct in all material
respects.
Covenants
Mutual Covenants. Lakeland and High Point agreed that:
. each is entitled to make a complete investigation of the other;
. each will: (A) promptly file all required applications, reports and
submissions with respect to the merger; (B) cooperate in determining if
any consents or approvals are required with respect to the merger; (C)
promptly seek any required consents and approvals; and (D) deliver to
the other a copy of all filed applications, reports and submissions;
. each will consult with the other before issuing any press release with
respect to the merger or making any filings with any governmental
entity;
. each will take all action necessary to convene and hold a stockholder
meeting and to obtain the consent and approval of the merger, including
recommending such approval to their respective stockholders; and
. each will use its best efforts to cause the merger to constitute a tax-
free "reorganization" under the Internal Revenue Code of 1986, and to
cooperate with one another in obtaining an opinion from Lowenstein
Sandler PC, counsel to Lakeland, to the effect that (1) the merger will
constitute a tax-free "reorganization" under Section 368(a) of the Code,
(2) High Point and Lakeland will each be a party to such reorganization,
and (3) generally no gain or loss will be recognized by High Point
stockholders upon the receipt of shares of Lakeland common stock in
exchange for shares of High Point common stock, except with respect to
cash received instead of fractional shares of Lakeland common stock. In
connection with the Lowenstein Sandler tax opinion, Lakeland and High
Point are both required to deliver to Lowenstein Sandler representation
letters and High Point has agreed to use all reasonable efforts to
obtain representation letters from appropriate High Point stockholders.
High Point's Affirmative Covenants. High Point agreed to:
. conduct its operations only in the ordinary course of business;
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. use all reasonable efforts to maintain and preserve its business
organization and all material rights and franchises; and
. endeavor to retain its officers and key employees and preserve its
present relationships with customers, suppliers, lessees, and licensees.
High Point's Negative Covenants. High Point agreed not to do the following
prior to the merger, without the prior written consent of Lakeland or as
otherwise expressly provided in the merger agreement:
. do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock;
(B) make, declare, set aside or pay any dividend, other than regular
quarterly dividends on the High Point common stock of $.02 per share, or
directly or indirectly redeem, purchase or otherwise acquire, any shares
of its capital stock or any securities or obligations convertible into
or exchangeable for any shares of its capital stock; (C) grant any
person any right or option to acquire any shares of its capital stock;
(D) issue, deliver or sell any additional shares of its capital stock or
any securities or obligations convertible into or exchangeable or
exercisable for any shares of its capital stock, except pursuant to the
exercise of disclosed stock options; or (E) enter into any agreement,
understanding or arrangement with respect to the sale, voting,
registration or repurchase of its capital stock;
. directly or indirectly sell, transfer, lease, pledge, mortgage, encumber
or otherwise dispose of any of its property or assets other than in the
ordinary course of business;
. merge or consolidate with any other person;
. acquire a material amount of assets or capital stock of any other
person;
. enter into or modify any employment, severance, termination or similar
agreements or arrangements with, or grant any bonuses, salary increases,
severance or termination pay to, any officer, director, consultant or
employee other than in the ordinary course of business consistent with
past practice;
. enter into, adopt or amend any employee benefit or similar plan except
as may be required by applicable law;
. change any method or principle of accounting in a manner that is
inconsistent with past practice except to the extent required by
generally accepted accounting principles as advised by High Point's
independent public accountants;
. take any action, or knowingly omit to take any action, that would, or
that would reasonably be expected to, result in (A) any of the
representations and warranties of High Point becoming untrue in any
material respect or (B) any of the conditions to the merger not being
satisfied;
. enter into or carry out any other transaction other than in the ordinary
and usual course of business;
. convene any meeting other than the High Point special meeting or
determine to submit any matter for stockholder action, other than the
merger, unless Lakeland is given at least 45 days prior written notice
of the meeting or determination;
. take any action that would (A) materially delay or adversely affect the
ability of High Point to obtain any approvals of governmental entities
required to permit the merger or (B) materially adversely affect its
ability to perform its obligations under the merger agreement; and
. agree in writing or otherwise to take any of the foregoing actions.
High Point stockholders are not entitled to receive a cash dividend from
High Point prior to the merger and a cash dividend from Lakeland after the
merger within a three month period.
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Lakeland's Negative Covenants. Lakeland agreed that, prior to the closing,
it will not take any action that would result in (A) any of the representations
and warranties of Lakeland becoming untrue in any material respect or (B)
certain of the conditions to closing not being satisfied.
Pooling of Interests
High Point agreed that it will identify to Lakeland all persons who were, at
the time of the execution of the merger agreement, possible "affiliates" of
High Point as that term is used for purposes of determining whether the merger
qualifies for "pooling of interests" accounting treatment.
High Point also agreed to use its best efforts to obtain a written agreement
from each High Point affiliate, stating that (A) the affiliate shall not offer,
sell, pledge, transfer or otherwise dispose of any shares of High Point common
stock held by them and any shares of Lakeland common stock to be received by
them as consideration, except in compliance with the applicable provisions of
the Securities Act, and (B) the affiliate shall not sell or otherwise reduce
its risk relative to any shares of Lakeland common stock during the period
commencing 30 days prior to the consummation of the merger and will not sell or
otherwise reduce their risk relative to any shares of Lakeland common stock
until publication of financial results covering at least 30 days of combined
operations of Lakeland and High Point.
High Point and Lakeland agreed that they would not intentionally take or
fail to take any action which would disqualify the merger from being treated as
a "pooling of interests" for accounting purposes or as a "reorganization"
within the meaning of the Internal Revenue Code.
Acquisition Proposals and Termination Right
High Point agreed that until the merger is completed, it will not solicit or
initiate any inquiries or the making of any proposals with respect to any:
. business combination involving High Point;
. acquisition of any capital stock of High Point;
. acquisition of 15% or more of the assets of High Point and its
subsidiaries, taken as a whole;
. acquisition by High Point of any material assets or capital stock of any
other person; or
. combination of the foregoing (collectively, a "Competing Transaction").
In addition, High Point agreed not to negotiate or otherwise engage in
discussions with any person with respect to any Competing Transaction or enter
into any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the merger. However, at any time prior to the
approval of the merger by the High Point stockholders, High Point may negotiate
with any party who delivers a written proposal for a Competing Transaction
which was not solicited or encouraged, if the High Point Board of Directors
determines that failing to take such action would be a breach of its fiduciary
duties and determines that such a proposal is, after consulting with Capital
Consultants, more favorable to High Point's stockholders from a financial point
of view than the merger. High Point agreed to immediately cease all existing
activities, discussions and negotiations with any parties conducted prior to
the date of the merger agreement with respect to any proposal for a Competing
Transaction.
If prior to the approval of the merger by the High Point stockholders, the
High Point Board of Directors determines, in response to a written proposal for
a Competing Transaction which was not solicited or encouraged after the date of
the merger agreement, that its failure to withdraw, modify or change its
recommendation in favor of the merger would be inconsistent with its fiduciary
duties, then the High Point Board may withdraw or modify, in a manner adverse
to Lakeland, its recommendation. In this event, High Point must provide
Lakeland with two days prior written notice of its intention to withdraw or
modify the recommendation.
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High Point agreed that as promptly as possible and in any event within 24
hours of receipt, to advise Lakeland in writing of the receipt of any
inquiries, discussions, negotiations, or proposals relating to a Competing
Transaction. High Point would furnish to Lakeland within 24 hours of such
receipt an accurate description of all material terms of any such written
proposal in addition to any information provided to any third party relating
thereto. In addition, High Point agreed to immediately advise Lakeland, in
writing, if the High Point Board of Directors makes any determination as to any
Competing Transaction.
If prior to the approval of the merger by the High Point stockholders, the
Board of Directors of High Point determines, in response to a written proposal
for a Competing Transaction which was not solicited or encouraged after the
date of the merger agreement, that it must withdraw, modify or change its
recommendation in favor of the merger and that a failure to do so would be
inconsistent with its fiduciary duties, and that such Competing Transaction is
more favorable to High Point's stockholders than the merger, then High Point
may terminate the merger agreement and enter into an agreement with respect to
such Competing Transaction. In this event, High Point must provide Lakeland
written notice that it intends to terminate the merger agreement and
identifying and describing the Competing Transaction. High Point must then
deliver to Lakeland (1) a written notice of termination of the merger
agreement, (2) a check in the amount of Lakeland's costs in the merger, (3) a
written acknowledgment from High Point that the termination of the merger
agreement and the entry into the other agreement for the Competing Transaction
will be a "Purchase Event" as defined in the stock option agreement and that
the stock option agreement shall be honored in accordance with its terms and
(4) a written acknowledgment from each other party to the Competing Transaction
that it is aware of High Point's acknowledgment and waives any right it may
have to contest the matters acknowledged by High Point.
Conditions
Mutual Conditions. The obligations of Lakeland and High Point to effect the
merger are subject to satisfaction of conditions, including:
. the merger shall have been approved by the High Point and Lakeland
stockholders;
. all other authorizations, consents, orders or approvals of, and all
expirations of waiting periods imposed by, any governmental authority
which are necessary for the merger shall have been obtained or shall
have occurred and shall be in full force and effect;
. the SEC shall have declared the registration statement, of which this
joint proxy statement/prospectus is a part, effective, and no stop order
or similar restraining order suspending the effectiveness of the
registration statement shall be in effect;
. Lakeland shall have received (A) a letter, dated the date of the merger,
from Arthur Andersen LLP, High Point's independent public accountants,
to the effect that, for financial reporting purposes, it is unaware of
any reason why High Point is not a poolable entity and (B) a letter,
dated the date of the merger, from Radics & Co., LLC, Lakeland's former
independent accountants, to the effect that, for financial reporting
purposes, the merger qualifies for pooling-of-interests accounting
treatment under general accepted accounting principles if consummated in
accordance with the merger agreement;
. no temporary restraining order, preliminary or permanent injunction or
other order by any federal or state court in the United States which
prevents the consummation of the merger shall have been issued and
remain in effect;
. High Point and Lakeland shall have received the Lowenstein Sandler tax
opinion; and
. at the merger, Lakeland shall have placed in "rabbi" trusts for the
benefit of Michael A. Dickerson and Robert A. Vandenbergh an amount
equal to the present value of the aggregate amounts that would be owed
to Messrs. Dickerson and Vandenbergh, respectively, upon their estimated
retirement dates pursuant to their respective agreements with High Point
and NBSC. In addition, at the merger, High Point, Lakeland, Michael A.
Dickerson and Robert A. Vandenbergh shall have executed a letter
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in form satisfactory to Lakeland and High Point pursuant to which the
parties agree that after the merger, Lakeland will have no obligation to
pay any additional amounts pursuant to such agreements.
Conditions to Lakeland's Obligations. The obligations of Lakeland to
consummate the merger are also subject to the fulfillment or waiver of several
conditions:
. the representations and warranties of High Point shall be true and
correct in all material respects on the date of the merger agreement and
on and as of the closing date as though made on and as of the closing
date;
. High Point shall have performed in all material respects each of its
covenants under the merger agreement required to be performed at or
prior to the completion of the merger;
. during the period from October 1, 1998 through the closing date, there
shall not have occurred any act, event or omission which shall have had
a material adverse effect on High Point;
. High Point shall have obtained all authorizations, consents, waivers and
approvals required in connection with the execution, delivery and
performance of the merger agreement, which shall be in full force and
effect as of the closing date;
. Lakeland shall have received satisfactory letters confirming applicable
securities trading restrictions, from each person whom Lakeland
reasonably determines to be an affiliate of High Point for purposes of
the SEC's Rule 145 and assuring that the merger will be accounted for as
a pooling of interests; and
. prior to or at the completion of the merger, High Point shall have
delivered to Lakeland the closing documents specified in the merger
agreement.
Conditions to Obligations of High Point to Consummate the Merger. The
obligations of High Point to consummate the merger are also subject to the
fulfillment or waiver of several conditions including:
. the representations and warranties of Lakeland shall be true and correct
in all material respects on the date of the merger agreement and on and
as of the closing date as though made on and as of the closing date;
. Lakeland shall have performed in all material respects each of its
covenants under the merger agreement to be performed by Lakeland at or
prior to the completion of the merger;
. during the period from October 1, 1998 through the closing date, there
shall not have occurred any act, event or omission which shall have had
a material adverse effect on Lakeland; and
. prior to or at the completion of the merger, Lakeland shall have
delivered to High Point the closing documents specified in the merger
agreement.
Where the law permits, a party to the merger agreement could elect to waive a
condition to its obligation to complete the merger even though that condition
has not been satisfied. We cannot be certain when, or if, the conditions to the
merger will be satisfied or waived, or that the merger will be completed. If
the Lowenstein Sandler tax opinion condition is waived by the companies,
Lakeland and High Point will resolicit their respective stockholders to approve
the merger.
Stock Options
Each unexpired and unexercised High Point stock option granted under High
Point's stock option plans will be automatically converted at the effective
time of the merger. Each of these options will be converted into an option to
purchase shares of Lakeland common stock equal to the number of shares of High
Point common stock issuable immediately prior to the merger multiplied by the
exchange ratio. The exercise price of the new Lakeland option will be equal to
the exercise price of the corresponding High Point option divided by the
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exchange ratio. All other terms and conditions of this new Lakeland option will
be identical to the terms and conditions of the High Point option immediately
before the merger. However, with respect to any High Point option that is an
"incentive stock option," the foregoing conversion shall be carried out in a
manner satisfying the requirements of the Internal Revenue Code. In connection
with the issuance of Lakeland options for High Point options, Lakeland shall
reserve for issuance the number of shares of Lakeland common stock that will
become issuable upon the exercise of the options.
Operations of NBSC After the Merger
Lakeland intends to maintain NBSC as a separate subsidiary for a period of
two years after the merger, unless required to do otherwise by law. Initially,
the directors and executive officers of NBSC will remain in their positions
after the merger, and Lakeland has no present intention to remove these
directors and executive officers during the two year period so long as NBSC is
managed in a manner consistent with Lakeland's overall business strategies.
NBSC has agreed not to take any actions during the two-year transition period
inconsistent with its covenants for operating High Point between December 7,
1998 and the closing date of the merger. Lakeland will have the right to expand
the list of prohibited actions during the two-year period. One member of
Lakeland's Board will serve as a director of NBSC and another will attend
meetings as an observer. Lakeland anticipates that NBSC will be merged into one
of its other bank subsidiaries two years after the merger.
High Point and Lakeland Dividend Reinvestment Plans
High Point terminated its dividend reinvestment plan upon the execution of
the merger agreement. Lakeland has a dividend reinvestment plan and all High
Point stockholders who receive Lakeland common stock in the merger will be able
to participate in the plan.
Termination
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time. The merger may be abandoned even if
approved by High Point and Lakeland stockholders. Termination of the merger
agreement can be made:
. by mutual written consent of Lakeland and High Point;
. by either Lakeland or High Point if the merger is not completed on or
before September 30, 1999, provided the terminating party is not in
material breach of its obligations under the merger agreement;
. by either Lakeland or High Point if the merger agreement is not approved
at the High Point and Lakeland stockholder meetings;
. by Lakeland or High Point, in the event of (A) a breach by the other
party of any representation or warranty contained in the merger
agreement, which breach has not been cured within thirty days of written
notice and which breach, individually or in the aggregate when combined
with other such breaches, would cause the applicable conditions of the
merger agreement not to be met or (B) a material breach by the other
party of any of the covenants or agreements contained in the merger
agreement, which breach has not been cured within thirty days after the
giving of written notice;
. by High Point if any of its closing conditions have not been met or
waived by High Point;
. by Lakeland if any of its closing conditions have not been met or waived
by Lakeland;
. by Lakeland if the High Point Board of Directors withdraws or modifies
its recommendation approving the merger in a manner adverse to Lakeland,
or if the High Point Board refuses to affirm its recommendation as
promptly as practicable after receipt of any written request from
Lakeland;
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. by Lakeland if High Point breaches in any material respect any of its
obligations under the stock option agreement; or
. by High Point if there is a superior Competing Transaction.
Effect of Termination
Upon termination, the merger agreement, except for certain limited
provisions, shall become void and have no effect without any liability on the
part of any party or its directors, officers or stockholders. However, no party
to the merger agreement shall be relieved of liability for a material breach of
any material provision of the merger agreement. If it shall be judicially
determined that termination of the merger agreement was caused by an
intentional breach, then the breaching party is required to indemnify and hold
harmless the other parties for their respective out-of-pocket costs, fees and
expenses related to the merger.
High Point agreed to pay Lakeland's merger costs if:
. High Point terminates the merger agreement due to a Competing
Transaction;
. Lakeland terminates the merger agreement due to the withdrawal or
modification of the High Point Board merger recommendation in a manner
adverse to Lakeland; or
. Lakeland or High Point terminates the merger agreement due to the
failure of the High Point stockholders to approve the merger and at that
time (A) there is a publicly announced Competing Transaction with
respect to High Point involving a third-party or (B) a third-party shall
have filed an application or notice for approval to engage in a
Competing Transaction, and within 12 months after the termination, High
Point enters into or consummates a business combination.
A business combination is defined in the merger agreement to mean (1) a merger,
consolidation, share exchange, business combination or similar transaction
involving High Point, as a result of which the High Point stockholders prior to
the transaction cease to own at least 85% of the voting securities of the
entity resulting from the transaction, (2) a sale, lease, exchange, transfer or
other disposition of more than 15% of the assets of High Point and its
subsidiaries, taken as a whole or (3) the acquisition, by a person or group of
beneficial ownership of more than 15% of the High Point common stock whether by
tender or exchange offer or otherwise.
If the merger agreement is terminated as described above, High Point is
still required to satisfy its obligations under the stock option agreement.
Amendment and Waiver
The merger agreement may only be amended or modified in a written instrument
signed by the party against whom enforcement of the amendment or modification
is sought. After the approval of the merger by a party's stockholders, no
amendment shall be made to the exchange ratio without the approval of such
party's stockholders.
Except as otherwise required by law, any of the terms and conditions of the
merger agreement may be waived at any time by the party or parties entitled to
the benefit thereof. All waivers must be by a writing signed by the party or
parties waiving the terms or conditions.
Fees and Expenses
Lakeland and High Point will each pay their own expenses, except as
described under "--Effect of Termination." The parties will share the expenses
of printing, filing and mailing this joint proxy statement/prospectus and the
registration statement.
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THE STOCK OPTION AGREEMENT
The following summary of the stock option agreement is qualified by
reference to the complete text of the agreement, which is incorporated by
reference and attached as annex D.
On December 7, 1998, Lakeland and High Point also entered into a stock
option agreement. Lakeland required High Point to enter into the stock option
agreement to provide High Point with an incentive to complete the merger and to
deter other parties from making a competing offer. Lakeland believes that the
stock option agreement will make the completion of the merger more likely to
occur. The option grants Lakeland the right to purchase up to 772,243 shares of
High Point common stock at a price of $13.25 per share if the merger is
terminated following certain events. These events include:
. the High Point Board of Directors withdraws or modifies its
recommendation in favor of the merger, other than due to a material
breach by Lakeland;
. the High Point stockholders do not approve the merger, and at that time
(A) there is a publicly announced Competing Transaction with respect to
High Point involving a third party or (B) a third party shall have filed
an application or notice for approval to engage in a Competing
Transaction, and within twelve months after termination of the merger,
High Point consummates or enters into an agreement or business
combination for a Competing Transaction;
. if High Point breaches in any material respect any of its
representations, warranties or obligations under the stock option
agreement; or
. the merger agreement is terminated by High Point following receipt of an
offer of a superior Competing Transaction.
None of these triggering events has occurred as of the date of this joint
proxy statement/ prospectus.
The option will expire 270 days following the occurrence of any of the
triggering events. The option also will expire at the effective time of the
merger or if the merger agreement is terminated prior to a triggering event,
with certain exceptions.
After the occurrence of a triggering event and prior to the termination of
the option, Lakeland will have the right to require High Point to repurchase
the option at a formula price. In addition, High Point will have the right to
repurchase any High Point common stock acquired by Lakeland pursuant to
exercise of the option at a formula price.
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UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material U.S. 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 merger. The discussion does not address all aspects of U.S. federal income
taxation that may be applicable to certain High Point stockholders subject to
special U.S. federal income tax treatment, including, without limitation,
foreign persons, financial institutions, dealers in securities, insurance
companies, tax-exempt entities and retirement plans. The discussion does not
address the effect of applicable state, local or foreign tax laws, or the
effect of any U.S. federal tax laws other than those pertaining to U.S. federal
income tax. This discussion applies to High Point stockholders who hold their
shares of High Point common stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code; that is, High Point stockholders who
do not hold their High Point common stock as (A) stock in trade, or other
property of a kind which would properly be included in the inventory of the
stockholder if on hand at the close of the taxable year, or (B) primarily for
sale to customers in the ordinary course of the stockholder's trade or
business.
In the opinion of Lowenstein Sandler PC, counsel to Lakeland, 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 and each of High Point and Lakeland will be a party to the
"reorganization" within the meaning of Section 368(b) of the Code. This 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 of the merger, including, without limitation,
certain representations made by Lakeland and High Point. If any of these
factual assumptions is inaccurate, the tax consequences of the merger could
differ from those described herein.
The following is a summary of the general U.S. federal income tax
consequences of the merger to a High Point stockholder, and to Lakeland and
High Point. No gain or loss will be recognized by a High Point stockholder with
respect to Lakeland common stock received in the merger. The tax basis of
Lakeland common stock received by a High Point stockholder in the merger will
be equal to the tax basis of the shares of High Point 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 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 shares of
Lakeland common stock received by High Point stockholders will include the
holding period of the shares of High Point common stock exchanged therefor.
Capital gains of individuals derived in respect of capital assets held for more
than one year are eligible for reduced rates of taxation depending upon the
holding period of such capital assets.
The receipt of cash instead of fractional shares of Lakeland common stock by
a High Point stockholder generally will result in taxable gain or loss to such
stockholder for U.S. federal income tax purposes based on the difference
between the amount of cash received by the stockholder and the stockholder's
basis in the fractional shares as set forth above. This gain or loss will be a
capital gain or loss.
No gain or loss will be recognized by Lakeland or High Point as a result of
the merger.
The opinion of Lowenstein Sandler PC is not binding on the Internal Revenue
Service. We intend this discussion to provide only a summary of the material
federal income tax consequences of the merger. We do not intend that it be a
complete analysis or description of all potential federal income tax
consequences of the merger. In addition, we do not address tax consequences
which may vary with, or are contingent upon, individual circumstances.
Moreover, we do not address any non-income tax or any foreign, state or local
tax consequences of the merger. Accordingly, we strongly urge you to consult
your tax advisor to determine your particular United States federal, state,
local or foreign income or other tax consequences resulting from the merger,
with respect to your individual circumstances.
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THE COMPANIES
High Point
For more complete information about High Point, including financial
statements and management's discussion and analysis of those financial
statements, please refer to High Point's Annual Report on Form 10-K and
Quarterly Report on Form 10-Q delivered with this joint proxy
statement/prospectus.
Description of the Business
High Point Financial Corp. is a bank holding company with one subsidiary,
The National Bank of Sussex County (NBSC).
High Point commenced operations on April 1, 1983. High Point's primary
business is managing and supervising NBSC.
NBSC was organized as The Branchville National Bank in 1933, and became The
National Bank of Sussex County in 1957. It is a federally chartered national
banking association and a member of the Federal Reserve System, and its
deposits are insured by the Federal Deposit Insurance Corporation. NBSC is a
full service commercial bank with nine branches, an operations center, and an
administration center -- all within Sussex County, New Jersey. Its customers
primarily are individuals who reside in, and small to medium-sized businesses
that are located in, northwestern New Jersey.
NBSC accepts deposits, makes loans, and offers annuities and life insurance.
NBSC also provides full securities brokerage services, including mutual funds
and variable annuities, in cooperation with Linsco/Private Ledger and provides
insurance services through a joint venture with van den Heuval Fountain, Inc.
At March 31, 1999, High Point and its subsidiaries had assets of $269.2
million, deposits of $228.8 million and stockholders' equity of $24.5 million.
At December 31, 1998, High Point and its subsidiaries had total assets of
$259.0 million, deposits of $222.9 million, and stockholders' equity of $24.3
million.
Lakeland
Description of Business
General. Lakeland, a New Jersey corporation, is a bank holding company
registered with and supervised by the Board of Governors of the Federal Reserve
System. Lakeland was organized in March of 1989 and commenced operations on May
19, 1989, upon the acquisition of all of the outstanding stock of Lakeland
Bank, formerly named Lakeland State Bank. Lakeland's primary business consists
of managing and supervising Lakeland Bank and its other subsidiary bank,
Metropolitan State Bank. The principal source of Lakeland's income is dividends
paid by Lakeland Bank and Metropolitan State Bank. At March 31, 1999, Lakeland
and its subsidiaries had assets of $556.3 million, deposits of $496.8 million
and stockholders' equity of $53.9 million. At December 31, 1998, Lakeland and
its subsidiaries had assets of $548.6 million, deposits of $488.9 million, and
stockholder's equity of $53.3 million.
This description of Lakeland's business and the Management's Discussion and
Analysis of Financial Condition and Results of Operations which follows contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. These uncertainties include, but
are not limited to, the following: uncertainties relating to general economic
conditions; uncertainties relating to the determination of Lakeland's provision
for loan losses and allowance for loan losses; uncertainties relating to the
analysis of Lakeland's assessment of rate sensitive assets and rate sensitive
liabilities and relating to the extent to which market factors indicate that a
financial institution such as
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Lakeland should match such assets and liabilities; the impact of competition
among financial institutions and between financial institutions and other
sources of credit; the ability of Lakeland to integrate Metropolitan State
Bank, which was acquired by Lakeland on February 20, 1998; the impact of off-
balance sheet obligations; changes to the presentation of financial results and
condition resulting from adoption of new accounting principles or upon the
advice of Lakeland's independent auditors or the staff of various regulatory
agencies; unanticipated demands upon Lakeland's liquidity; unanticipated
failure or malfunction of Lakeland's information systems; changes in, or
failure to comply with governmental regulations; the costs and other effects of
administrative and legal proceedings; the continued financial viability of
Lakeland's borrowers; the continued financial viability of the issuers of
securities within Lakeland's investment portfolio; labor and employment benefit
costs; and other factors referenced herein or in other filings or written or
oral statements made by or on behalf of Lakeland. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify "forward-
looking statements." These forward looking statements speak only as of the date
that the statement is made. Lakeland undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Lakeland Bank was organized as Lakeland State Bank on May 19, 1969, and both
Lakeland Bank and Metropolitan State Bank are state banking associations the
deposits of which are insured by the Federal Deposit Insurance Corporation
("FDIC"). Neither Lakeland Bank nor Metropolitan State Bank is a member of the
Federal Reserve System. Lakeland Bank and Metropolitan State Bank are full-
service commercial banks, offering a complete range of consumer, commercial,
and trust services. Lakeland Bank's 16 branch offices are located in the
following four New Jersey counties: Morris, Passaic, Sussex, and Bergen.
Metropolitan State Bank was organized in 1987 and acquired by Lakeland in
February, 1998. Metropolitan State Bank conducts business through its main
office and one branch office located in Morris and Essex counties,
respectively.
Commercial Bank Services. Through its bank subsidiaries, Lakeland offers a
broad range of lending, depository, and related financial services to
individuals and small to medium sized businesses in its northern New Jersey
market area. In the lending area, these services include short and medium term
loans, lines of credit, letters of credit, inventory and accounts receivable
financing, real estate construction loans and mortgage loans. Depository
products include: demand deposits, savings accounts, and time accounts. In
addition, Lakeland offers collection, wire transfer, and night depository
services.
Consumer Banking. Lakeland also offers a broad range of consumer banking
services, including checking accounts, savings accounts, NOW accounts, money
market accounts, certificates of deposit, secured and unsecured loans, consumer
installment loans, mortgage loans, safe deposit services, and traveler's
cheques. Lakeland Bank also provides discount brokerage services to its
customers through a third party.
Supervision and Regulation
Lakeland. Lakeland is a registered bank holding company under the Federal
Bank Holding Company Act of 1956. Lakeland is required to file with the Federal
Reserve Board an annual report and additional information as the Federal
Reserve Board may require pursuant to that act. Lakeland is subject to
examination by the Federal Reserve Board.
The Holding Company Act limits the activities which Lakeland and its
subsidiaries may engage in to those of banking, the ownership and acquisition
of assets and securities of banking organizations, the management of banking
organizations, and to certain non-banking activities which the Federal Reserve
Board finds to be so closely related to banking or managing or controlling a
bank as to be a proper incident thereto. The Federal Reserve Board is empowered
to differentiate between activities by a bank holding company or a subsidiary
thereof and activities commenced by acquisition of a going concern. Lakeland is
required to obtain the prior approval of the Federal Reserve Board before it
may acquire all or substantially all of the assets of any bank or bank holding
company, if, after such acquisition, it will own or control more than 5% of the
voting shares of the bank or bank holding company.
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With respect to non-banking activities, the Federal Reserve Board has by
regulation determined that several non-banking activities are closely related
to banking and thus may be performed by bank holding companies. Although
Lakeland's management periodically reviews other avenues of business
opportunities that are included in that regulation, Lakeland has no present
plans to engage in any of these activities other than providing discount
brokerage services through a third party.
Subsidiary banks of a bank holding company are also subject to certain
restrictions imposed by the Federal Reserve Board. These restrictions relate to
the extension of credit to the bank holding company or any of its subsidiaries,
investments in the stock or other securities of the holding company or its
subsidiaries, and the acceptance of such stocks or securities as collateral for
loans. Moreover, subsidiaries of bank holding companies are prohibited from
engaging in certain tie-in arrangements with the holding company or any of its
other subsidiaries in connection with any extension of credit or lease or sale
of property or furnishing of services.
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.
The Riegle-Neal Interstate Banking and Branching Efficiency Act permits bank
holding companies to acquire banks in states other than their home state,
regardless of applicable state law. This act also authorizes banks to merge
across state lines, thereby creating interstate branches. Under the act, each
state had the opportunity either to "opt out" of this provision, thereby
prohibiting interstate branching in the state, or to "opt in" prior to the June
1, 1997 effective date of this legislation. Furthermore, a state may "opt in"
with respect to de novo branching, thereby permitting a bank to open new
branches in a state in which the bank does not already have a branch. Without
de novo branching, an out-of-state bank can enter the state only by acquiring
an existing bank. During 1996, New Jersey enacted legislation to opt-in with
respect to earlier interstate banking and branching and the entry into New
Jersey of foreign country banks. New Jersey did not authorize de novo branching
into the state.
Lakeland Bank and Metropolitan State Bank. Lakeland Bank and Metropolitan
State Bank are state chartered banking associations subject to supervision and
examination by the New Jersey Department of Banking and the FDIC. The
regulations of the State of New Jersey and FDIC govern most aspects of their
business, including reserves against deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, and location of branch offices. Lakeland
Bank and Metropolitan State Bank are subject to certain restrictions imposed by
law on, among other things, (1) the maximum amount of obligations of any one
person or entity which may be outstanding at any one time, (2) investments in
stock or other securities of Lakeland or any subsidiary of Lakeland, and (3)
the taking of such stock or securities as collateral for loans to any borrower.
Under the Community Reinvestment Act a state bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The act does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The act requires the FDIC, in
connection with its examination of a state non-member bank, to assess the
bank's record of meeting the credit needs of its community and to take that
record into account in its evaluation of certain applications by the bank.
Under the FDIC's evaluation system, the FDIC focuses on three tests: (1) a
lending test, to evaluate the institution's record of making loans in its
service areas; (2) an investment test, to evaluate the institution's record of
investing in community development projects, affordable housing and programs
benefiting low or moderate income individuals and businesses; and (3) a service
test, to evaluate the institution's delivery of services through its branches,
ATMs and other offices.
Securities and Exchange Commission. Lakeland common stock is registered with
the SEC under the Securities Exchange Act of 1934. As a result, Lakeland and
its officers, directors, and major stockholders are
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obligated to file certain reports with the SEC. Furthermore, Lakeland is
subject to proxy and tender offer rules promulgated pursuant to that act.
Effect of Government Monetary Policies. The earnings of Lakeland are and
will be affected by domestic economic conditions and the monetary and fiscal
policies of the U.S. government and its agencies.
The monetary policies of the Federal Reserve Board have had, and will likely
continue to have, an important impact on the operating results of commercial
banks through the Federal Reserve Board's power to implement national monetary
policy in order to, among other things, curb inflation or combat recession. The
Federal Reserve Board has a major effect upon the levels of bank loans,
investments and deposits through its open market operations in U.S. government
securities and through its regulation of, among other things, the discount rate
of borrowings of banks and the reserve requirements against bank deposits. It
is not possible to predict the nature and impact of future changes in monetary
fiscal policies.
Financial Institutions Reform, Recovery and Enforcement Act. The Financial
Institutions Reform, Recovery and Enforcement Act of 1989 restructured the
regulation, supervision, and deposit insurance of savings and loan associations
and federal savings banks whose deposits were formerly insured by the Federal
Savings and Loan Insurance Corporation. A separate fund, the Bank Insurance
Fund, was established for banks.
The Financial Institutions Act and the Crime Control Act of 1990 expanded
the enforcement powers available to federal banking regulators including
providing greater flexibility to impose enforcement actions, expanding the
persons dealing with a bank who are subject to enforcement actions, and
increasing the potential civil and criminal penalties.
Under the Financial Institutions Act, failure to meet capital guidelines
could subject a banking institution to a variety of enforcement remedies
available to federal regulatory authorities, including the termination of
deposit insurance by the FDIC. Furthermore, under the act, a depository
institution insured by the FDIC can be held liable for any loss incurred, or
reasonably expected to be incurred, by the FDIC in connection with (1) the
default of a commonly controlled FDIC-insured depository institution or (2) any
assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default. The act also imposes certain
independent appraisal requirements upon a bank's real estate lending activities
and further imposes certain loan-to-value restrictions on a bank's real estate
lending activities.
Capital Adequacy Guidelines. The Federal Reserve Board has adopted Risk-
Based Capital Guidelines. These guidelines establish minimum levels of capital
and require capital adequacy to be measured in part upon the degree of risk
associated with certain assets. Under these guidelines all banks and bank
holding companies must have a core or Tier I capital-to-risk-weighted-assets
ratio of at least 4% and a total capital-to-risk-weighted-assets ratio of at
least 8%. At December 31, 1998, Lakeland's Tier I capital to risk-weighted
assets ratio and total capital to risk-weighted assets ratio were 15.58% and
16.67%, respectively.
In addition, the Federal Reserve Board and the FDIC have approved leverage
ratio guidelines (Tier I capital to average quarterly assets, less goodwill)
for bank holding companies such as Lakeland. These guidelines provide for a
minimum leverage ratio of 3% for bank holding companies that meet certain
specified criteria, including that they have the highest regulatory rating. All
other holding companies will be required to maintain a leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points. Lakeland's
leverage ratio was 9.33% at December 31, 1998.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991,
federal banking agencies have established certain additional minimum levels of
capital which accord with guidelines established under that act.
Dividend Restrictions. Lakeland is a legal entity separate and distinct from
Lakeland Bank or Metropolitan State Bank. Virtually all of the revenue of
Lakeland available for payment of dividends on its
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capital stock will result from amounts paid to Lakeland by Lakeland Bank and/or
Metropolitan State Bank. These dividends are subject to various limitations
imposed by federal and state laws and by regulations and policies adopted by
federal and state regulatory agencies. Under New Jersey law, a bank may not pay
dividends unless, following the dividend payment, the capital stock of the bank
would not be impaired and either (1) the bank will have a surplus of not less
than 50% of its capital stock, or, if not, (2) the payment of the dividend will
not reduce the surplus of the bank.
If, in the opinion of the FDIC, a bank is engaged in or is about to engage
in an unsafe or unsound practice, which could include the payment of dividends,
the FDIC may require the bank to cease and desist from the practice or require
the bank to limit dividends in the future. The Federal Reserve Board has
similar authority with respect to bank holding companies. In addition, the
Federal Reserve Board and the FDIC have issued policy statements which provide
that insured banks and bank holding companies should generally only pay
dividends out of current operating earnings. Regulatory pressures to reclassify
and charge-off loans and to establish additional loan loss reserves can have
the effect of reducing current operating earnings and thus impacting an
institution's ability to pay dividends. Further, as described herein, the
regulatory authorities have established guidelines with respect to the
maintenance of appropriate levels of capital by a bank or bank holding company
under their jurisdiction. Compliance with the standards set forth in these
policy statements and guidelines could limit the amount of dividends which
Lakeland and its subsidiary banks may pay. Under the Federal Deposit
Improvement Act, banking institutions which are deemed to be "undercapitalized"
will, in most instances, be prohibited from paying dividends.
Federal Deposit Insurance Corporation Improvement Act of 1991. Enacted in
December 1991, this act substantially revised the bank regulatory provisions of
the Federal Deposit Insurance Act and several other federal banking statutes.
Among other things, the act requires federal banking agencies to broaden the
scope of regulatory corrective action taken with respect to banks that do not
meet minimum capital requirements and to take such actions promptly in order to
minimize losses to the FDIC. Under the act, federal banking agencies were
required to establish minimum levels of capital (including both a leverage
limit and a risk-based capital requirement) and specify for each capital
measure the levels at which depository institutions will be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."
Under regulations adopted under these provisions, for an institution to be
well capitalized it must have a total risk-based capital ratio of at least 10%,
a Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of
at least 5% and not be subject to any specific capital order or directive. For
an institution to be adequately capitalized it must have a total risk-based
capital ratio of at least 8%, a Tier I risk-based capital ratio of at least 4%
and a Tier I leverage ratio of at least 4% (or in some cases 3%). Under the
regulations, an institution will be deemed to be undercapitalized if it has a
total risk-based capital ratio that is less than 8%, a Tier I risk-based
capital ratio that is less than 4%, or a Tier I leverage ratio of less than 4%
(or in some cases 3%). An institution will be deemed to be significantly
undercapitalized if it has a total risk-based capital ratio that is less than
6%, a Tier I risk-based capital ratio that is less than 3%, or a leverage ratio
that is less than 3% and will be deemed to be critically undercapitalized if it
has a ratio of tangible equity to total assets that is equal to or less than
2%. An institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating or is deemed to be in an unsafe or unsound
condition or to be engaging in unsafe or unsound practices.
In addition, the act requires banking regulators to promulgate standards in
a number of other important areas to assure bank safety and soundness,
including internal controls, information systems and internal audit systems,
credit underwriting, asset growth, compensation, loan documentation and
interest rate exposure.
As FDIC insured banks, Lakeland Bank and Metropolitan State Bank are
required to pay premiums. The FDIC currently requires insured institutions to
pay anywhere from $0.00 to $0.27 per $100 of insured deposits. A bank's premium
rate is based on the FDIC's assessment of the bank's capitalization and the
amount of
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concern that the bank generates among regulators. Although Lakeland Bank and
Metropolitan State Bank were not liable for FDIC premiums in 1998, Lakeland
Bank and Metropolitan State Bank and all other members of the Bank Insurance
Fund are required to help fund interest payment obligations that the Financing
Corporation has assumed to recapitalize the Federal Savings and Loan Insurance
Corporation. The Financing Corporation premium is $0.0128 per $100 of deposits.
Proposed Legislation. From time to time proposals are made in Congress, the
New Jersey State Legislature, and before various bank regulatory authorities
which would alter the powers of, and place restrictions on, different types of
banking organizations. It is impossible to predict the impact, if any, of
potential legislative trends on the business of Lakeland and its subsidiaries.
In accordance with federal law providing for deregulation of interest on all
deposits, banks and thrift organizations are now unrestricted by law or
regulation from paying interest at any rate on most time deposits. It is not
clear whether deregulation and other pending changes in certain aspects of the
banking industry will result in further increases in the cost of funds in
relation to prevailing lending rates.
Competition. Lakeland operates in a highly competitive market environment
within northern New Jersey. Three major multi-bank holding companies in
addition to several large independent regional banks and several large multi-
state thrift holding companies operate within Lakeland's market area. These
larger institutions have substantially larger lending capacities and typically
offer services which Lakeland does not.
In recent years the financial services industry has expanded rapidly as
barriers to competition within the industry have become less significant.
Within this industry, banks must compete not only with other banks and
traditional financial institutions, but also with other business corporations
that have begun to provide financial services.
Concentration. Lakeland is not dependent for deposits or exposed by loan
concentrations to a single customer or a small group of customers the loss of
any one or more of which would have a material adverse effect upon the
financial condition of Lakeland.
Employees. At December 31, 1998, Lakeland employed 267 persons.
Properties
Lakeland's principal office is located at 250 Oak Ridge Road, Oak Ridge, New
Jersey.
Lakeland operates 18 banking locations located in Passaic, Morris, Sussex,
Bergen, and Essex Counties, New Jersey. Lakeland Bank's Wantage office is
leased under a lease expiring October 31, 2006. Lakeland Bank's Rockaway office
is under a lease expiring May 15, 2009. Lakeland Bank's Newton office is under
a lease expiring October 1, 2000. Lakeland Bank's Wharton Office is under a
lease, expiring August 22, 2005. Lakeland Bank's Ringwood office is under a
lease, expiring March 1, 2003. Lakeland Bank's Wyckoff office is under a lease,
expiring May 31, 2000. Metropolitan State Bank's Fairfield office is under a
lease, expiring March 1, 2001. For information regarding all of Lakeland's
rental obligations, see Notes to Lakeland's Consolidated Financial Statements
included in this joint proxy statement/prospectus.
All other offices of Lakeland are owned and are unencumbered.
Legal Proceedings
There are no significant pending legal proceedings involving Lakeland other
than those arising out of routine operations. Lakeland's management does not
anticipate that the ultimate outcome of Lakeland's litigation will have a
material effect on the financial condition or results of operations of Lakeland
on a consolidated basis.
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Changes in Certifying Accountants
On December 14, 1998, Lakeland's Board of Directors dismissed its
independent public accountants, Radics & Co., LLC. The dismissal became
effective on March 24, 1999, upon the filing of Radics' report with the SEC as
part of Lakeland's Annual Report on Form 10-K for the year ended December 31,
1998.
Radics' reports on the financial statements of Lakeland for the most recent
two years for which such reports have been issued do not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. During Lakeland's two most
recent fiscal years ended December 31, 1998, and through March 24, 1999, there
have been no disagreements between Lakeland and Radics on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
Radics would have caused them to make a reference to the subject matter of the
disagreement in connection with their reports. During Lakeland's two most
recent fiscal years ended December 31, 1998, and through March 24, 1999,
Lakeland has not been advised of any matters described in Item 304(a)(1)(v)(A)
through (D) of Regulation S-K promulgated by the SEC.
Radics has addressed a letter to the SEC stating their agreement with the
foregoing statements.
The Lakeland Board of Directors solicited bids for the performance of
auditing services for 1999. Bids were received by three accounting firms,
including Radics. Based on a review of the competing bids, the Lakeland Board
of Directors believed that the selection of Grant Thornton LLP would be in the
best interests of Lakeland.
On December 14, 1998, Lakeland engaged Grant Thornton as its independent
public accountants to audit Lakeland's financial statements beginning with the
financial statements for the quarter ending March 31, 1999. During Lakeland's
two most recent fiscal years ended December 31, 1998, and through March 24,
1999, neither Lakeland nor someone on its behalf consulted with Grant Thornton
regarding any of the matters listed in Item 304(a)(2)(i) and (ii) of Regulation
S-K. Grant Thornton has served as the independent public accountants for
Metropolitan State Bank since 1996.
Recent Changes in Organization
On May 10, 1999, Lakeland named Roger Bosma its President and Chief
Executive Officer, effective June 1, 1999. Mr. Bosma also became a director of
both Lakeland and its subsidiary, Lakeland Bank, effective June 1, 1999.
Lakeland made the following additional organizational changes effective June 1,
1999:
. John W. Fredericks became the Chairman of both Lakeland and Lakeland
Bank;
. Robert B. Nicholson became the Vice Chairman of both Lakeland and
Lakeland Bank;
. Arthur L. Zande became Vice President and Treasurer of Lakeland,
President of Lakeland Bank and will continue as Chief Executive Officer
of Lakeland Bank; and
. Bruce G. Bohuny became Senior Vice President-Real Estate of Lakeland.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Years Ended December 31, 1998, 1997 and 1996
Financial Review. Lakeland reported net income of $5.7 million for the year
ended December 31, 1998, an increase of $404,633 or 7.61% compared to $5.3
million for the year ended December 31, 1997. Net income per share (basic and
diluted) increased $.04 to $.67 per share for the year ended December 31, 1998,
as compared to $.63 per share for the year ended December 31, 1997. Increases
in net interest income, derived primarily from an average volume increase in
the loan portfolio, an increase in other income, and a decrease in the
provision for loan losses were partially offset by increases in other expenses
and income tax expense. Net
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income in 1997 decreased by $29,619 or .55% as compared to $5.35 million in
1996. As of December 31, 1998, Lakeland had total assets of $548.6 million, an
increase of $40.8 million or 8.04% compared to $507.7 million at December 31,
1997.
Lakeland's return on average assets and average stockholders' equity was
1.11% and 11.28%, respectively, for 1998, compared to 1.10% and 11.46%,
respectively, in 1997 and 1.22% and 13.15%, respectively, in 1996. The decline
in the return on average stockholders' equity since 1996 primarily reflects
increases in stockholders' equity resulting primarily from profitable
operations over this period along with increased capital generated by shares of
Lakeland common stock sold to existing shareholders pursuant to Lakeland's
dividend reinvestment program.
Lakeland's gross loan portfolio increased $20.3 million or 6.97% from $291.4
million at December 31, 1997, to $311.7 million at December 31, 1998. This
increase consisted of commercial loan increases of $6.4 million, mortgage
(including construction) loan increases of $14.3 million, and consumer
installment (including home equity and improvement)loan decreases of $389,000.
The investment portfolio, including both held to maturity and available for
sale securities, increased $24.8 million or 15.57% from $159.3 million at
December 31, 1997, to $184.1 million at December 31, 1998. The investment
portfolio contains net unrealized gains of $6.1 million at December 31, 1998,
an increase of $2.3 million from the net unrealized gain of $3.8 million in the
portfolio at December 31, 1997. Included in unrealized gains at December 31,
1998, and 1997 are $4.4 million and $2.8 million, respectively, related to
shares of High Point common stock. Should the merger be consummated, the
unrealized gain on these High Point shares would be eliminated. Cash and cash
equivalents decreased $6.1 million, or 14.82% to $35.1 million at December 31,
1998, from $41.2 million at December 31, 1997. This decrease was partially the
result of a $4.2 million reduction in cash and due from banks, which is due to
a reserve reduction strategy implemented in 1998. Cash and cash equivalents
represented 6.4% and 8.1% of total assets at December 31, 1998, and 1997,
respectively.
Total deposits increased $35.4 million or 7.81% from $453.5 million at
December 31, 1997, to $488.9 million at December 31, 1998. This increase
consisted of non-interest-bearing demand deposit increases of $9.6 million,
savings and interest-bearing demand deposit increases of $17.5 million, and
time deposit increases of $8.4 million.
Interest Income. Interest income increased $1.5 million or 4.58% to $34.9
million in 1998. In 1997, interest income increased $2.7 million or 8.70% to
$33.4 million from $30.7 million in 1996.
The increase in 1998 was attributable to an increase in average interest
earning assets of $29.8 million or 6.70%, partially offset by a 15 basis point
decline in average yield. Interest income on loans increased $1.6 million, or
6.68%, to $25.1 million in 1998 from $23.5 million in 1997, due to an increase
in average loan balances offset partially by a decrease in average yield.
During 1998 average loans increased $21.3 million. These increased average
balances were partially offset by an 8 basis point decrease in the average
yield on loans.
Interest income on taxable investment securities decreased $454,000 or 5.89%
to $7.3 million in 1998, due to a $1.7 million, or 1.33%, decrease in the
average balance of such securities, along with a 29 basis point decrease in
average yield.
Interest income on tax-exempt investment securities increased $342,000 or
27.49% to $1.6 million in 1998 from $1.2 million in 1997, due to an $8.4
million increase in the average balance outstanding, offset partially by a
decline in average yield of 12 basis points.
Interest income on federal funds sold increased $73,000 or 7.73% to $1
million in 1998 from $949,000 in 1997, due primarily to a $1.8 million increase
in the average balance outstanding, which was partially offset by an 11 basis
point decrease in average yield.
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The $2.7 million increase in interest income in 1997 was attributable to an
increase in average interest earning assets of $39.9 million or 9.85%. Interest
income on loans increased $2.1 million, or 9.60%, to $23.5 million in 1997 from
$21.4 million in 1996, due to an increase in average loan balances offset
partially by a decrease in average yield. During 1997 average loans increased
$28.4 million. These increased average balances were partially offset by a 15
basis point decrease in the average yield on loans.
Interest income on taxable investment securities increased $255,000 or 3.42%
to $7.7 million in 1997 from $7.5 million in 1996 due to a $4.0 million, or
3.30%, increase in the average balance of such securities. The average yield on
taxable investment securities remained little changed in 1997 at 6.15% as
compared to 6.14% in 1996.
Interest income on tax-exempt investment securities increased $153,000 or
14.02% to $1.2 million in 1997 from $1.1 million in 1996. A $4.0 million
increase in the average balance of such securities was partially offset by a 13
basis point decrease in average yield.
Interest income on federal funds sold increased $207,000 or 27.97% to
$949,000 in 1997 from $742,000 in 1996, due primarily to a $3.5 million
increase in average balance along with a 13 basis point increase in average
yield.
Interest Expense. The increase in Lakeland's earning asset base was funded
in part by increased deposits. Interest paid on deposits during 1998 increased
$52,000 or .41% to $12.81 million from $12.76 million in 1997, as a result of
increased average balances. While the average volume of interest-bearing
deposits increased $13.0 million or 3.75% during 1998, the average rate paid on
those deposits decreased by 12 basis points. Interest expense on time deposits
decreased $163,000 or 2.16% from $7.7 million in 1998 to $7.5 million in 1997.
During 1998, the average volume of time deposits decreased $729,000, and the
average rate paid on time deposits decreased by 8 basis points. Interest
expense on interest-bearing demand deposits increased $457,000 or 22.38%.
During 1998, the average volume of interest-bearing demand deposits increased
$13.2 million, or 15.33%, and the average rate paid on interest-bearing demand
deposits increased by 15 basis points from 2.37% during 1997 to 2.52% during
1998. Interest expense on savings and club deposits decreased by $242,000 or
8.04%. During 1998, the average volume of savings deposits increased by
$524,000, while the average rate paid on savings deposits decreased by 22 basis
points from 2.60% during 1997 to 2.38% during 1998. Total interest expense
increased $84,000 or .65%, reflecting the aforementioned factors affecting
deposits along with a $32,000 increase in interest expense on borrowed money.
Interest paid on deposits during 1997 increased $1.1 million or 9.88% to
$12.8 million from $11.6 million in 1996, as a result of increased average
balances. While the average volume of interest-bearing deposits increased $31.7
million or 10.08% during 1997, the average rate paid on those deposits remained
unchanged. During 1997 the average volume of time deposits increased $19.2
million, while the average rate paid on time deposits increased by 9 basis
points. During 1997 the average volume of interest-bearing demand deposits
increased $11.4 million or 15.25%, and the average rate paid on interest-
bearing demand deposits increased by 20 basis points from 2.17% during 1996 to
2.37% in 1997. Interest expense on savings deposits decreased by $416,000 or
12.15%. During 1997 the average volume of savings deposits increased by $1.1
million, while the average rate paid on savings deposits decreased by 39 basis
points from 2.99% during 1996 to 2.60% during 1997. Total interest expense
increased $1.1 million or 9.65%, reflecting the aforementioned factors
affecting deposits offset by a $10,000 decrease in interest expense on borrowed
money.
Net Interest Income. Net interest income, typically the largest component of
Lakeland'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.
61
<PAGE>
The following table reflects the components of Lakeland's net interest
income, setting forth for the years presented, (1) average assets, liabilities
and stockholders' equity, (2) interest income earned on interest-earning assets
and interest expense paid on interest-bearing liabilities, (3) average yields
earned on interest-earning assets and average rates paid on interest-bearing
liabilities, (4) Lakeland's net interest spread (i.e., the average yield on
interest-earning assets less the average cost of interest-bearing liabilities,
and (5) Lakeland's net yield on interest-earning assets. Rates are not computed
on a taxable equivalent basis.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- --------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- ------- -------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earnings
assets:
Loans(A)............... $296,081 $25,071 8.47% $274,733 $23,502 8.55% $246,355 $21,443 8.70%
Taxable investment
securities(B)......... 123,728 7,256 5.86 125,396 7,710 6.15 121,389 7,455 6.14
Tax-exempt investment
securities............ 35,353 1,586 4.49 27,002 1,244 4.61 22,994 1,091 4.74
Federal funds sold..... 19,276 1,022 5.30 17,526 949 5.41 14,044 742 5.28
-------- ------- -------- ------- -------- -------
Total interest-earning
assets................ 474,438 34,935 7.36 444,657 33,405 7.51 404,782 30,731 7.59
------- ------- -------
Non-interest-earning
assets:
Allowance for loan
losses................ (3,815) (3,663) (3,528)
Other assets........... 44,003 41,459 36,596
-------- -------- --------
Total assets........... $514,626 $482,453 $437,850
======== ======== ========
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 99,313 2,499 2.52 $ 86,142 2,042 2.37 $ 74,741 1,619 2.17
Savings and club
deposits.............. 116,146 2,767 2.38 115,622 3,009 2.60 114,546 3,425 2.99
Time deposits.......... 143,530 7,547 5.26 144,259 7,710 5.34 125,056 6,569 5.25
Borrowings............. 3,959 196 4.95 3,263 164 5.03 3,750 174 4.64
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities........... 362,948 13,009 3.58 349,286 12,925 3.70 318,093 11,787 3.71
------- ------- -------
Non-interest-bearing
liabilities:
Demand deposits........ 98,076 84,619 76,780
Other liabilities...... 2,865 2,105 2,290
Stockholders' equity.... 50,737 46,443 40,687
-------- -------- --------
Total liabilities and
stockholders' equity.. $514,626 $482,453 $437,850
======== ======== ========
Net interest income/net
interest spread........ $21,926 3.78% $20,480 3.81% $18,944 3.88%
======= ==== ======= ==== ======= ====
Net yield on interest-
earning assets(C)...... 4.62% 4.61% 4.68%
==== ==== ====
</TABLE>
- --------
(A) Includes non-accrual loans, the effect of which is to reduce the yield
earned on loans, and deferred loan fees.
(B) Includes certificates of deposit and interest-bearing cash accounts.
(C) Net interest income divided by average interest-earning assets.
62
<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 Lakeland's interest income and interest expense are
attributable to changes in volume (changes in volume multiplied by prior year
rate) and changes in rate (changes in rate multiplied by prior year 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>
Year Ended December 31,
---------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------ -------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
change in Total change in Total
------------- Increase ------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ----- --------- ------ ----- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans..................... $1,793 $(224) $1,569 $2,434 $(375) $2,059
Taxable investment
securities............... (100) (354) (454) 243 12 255
Tax-exempt investment
securities............... 375 (33) 342 184 (31) 153
Federal funds sold........ 93 (20) 73 188 19 207
------ ----- ------ ------ ----- ------
Total interest income.... 2,161 (631) 1,530 3,049 (375) 2,674
------ ----- ------ ------ ----- ------
Interest expense:
Interest-bearing demand
deposits................. 323 134 457 264 159 423
Savings and club
deposits................. 14 (256) (242) 32 (448) (416)
Time deposits............. (41) (122) (163) 1,026 115 1,141
Borrowings................ 35 (3) 32 (24) 14 (10)
------ ----- ------ ------ ----- ------
Total interest expense.... 331 (247) 84 1,298 (160) 1,138
------ ----- ------ ------ ----- ------
Net interest income........ $1,830 $(384) $1,446 $1,751 $(215) $1,536
====== ===== ====== ====== ===== ======
</TABLE>
For the year ended 1998, net interest income increased $1.4 million to $21.9
million from $20.5 million in 1997. This increase was attributable to an
increase in the volume of average net interest earning assets. A $16.1 million
increase in the excess of average interest-earning assets over average
interest-bearing liabilities was offset in part by a 3 basis point decrease in
the net interest spread. The net yield on interest-earning assets increased to
4.62% in 1998 from 4.61% in 1997. For the year ended 1997, net interest income
increased $1.5 million to $20.5 million from $18.9 million in 1996. This
increase was attributable to an increase in the volume of average net interest
earning assets. An $8.7 million increase in the excess of average interest-
earning assets over average interest-bearing liabilities was offset in part by
a 7 basis point decrease in both the net interest spread and the net yield on
interest-earning assets.
Provision For Loan Losses. The allowance for loan losses is established to
absorb the impact of losses inherent in the loan portfolio. Additions to the
allowance are made by means of charges against current earnings and recoveries
on loans previously charged to the allowance. The level of the allowance is
determined by the loan review committee and the Lakeland Board of Directors
after considering such elements as economic conditions, risk exposure, adequacy
of collateral, and such other relevant factors.
On a quarterly basis, the loan review committee reviews a portion of the
commercial loans and commercial mortgages in excess of $300,000 for asset
quality and future, anticipated collectibility of each loan. Within the
calendar year, all loans $300,000 and over are reviewed. Based on this review,
a classification is determined for each loan. The various classifications range
from the "highest" (loans with outstanding quality), to "solid," "special
mention," "substandard," "doubtful," and "loss." Each of these classifications
is then assigned a reserve percentage. These percentages range from .25% for
the "highest" quality loans to percentages such as 50% for "doubtful" or 100%
for "loss." Once each loan is reviewed and assigned this
63
<PAGE>
reserve percentage, the percentage is multiplied by the outstanding loan
balance, and then the total for all the loans over $300,000 is totaled.
Loans delinquent over 90 days or loans which have been placed on a non-
accrual status are independently reviewed regardless of loan balance. Depending
on the collectibility of the loan along with the collateral maintained, a
specific reserve is maintained for these loans.
Loans under $300,000, which are not reviewed, are also assigned a reserve
percentage. Non-reviewed commercial loans and mortgage loans are assigned a
percentage of .25% and consumer credit, home equity, and overdraft checking
loans are assigned a percentage of .75%. A percentage of .25% is also assigned
to letters of credit and unused commitments. The amount of the calculation of
reserves necessary for the loans under $300,000 is added to those over
$300,000, along with the specific reserves for delinquent and non-accrual
loans, to arrive at an overall reserve total.
Once this process is completed, this calculation is then reported to the
Lakeland Board of Directors. The Board then determines the amount that should
be maintained as adequate in the Reserve for Loan Losses. The amount that is
maintained in the Reserve for Loan Losses consists of the amount calculated in
the loan review process plus an amount which is kept as an excess reserve for
unanticipated losses, which are always inherent in the loan portfolio.
The Lakeland Board of Directors reviews actual experience as compared to the
estimates arrived at by the process described above. From time to time, the
Board may direct management to adjust this process or the percentages used (to
the extent allowable by GAAP and applicable regulations) to better reflect
actual loan loss experience.
At December 31, 1998, the allowance stood at $3,897,000, a $245,000 decrease
from December 31, 1997, as Lakeland provided $698,000 to the allowance and had
net charge-offs of $943,000. Of the $698,000 increase in the provision,
$534,000 was provided for in the fourth quarter of 1998 as Lakeland charged-off
five commercial loans at year-end as well as increased the allowance. At
December 31, 1997, the allowance stood at $4,142,000, a $557,000 increase from
December 31, 1996, as Lakeland provided $1,026,000 to the allowance and had net
charge-offs of $469,000. $735,000 of the total provided was done in the fourth
quarter, as Metropolitan State Bank charged-off loans at year-end as well as
provided for anticipated charge-offs prior to its acquisition by Lakeland.
Based on its ongoing loan review process, its collateral positions, and its
loss and recovery experience, Lakeland believes that its allowance for loan
losses at December 31, 1998, was adequate. The immediately preceding sentence
constitutes a forward-looking statement under the Private Securities Litigation
Reform Act of 1995. While it constitutes management's reasoned judgment, actual
results could differ from management's determination, as a result of a variety
of factors, such as economic distress within Lakeland's primary marketing area
and unanticipated financial problems for Lakeland's significant borrowers.
At December 31, 1998, the allowance for loan losses as a percentage of total
loans was 1.25%, as compared to 1.42% and 1.34% at December 31, 1997, and 1996,
respectively.
Other Income. Other (i.e., non-interest) income increased $143,000 or 4.72%
to $3.2 million in 1998 from $3.0 million in 1997 and represented 8.31% of
total income for 1998. This increase was primarily attributable to an increase
of $88,000 in the gain on disposition of securities.
Other (i.e., non-interest) income increased $351,000 or 13.15% to $3.0
million in 1997 from $2.7 million in 1996 and represented 8.30% of total income
for 1997, an increase from 8.00% in 1996. This increase was primarily
attributable to an increase in ATM fee income, included in service charges on
deposit accounts.
Other Expenses. Other (i.e., non-interest) expenses in 1998 increased $1.2
million or 8.57% over 1997. Salaries and benefits, the largest component of
other expenses, increased by $500,000 or 6.27%, due to branch
64
<PAGE>
expansion and normal salary increases. Occupancy expense increased $101,000 or
6.94%. The increase in this category resulted from expansion in Lakeland's
branch network. Furniture and fixtures increased by $252,000 or 19.50%. The
increase in this category resulted partially from an $84,000 or 36.74% increase
in service agreements. This increase was due to the purchasing of maintenance
contracts for imaging and computer equipment. Exclusive of this increase in
service agreements, furniture and fixtures expense increased $168,000 or
15.77%. This aspect of the increase was due primarily to an increase in
depreciation expense, resulting from the mid-1997 purchase of optical imaging
equipment and the expansion of Lakeland's branch network. Legal expense
increased $219,000 or 92.40%. This was due principally to legal costs incurred
in connection with Lakeland's acquisition of Metropolitan State Bank. Other
expense categories increased in the aggregate by $170,000 or 4.82%. This was
due to increased costs incurred in operating the branch network and Lakeland's
banking business.
Other (i.e., non-interest) expenses in 1997 increased $1.8 million or 14.31%
over 1996. Salaries and benefits increased by $1.1 million or 15.17%. This
increase was due to increased staffing levels and normal salary increases, as
well as increased health benefit and pension costs. Occupancy expense increased
$79,000 or 5.74%. Furniture and fixtures expense increased $118,000 or 10.05%.
Increases in these two categories are due to costs incurred in operating the
branch network, as well as the depreciating of the optical imaging equipment
acquired in 1997. Legal expense increased $42,000 or 21.75%. This was due to
increased legal costs incurred in Lakeland's normal banking business. Other
expense categories increased in the aggregate $525,000 or 17.46%. Significant
sources of changes in other expenses were auditing expense, which increased
$104,000 or 78.5%, consulting fees, which increased $152,000 or 727.5%, and
stationery, supplies, and postage expense, which increased $145,000 or 18.64%.
These increases were due largely to increased costs incurred in connection with
Lakeland's acquisition of Metropolitan State Bank. Exclusive of these expenses,
other expenses increased $124,000 or 6.0%. This was due to increased costs
incurred in operating the branch network and Lakeland's banking business.
Income Taxes. The components of income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1998 1997 1996
------- ------ ------
(in thousands)
<S> <C> <C> <C>
Current........................................... $ 2,751 $2,854 $2,753
Deferred.......................................... 165 (206) (88)
------- ------ ------
$ 2,916 $2,648 $2,665
======= ====== ======
</TABLE>
Lakeland's effective income tax rate was 33.7%, 33.2%, and 33.3%, in the
years ended December 31, 1998, 1997, and 1996, respectively.
Loans. The following table sets forth the classification of Lakeland's loans
by major category as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial.................. $114,979 $109,163 $ 96,321 $ 84,693 $ 79,978
Real estate mortgage........ 113,627 96,911 95,538 83,688 78,551
Real estate construction.... 5,251 7,696 2,473 2,097 1,687
Home equity and consumer
installment................ 77,814 77,589 74,336 61,704 59,373
-------- -------- -------- -------- --------
Total Loans............... 311,671 291,359 268,668 232,182 219,589
Less: Unearned income....... (178) (214) (122) (118) ( 69)
Allowance for loan
losses................... (3,897) (4,142) (3,585) (3,470) (3,547)
-------- -------- -------- -------- --------
Net loans................... $307,596 $287,003 $264,961 $228,594 $215,973
======== ======== ======== ======== ========
</TABLE>
65
<PAGE>
Lakeland has not made loans to borrowers outside the United States.
Commercial loans increased $6.4 million from December 31, 1997, to December
31, 1998, representing 36.9% of total loans at December 31, 1998, as compared
to 37.3% at December 31, 1997. These loans are primarily to borrowers within
Lakeland's market area.
Real estate (including construction) loans increased $14.3 million from
December 31, 1997 to December 31, 1998, representing 38.1% of total loans at
December 31, 1998, as compared to 35.9% at December 31, 1997.
Home equity and consumer installment loans decreased $389,000 from December
31, 1997, to December 31, 1998, representing 25.0% of total loans at December
31, 1998, as compared to 26.8% at December 31, 1997.
Rate sensitive loans of $50.4 million represented 16.2% of total loans at
December 31, 1998, as compared to $52.5 million or 18.0% of total loans at
December 31, 1997. These rate sensitive loans consist primarily of commercial
loans of $43.0 million and home equity credit lines of $7.4 million that
reprice with changes in the prime lending rate.
The following table sets forth certain categories of loans as of December
31, 1998, in terms of contractual maturity due:
<TABLE>
<CAPTION>
Within 1 to 5 After 5
1 Year Years Years Total
------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Commercial............................... $64,831 $32,749 $17,399 $114,979
Real Estate Construction................. 5,084 -- 167 5,251
------- ------- ------- --------
Total.................................. $69,915 $32,749 $17,566 $120,230
======= ======= ======= ========
</TABLE>
The following table sets forth the dollar amount of all commercial and real
estate construction loans due one year or more after December 31, 1998, which
have pre-determined interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
1 to 5 After 5
Year Years Total
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Loans with fixed rates............................ $31,781 $17,558 $49,339
Loans with adjustable rates....................... 968 8 976
------- ------- -------
Total........................................... $32,749 $17,566 $50,315
======= ======= =======
</TABLE>
Risk Elements. Commercial loans are placed on a nonaccrual status when
principal or interest is in default for a period of ninety days or more except
where there exists sufficient collateral to cover the defaulted principal and
interest payments or management's knowledge of the specific circumstances
warrant continued accrual. Real estate mortgage loans are placed on nonaccrual
status at the time when foreclosure proceedings are commenced except where
there exists sufficient collateral to cover the defaulted principal and
interest payments or management's knowledge of the specific circumstances
warrant continued accrual. Installment loans are regularly charged off when
principal and interest payments are six months in arrears. Interest thereafter
on such charged-off installment loans is taken into income when received.
66
<PAGE>
The following schedule sets forth certain information regarding Lakeland's
nonaccrual, past due and renegotiated loans and other real estate owned as of
December 31, for each of the last five years:
<TABLE>
<CAPTION>
December 31
---------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans (A)................. $ 1,257 $ 2,007 $ 1,845 $ 2,366 $ 2,658
Past due loans (B).................... 4,248 1,400 2,200 679 1,039
Renegotiated loans (C)................ 1,468 1,529 2,567 2,325 1,740
------- ------- ------- ------- -------
Total non-accrual, past due and
renegotiated loans................... 6,973 4,936 6,612 5,370 5,437
Other real estate owned............... 1,060 648 177 951 1,302
------- ------- ------- ------- -------
Total............................... $ 8,033 $ 5,584 $ 6,789 $ 6,321 $ 6,739
======= ======= ======= ======= =======
</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) The loan portfolio includes loans whose terms have 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 December 31, 1998.
There were no loans at December 31, 1998, other than those included in the
above table, where Lakeland 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 nonaccrual, past due or renegotiated at a future date.
At December 31, 1998, 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.
Non-accrual loans decreased $750,000 to $1,257,000 at December 31, 1998,
from $2,007,000 at December 31, 1997. At December 31, 1998, non-accrual loans
consisted of one mortgage loan, twelve commercial loans, and thirty-two
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 $2.8 million
to $4.2 million at December 31, 1998, from $1.4 million at December 31, 1997.
This increase is primarily the result of the addition of two commercial loans,
totaling $2.3 million, which are part of this category. Lakeland continues to
accrue interest on both of these loans, which are past maturity but continue to
make interest payments. They will become current upon renewal pending the
receipt of documentation. At December 31, 1998, loans past due ninety days or
more and still accruing consisted of three mortgage loans, nineteen commercial
loans, and twenty-four consumer loans.
For 1998, the gross interest income that would have been recorded, had the
loans classified at year-end as either non-accrual or renegotiated been
performing in conformance with their original loan terms, would have been
approximately $239,000. The amount of interest income actually recorded on
those loans for 1998 was $127,000. The resultant income lost of $112,000 for
1998 compares to $175,000 and $182,000 for 1997 and 1996, respectively.
67
<PAGE>
Lakeland has established a standardized process to establish and assess the
adequacy of the allowance for loan losses and to identify the risks inherent in
the loan portfolio. This process incorporates credit reviews and considers
factors such as concentrations of credit, economic, industry, and real estate
market conditions, delinquency trends, collateral coverage, and portfolio
composition. Specific allowances are maintained as needed for loans
specifically evaluated and classified as impaired. General allowances are
maintained with regard to the remainder of the portfolio and are calculated
based upon percentages assigned by management to various risk categories.
Loans specifically evaluated are deemed impaired when, based on current
information and events, it is probable that Lakeland will be unable to collect
all amounts due according to the contractual terms of the loan agreements. An
insignificant delay, which is defined as up to 90 days by Lakeland, will not
cause a loan to be classified as impaired. A loan is not impaired during a
period of delay in payment if Lakeland 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 Lakeland 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.
Lakeland does not aggregate such loans for evaluation purposes.
Lakeland's policy concerning non-accrual 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 non-accrual status when
payments are 90 days delinquent or more. It is possible for a loan to be on
non-accrual status and not be classified as impaired if the balance of such
loan is relatively small and, therefore, that loan has not been specifically
reviewed for impairment.
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 non-accrual loans, Lakeland 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 December 31, 1998, based on the above criteria, Lakeland classified
thirteen loans, totaling $2.2 million, as impaired. The impairment of these
loans is measured using the present value of future cash flows for three
renegotiated loans and is based on the fair value of the underlying collateral
for the remaining ten loans. Based upon such evaluation, $381,000 has been
allocated to the allowance for loan losses for impairment.
68
<PAGE>
The following table sets forth for each of the five years ended December 31,
1998, the historical relationships among the amount of loans outstanding, the
allowance for loan losses, the provision for loan losses, the amount of loans
charged-off and the amount of loan recoveries:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning of
year.................................. $4,142 $3,585 $3,470 $3,547 $3,455
------ ------ ------ ------ ------
Charge-offs:
Commercial........................... 834 466 451 119 339
Installment.......................... 426 133 328 291 250
Mortgage............................. -- -- 70 217 23
------ ------ ------ ------ ------
Total Charge-offs.................. 1,260 599 849 627 612
------ ------ ------ ------ ------
Recoveries:
Commercial........................... 256 20 25 128 69
Installment.......................... 61 77 31 65 65
Mortgage............................. -- 33 -- -- --
Total Recoveries................... 317 130 56 193 134
------ ------ ------ ------ ------
Net Charge-offs...................... 943 469 793 434 478
Provision for loan losses.............. 698 1,026 908 357 570
------ ------ ------ ------ ------
Balance of allowance at end of year.... $3,897 $4,142 $3,585 $3,470 $3,547
====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding..................... 0.32% 0.17% 0.32% 0.19% 0.23%
Balance of allowance at end of year as
a percentage of
year end loans........................ 1.25% 1.42% 1.34% 1.49% 1.62%
</TABLE>
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.
Lakeland 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 SEC, 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.
The following table sets forth the allocation of the allowance for loan
losses at the dates indicated by category of loans:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of of of of of
Amount Total (1) Amount Total (1) Amount Total (1) Amount Total (1) Amount Total (1)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $2,002 36.89 $2,389 37.47 $1,907 35.85 $1,936 36.48 $1,846 36.42
Real estate mortgage.... 999 36.46 796 33.26 717 35.56 628 36.04 786 35.77
Real estate
construction........... 37 1.68 97 2.64 44 0.92 31 0.90 34 0.77
Home equity and Consumer
Installment............ 859 24.97 860 26.63 917 27.67 875 26.58 881 27.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$3,897 100.00 $4,142 100.00 $3,585 100.00 $3,470 100.00 $3,547 100.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) Represents the percentage of type of loan to total loans outstanding.
69
<PAGE>
Investment Securities. Lakeland 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." For information, see Notes
to Lakeland's Consolidated Financial Statements included in this joint proxy
statement/prospectus.
The following table sets forth the carrying value of Lakeland's investment
securities, both available for sale and held to maturity, as of December 31 for
each of the last three years. Securities available for sale are stated at
estimated fair value while securities held for maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts.
<TABLE>
<CAPTION>
December 31
--------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
U.S. Treasury.................................. $ 61,696 $ 65,253 $ 63,442
U.S. Government agencies....................... 47,581 44,082 36,846
Mortgage-backed securities..................... 5,462 7,941 8,033
States and political subdivisions.............. 43,293 34,760 22,939
Other debt securities.......................... 20,226 3,007 6,447
Equity securities.............................. 5,892 4,300 3,175
-------- -------- --------
Totals....................................... $184,150 $159,343 $140,882
======== ======== ========
</TABLE>
Included in equity securities is Lakeland's investment in High Point, which
had a carrying value of $5,594,000, $4,002,000, and $2,926,000 in 1998, 1997,
and 1996, respectively.
The following tables present the estimated fair values and unrealized gains
and losses on investment securities at December 31, 1998:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------
Gross
Unrealized
Amortized ------------- Carrying
Cost Gains Losses Value
--------- ------ ------ --------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury............................ $ 28,552 $ 587 $ 19 $ 29,120
U.S. Government agencies................. 25,719 62 110 25,671
Mortgage-backed securities............... 3,279 32 14 3,297
States and political subdivisions........ 38,456 384 60 38,780
Other debt securities.................... 14,163 25 100 14,088
Equity security.......................... 1,503 4,389 -- 5,892
-------- ------ ---- --------
Totals................................. $111,672 $5,479 $303 $116,848
======== ====== ==== ========
</TABLE>
Included in equity securities is Lakeland's investment in High Point, which
had a $1,205,000 amortized cost and a $5,594,000 carrying value at December 31,
1998. Proceeds from sales of securities available for sale totaled $20,182,000,
during the year ended December 31, 1998. No sales of High Point common stock
were made during the period. Gross gains of $143,000 were realized on those
transactions.
70
<PAGE>
SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------
Gross
Unrealized
Amortized ------------- Estimated
Cost Gains Losses Fair Value
--------- ------ ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $32,576 $ 630 $-- $33,206
U.S. Government agencies............... 21,910 317 27 22,200
Mortgage-backed securities............. 2,165 23 5 2,183
States and political subdivisions...... 4,513 78 -- 4,591
Other.................................. 6,138 6 53 6,091
------- ------ --- -------
Totals............................... $67,302 $1,054 $85 $68,271
======= ====== === =======
</TABLE>
There were no sales of securities held to maturity during the year ended
December 31, 1998. Proceeds from repayments on and maturities of securities
held to maturity during the year ended December 31, 1998, totaled $14,995,000.
Securities available for sale with a carrying value of approximately
$12,494,000 at December 31, 1998, were pledged to secure public deposits and
for other purposes required by applicable law and regulations.
The following table sets forth the maturity distribution and weighted
average yields (calculated on the basis of the stated yields to maturity,
considering applicable premium or discount), on a fully taxable equivalent
basis, of all debt securities, both available for sale and held to maturity as
of December 31, 1998:
<TABLE>
<CAPTION>
After After
1 Year 5 Years
Within But Within But Within After 10
1 Year 5 Years 10 Years Years Total
------- ---------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Book value............... $14,403 $ 47,293 $ -- $ -- $ 61,696
Yield.................... 6.06% 6.02% --% --% 6.03%
Obligations of U.S.
Government Agencies:
Book value............... $11,784 $ 30,159 $ 3,059 $ 2,579 $ 47,581
Yield.................... 6.00% 5.57% 6.52% 6.76% 5.80%
Mortgage-backed securities:
Book value............... $ 890 $ 234 $ 575 $ 3,763 $ 5,462
Yield.................... 5.99% 6.20% 5.92% 5.76% 5.83%
Obligations of States and
Political Subdivisions:
Book value............... $ 9,682 $ 13,477 $13,545 $ 6,589 $ 43,293
Yield.................... 5.57% 5.89% 6.21% 6.61% 6.03%
Other Securities
Book value............... $ 802 $ 18,711 $ 513 $ 200 $ 20,226
Yield.................... 6.53% 5.61% 5.34% 6.66% 5.65%
------- -------- ------- ------- --------
Total book value......... $37,561 $109,874 $17,692 $13,131 $178,258
======= ======== ======= ======= ========
Weighted average yield... 5.93% 5.81% 6.23% 6.39% 5.92%
======= ======== ======= ======= ========
</TABLE>
71
<PAGE>
The following table sets forth the maturity distribution and weighted
average yields (calculated on the basis of the stated yields to maturity,
considering applicable premium or discount), on a fully taxable equivalent
basis, of debt securities available for sale as of December 31, 1998:
<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within But Within 5 But Within 10 After
1 Year Years Years 10 Years Total
------- ------------ ------------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury
securities:
Book value............ $ 5,055 $24,065 $ -- $ -- $ 29,120
Yield................. 6.20% 5.97% -- % -- % 6.01%
Obligations of U.S.
Government Agencies:
Book value............ $ 7,028 $13,005 $ 3,059 $ 2,579 $ 25,671
Yield................. 6.01% 5.25% 6.52% 6.76% 5.76%
Mortgage-backed
securities:
Book value............ $ 890 $ 234 $ 213 $ 1,960 $ 3,297
Yield................. 5.99% 6.20% 6.30% 6.71% 6.45%
Obligations of States
and Political
Subdivisions:
Book value............ $ 8,870 $11,027 $12,394 $ 6,489 $ 38,780
Yield................. 5.58% 5.88% 6.18% 6.57% 6.02%
Other Securities
Book value............ $ 802 $13,286 $ -- $ -- $ 14,088
Yield................. 6.53% 5.56% -- % -- % 5.61%
------- ------- ------- ------- --------
Total book value.... $22,645 $61,617 $15,666 $11,028 $110,956
======= ======= ======= ======= ========
Weighted average
yield.............. 5.90% 5.71% 6.25% 6.64% 5.92%
======= ======= ======= ======= ========
The following table sets forth the maturity distribution and weighted
average yields (calculated on the basis of the stated yields to maturity,
considering applicable premium or discount), on a fully taxable equivalent
basis, of debt securities held to maturity as of December 31, 1998:
<CAPTION>
After 1 Year After 5 Years
Within But Within 5 But Within 10 After
1 Year Years Years 10 Years Total
------- ------------ ------------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury
securities:
Book value............ $ 9,348 $23,228 $ -- $ -- $ 32,576
Yield................. 5.99% 6.08% -- % -- % 6.05%
Obligations of U.S.
Government Agencies:
Book value............ $ 4,756 $17,154 $ -- $ -- $ 21,910
Yield................. 6.00% 5.82% -- % -- % 5.86%
Mortgage-backed
securities:
Book value............ $ -- $ -- $ 362 $ 1,803 $ 2,165
Yield................. -- % -- % 5.69% 4.73% 4.89%
Obligations of States
and Political
Subdivisions:
Book value............ $ 812 $ 2,450 $ 1,151 $ 100 $ 4,513
Yield................. 5.57% 5.93% 6.49% 9.09% 6.08%
Other Securities
Book value............ $ -- $ 5,425 $ 513 $ 200 $ 6,138
Yield................. -- % 5.75% 5.34% 6.66% 5.74%
------- ------- ------- ------- --------
Total book value.... $14,916 $48,257 $ 2,026 $ 2,103 $ 67,302
======= ======= ======= ======= ========
Weighted average yield.. 5.97% 5.94% 6.06% 5.12% 5.93%
======= ======= ======= ======= ========
</TABLE>
72
<PAGE>
For further information, regarding Lakeland's investment securities, see
Notes to Lakeland's Consolidated Financial Statements included in this joint
proxy statement/ prospectus.
Deposits. The following table sets forth the average amounts of various
types of deposits for each of the three years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Non-interest-bearing demand deposits........... $ 98,076 $ 84,619 $ 76,780
Interest-bearing demand deposits............... 99,313 86,142 74,741
Savings deposits............................... 116,146 115,622 114,546
Time deposits.................................. 143,530 144,259 125,056
-------- -------- --------
TOTAL........................................ $457,065 $430,642 $391,123
======== ======== ========
</TABLE>
As of December 31, 1998, the aggregate amount of outstanding time deposits
issued in amounts of $100,000 or more, broken down by time remaining to
maturity, was as follows (in thousands):
<TABLE>
<S> <C>
Three months or less.............................................. $11,841
Over three months through six months.............................. 5,429
Over six months through twelve months............................. 7,409
Over twelve months................................................ 4,404
-------
TOTAL........................................................... $29,083
=======
</TABLE>
Liquidity. Lakeland's primary sources of liquidity are deposits, asset
maturities, and funds provided from operations. At December 31, 1998, liquid
assets, consisting of cash and due from banks, federal funds sold, certificates
of deposit and investment securities that mature within one year, amounted to
$71.9 million. The maturity schedule of the investment portfolio, at carrying
value, indicates that 21.1% of the debt securities included in the portfolio
mature within one year, and 82.7% mature within five years. For additional
information regarding the investment portfolio, see Notes to Lakeland's
Consolidated Financial Statements included in this joint proxy
statement/prospectus.
The $491,609 deficit in undivided profits contained in the December 31, 1998
consolidated financial statements is the result of a bookkeeping entry charging
undivided profits $10,619,797 in connection with Lakeland's accounting for its
2 for 1 stock split effected in the form of a 100% stock dividend distributed
on October 1, 1998. In accordance with New Jersey corporate law, Lakeland's
Board of Directors on March 10, 1999, approved the reversing of this accounting
treatment of the stock dividend, thereby moving the $10,619,797 from the
capital stock account to the undivided profits account to more accurately
reflect Lakeland's financial condition. This reclassification will be made in
the first quarter of 1999.
73
<PAGE>
Lakeland's liquidity, represented by cash and cash equivalents, is a product
of its operating activities, investing activities and financing activities.
These activities are summarized below:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Cash and cash equivalents at beginning of period..... $ 41,168 $ 33,450
-------- --------
Operating activities:
Net income......................................... 5,725 5,321
Adjustments to reconcile net income to net cash
provided by operating activities.................. 1,359 3,678
-------- --------
Net cash provided by operating activities............ 7,084 8,999
Net cash used in investing activities................ (46,747) (43,809)
Net cash provided by financing activities............ 33,564 42,528
-------- --------
Net (decrease) increase in cash and equivalents...... (6,099) 7,718
-------- --------
Cash and cash equivalents at end of period........... $ 35,069 $ 41,168
======== ========
</TABLE>
Cash and cash equivalents decreased by $6.1 million during 1998. Such
decrease resulted from investing activities, which used $46.7 million in cash
flow, where $21.4 million was invested in the loan portfolio and $23.5 million
was invested in the investment portfolio. Net cash of $33.6 million was
provided in financing activities primarily due to deposit inflow of $35.4
million, which was partially offset by $2.4 million used in payment of cash
dividends paid on common stock.
Operating activities produced $7.1 million of cash flow, $5.7 million of
which was derived from net income.
Lakeland anticipates that it will have sufficient funds available to meet
its current loan commitments and deposit maturities. At December 31, 1998,
Lakeland has outstanding loan origination commitments of $59.2 million. Time
deposits that mature in one year or less, at December 31, 1998, totaled $130.5
million. Management believes that a substantial portion of such deposits will
remain with Lakeland. The first sentence in this paragraph constitutes a
Forward Looking Statement under the Private Securities Litigation Reform Act of
1995. Actual results could differ materially from anticipated results due to a
variety of factors, including uncertainties relating to general economic
conditions; unanticipated decreases in deposits; changes in or failure to
comply with governmental regulations; and uncertainties relating to the
analysis of Lakeland's assessment of rate sensitive assets and rate sensitive
liabilities and relating to the extent to which market factors indicate that a
financial institution such as Lakeland should match such assets and
liabilities.
Closely related to the concept of liquidity is the concept of interest rate
sensitivity (i.e., the extent to which assets and liabilities are sensitive to
changes in interest rates). Interest rate sensitivity is often measured by the
extent to which mismatches or "gaps" occur in the repricing of assets and
liabilities within a given time period. Gap analysis is utilized to quantify
such mismatches. A "positive" gap results when the amount of earning assets
repricing within a given time period exceeds the amount of interest bearing
liabilities repricing within that time period. A "negative" gap results when
the amount of interest bearing liabilities repricing within a given time period
exceeds the amount of earning assets repricing within such time period.
In general, a financial institution with a positive gap in relevant time
periods will benefit from an increase in market interest rates and will
experience erosion in net interest income if such rates fall. Likewise, a
financial institution with a negative gap in relevant time periods will
normally benefit from a decrease in market interest rates and will be adversely
affected by an increase in rates. By maintaining a balanced interest rate
sensitivity position, where interest rate sensitive assets roughly equal
interest sensitive liabilities in relevant time periods, interest rate risk can
be limited.
74
<PAGE>
Discussion of Market Risk. As a financial institution, Lakeland's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact the level of income and expense recorded on a
large portion of Lakeland's assets and liabilities, and the market value of all
interest-earning assets, other than those which possess a short term to
maturity. Based upon Lakeland's nature of operations, Lakeland is not subject
to foreign currency exchange or commodity price risk. Lakeland does not own any
trading assets and does not have any hedging transactions in place, such as
interest rate swaps and caps.
Lakeland's Board of Directors has adopted an Asset/Liability Policy designed
to stabilize net interest income and preserve capital over a broad range of
interest rate movements. This policy outlines guidelines and ratios dealing
with, among others, liquidity, volatile liability dependence, investment
portfolio composition, loan portfolio composition, loan-to-deposit ratio and
gap analysis ratio. Lakeland's performance as compared to the Asset/Liability
Policy is monitored by its Board of Directors. In addition, to effectively
administer the Asset/Liability Policy and to monitor exposure to fluctuations
in interest rates, Lakeland maintains an Asset/Liability Committee, consisting
of the Chief Executive Officer, Treasurer, Controller and certain other senior
officers. This committee meets monthly to review Lakeland's financial results
and to develop strategies to implement the Asset/Liability Policy and to
respond to market conditions.
The following discusses the three primary components in interest rate risk
management strategy:
Assets. Lakeland's largest asset component is the loan portfolio. This
portfolio consists of residential and commercial mortgage loans, commercial
loans, and consumer loans. Lakeland's borrowers are concentrated in Lakeland's
trading area in northern New Jersey and are subject to risks associated with
the local economy. Both fixed rate and variable rate products are offered. As
of December 31, 1998, approximately $50.4 million or 16.2% of the loan
portfolio were variable rate loans.
Lakeland's investment portfolio provides a source of liquidity to support
funding needs. The portfolio is classified into "available for sale" and "held
to maturity" categories. The "available for sale" category, which totaled
$116.8 million at December 31, 1998, is available for liquidity needs when
necessary. The "held to maturity" category, which totaled $67.3 million at
December 31, 1998, is available for liquidity when bonds mature. Approximately
$37.6 million or 20% of the investment portfolio matures within one year and
approximately $147.4 million or 80% of the portfolio matures within five years.
U.S. Treasury and Agency securities with a predominant maximum maturity of five
years represented approximately $109.3 million or 59% of the portfolio at
December 31, 1998. Of the remaining $74.9 million of the investment securities
portfolio, approximately $43.3 million are invested in State, County, and
Municipal securities with a predominant maturity of under ten years.
Deposit Liabilities. Lakeland's banks, traditional community-based
commercial banks, are largely dependent upon their base of competitively priced
core deposits. Core deposits, which consist of all deposits except certificates
of deposit, provide stability on the liability side of the balance sheet.
Lakeland believes that its banks have retained many loyal customers over the
years through a combination of quality service, convenience, and a stable and
experienced staff. Core deposits at December 31, 1998, were $334.7 million or
68% of total deposits. The balance of certificates of deposit at December 31,
1998, was $154.2 million or 32% of total deposits. Of the $154.2 million
outstanding, $130.5 million or 85% mature within one year.
Wholesale Funds. Lakeland does not accept brokered deposits as a source of
funds and has no plans to do so in the future. In the event there is a short-
term need for funds, Lakeland has established federal funds lines of credit
with several of its correspondent banks. However, Lakeland has rarely utilized
these borrowing arrangements.
Depending on the existing interest rate environment, Lakeland has various
alternatives to mitigate interest rate exposure. If Lakeland is attempting to
reduce exposure to adverse consequences from rising interest rates, the
strategy might be to either make more variable-rate loans and fewer fixed-rate
loans or offer more competitive rates on long and medium-term certificates of
deposit and less competitive rates on short-term
75
<PAGE>
certificates of deposit. If Lakeland is attempting to reduce exposure to
adverse consequences from falling interest rates, the strategy might be to make
fewer variable-rate loans and more fixed-rate loans or offer more competitive
rates on short term certificates of deposit and less competitive rates on long-
term certificates of deposits.
The following table sets forth the estimated maturity/repricing structure of
Lakeland's interest-earning assets and interest-bearing liabilities at December
31, 1998. Except as stated below, the amounts of assets or liabilities shown
which reprice or mature during a particular period were determined in
accordance with the contractual terms of each asset or liability. The table
does not assume any prepayment of fixed-rate loans. Lakeland has assumed that
all interest-bearing demand accounts and savings accounts will reprice or
mature within five years. The table does not necessarily indicate the impact of
general interest rate movements on Lakeland's net interest income because the
repricing of certain categories of assets and liabilities, for example,
prepayments of loans and withdrawal of deposits, is beyond Lakeland's control.
As a result, certain assets and liabilities indicated as repricing within a
stated period may in fact reprice at different times and at different rate
levels.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------
More Than
More Than One Year More
Three Months Through Than
Three Months Through Five Five
or Less One Year Years Years Total
------------ ------------ --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)
Adjustable and
floating rate
commercial......... $ 42,453 $ 22 $ 494 $ -- $ 42,969
Fixed rate
commercial......... 12,495 12,409 33,725 13,305 71,934
Real estate
mortgage........... 6,668 10,069 36,802 59,725 113,264
Real estate
construction....... 4,506 578 -- 167 5,251
Installment and
other.............. 12,630 10,282 37,406 17,757 78,075
Investment securities... 16,120 31,885 109,689 26,456 184,150
Other investments (2)... 10,929 150 -- -- 11,079
-------- -------- -------- -------- --------
Total interest-
earning assets... 105,801 65,395 218,116 117,410 506,722
-------- -------- -------- -------- --------
Interest-bearing
liabilities:
Deposits:
Interest-bearing
demand............. 16,250 24,947 58,154 -- 99,351
Savings............. 16,600 16,202 95,404 -- 128,206
Time................ 39,682 90,921 23,624 -- 154,227
Borrowed money........ 2,896 899 -- -- 3,795
-------- -------- -------- -------- --------
Total interest-
bearing
liabilities...... 75,428 132,969 177,182 -- 385,579
-------- -------- -------- -------- --------
GAP during the period... $ 30,373 $(67,574) $ 40,934 $117,410 $121,143
======== ======== ======== ======== ========
Cumulative GAP.......... $ 30,373 $(37,201) $ 3,733 $121,143
======== ======== ======== ========
Interest-sensitive
assets as a percent of
interest-sensitive
liabilities
(cumulative)........... 140.27% 82.15% 100.97% 131.42%
Cumulative interest-
sensitive assets as a
percent of total
assets................. 19.29% 31.21 % 70.97% 92.37%
Ratio of GAP to total
assets................. 5.54% (12.32)% 7.46% 21.40%
Ratio of cumulative GAP
to total assets........ 5.54% (6.78)% 0.68% 22.08%
</TABLE>
- --------
(1) Loans are stated net of unearned income.
(2) Other investments consist of federal funds sold and interest-bearing
deposits in banks.
76
<PAGE>
Capital Resources. Stockholders' equity increased $4.65 million to $53.3
million at December 31, 1998, from $48.7 million at December 31, 1997,
reflecting net income during the year of $5.7 million, dividends to
stockholders of $2.4 million, an unrealized securities gain, net of deferred
income taxes, of $1,031,000, net proceeds of $470,000 from the issuance of
common stock, and net disbursement from the purchase of treasury stock of
$129,000.
The FDIC's risk-based capital policy statement imposes a minimum capital
standard on insured banks. The minimum ratio of risk-based capital to risk-
weighted assets (including certain off-balance sheet items, such as standby
letters of credit) is 8%. At least half of the total capital is to be comprised
of common stock equity and qualifying perpetual preferred stock, less goodwill
("Tier I capital"). The remainder ("Tier II capital") may consist of mandatory
convertible debt securities, qualifying subordinated debt, other preferred
stock and a portion of the allowance for loan losses. The Federal Reserve Board
has adopted a similar risk-based capital guideline for Lakeland which is
computed on a consolidated basis.
In addition, the bank regulators have adopted minimum leverage ratio
guidelines (Tier I capital to average quarterly assets, less goodwill) for
financial institutions. These guidelines provide for a minimum leverage ratio
of 3% for financial institutions that meet certain specified criteria,
including that they have the highest regulatory rating. All other holding
companies are required to maintain a leverage ratio of 3% plus an additional
cushion of at least 100 to 200 basis points.
The following table reflects Lakeland's capital ratios as of December 31,
1998:
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
Amount Ratio
------- -----
<S> <C> <C>
Actual Tier I Capital..................................... $50,216 15.58%
Tier I Capital minimum amount............................. 12,894 4.00%
------- -----
Excess.................................................... $37,322 11.58%
======= =====
Actual Combined Tier I and Tier II Capital................ $53,732 16.67%
Combined Tier I and Tier II Capital minimum requirement... 25,789 8.00%
------- -----
Excess.................................................... $27,945 8.67%
======= =====
LEVERAGE RATIO
Actual Tier I Capital to average fourth quarter assets.... $50,216 9.33%
Minimum leverage target * ................................ * *
------- -----
Excess.................................................... $ * *%
======= =====
</TABLE>
- --------
* No formal minimum leverage target (other than the three percent floor
described above) has been established for Lakeland or its bank subsidiaries as
of December 31, 1998.
Recent Accounting Pronouncements. In June 1997 the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Statement 130 establishes
standards for reporting and the presentation of comprehensive income and its
components in a full set of general-purpose financial statements. Statement 130
is effective for both interim and annual periods beginning after December 15,
1997. Statement 130 was implemented effective January 1, 1998, and did not have
a material impact on Lakeland.
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Statement 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. Statement 131 is effective for financial
periods beginning after December 15, 1997, and does not have a material impact
on Lakeland.
77
<PAGE>
In April 1998, the FASB issued SFAS 132, "Employers Disclosures About
Pensions and Other Post Retirement Benefits." Statement 132 standardizes the
disclosure requirements for these plans and it requires additional information
about changes in the benefit obligations and fair value of plan assets.
Statement 132 is effective for fiscal years beginning after December 15, 1997,
and information for previous periods presented for comparative purposes is
required to be restated. Statement 132 does not change measurement or
recognition standards for these plans and is only disclosure related, therefore
its implementation had no impact on Lakeland's financial condition or results
of operations.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. Statement 133 supersedes Statement 80,
"Accounting for Futures Contracts," Statement 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," and Statement 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments." It amends Statement 107, "Disclosure about Fair Value of
Financial Instruments" to include in Statement 107 the disclosure provisions
about concentrations of credit risk from Statement 105. Statement 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. As Lakeland does not have any derivative instruments or similar
contracts, the implementation of Statement 133 will have no impact on
Lakeland's financial condition or results of operations. Statement 133 has a
provision that at the date of initial application, an entity may transfer any
held-to-maturity security into the available-for-sale category or the trading
category. The unrealized holding gain or loss on a held-to-maturity security
transferred to another category at the date of initial application shall be
reported in net income or accumulated other comprehensive income consistent
with the requirements of paragraphs 15(b) and 15(c) of Statement 115. Statement
133 states that transfers from the held-to-maturity category at the date of
initial adoption shall not call into question an entity's intent to hold other
debt securities to maturity in the future.
Year 2000 Compliance. As the year 2000 approaches, an important business
issue has emerged regarding how existing software and operating systems can
accommodate this date value. Many existing software products were designed to
accommodate only two-digits. For example, "98" is stored on the system and
represents 1998. Lakeland has been identifying potential problems associated
with the "Year 2000" issue and has implemented a plan designated to ensure that
all information technology systems including hardware and software used in
connection with Lakeland's business will handle date related data in a manner
which will provide accurate results.
Lakeland has formed a committee of representatives from its various areas to
monitor this project. This committee has prepared a schedule of vendors that
supply Lakeland with various products and services. This listing of vendors was
then put into priority order, determining how critical the vendor is to the
continuance of Lakeland's daily operations. Finally, the status as to the stage
of completion of each vendor is charged. The five stages in the process are
awareness, assessment, renovation, validation, and implementation. All vendors
listed as "highest priority", which Lakeland considers to be critical to daily
operations, have completed the five stages by December 31, 1998. Included in
this grouping of "highest priority" are vendors which provide and support
hardware and software for all critical aspects of Lakeland's information
technology systems. Lakeland has tested all vendors listed as "high priority,"
and has determined that these vendors have completed the five stages. All
vendors listed as "mid-range priority" and "low priority" have either been
tested by Lakeland or, in Lakeland's determination, do not present a material
concern to Lakeland's daily operations. Lakeland has received written
assurances as to Year 2000 compliance from many of its vendors. Lakeland is
comfortable with the accuracy and level of these assurances. As part of this
project, Lakeland is also requiring its computer systems and software vendors
to represent that the products provided are or will be Year 2000 compliant and
has planned a program of testing for compliance.
Lakeland recognizes that any Year 2000 failure on the part of its customers
could result in additional expense or loss. In this regard, Lakeland sent a
letter to its significant commercial borrowers to determine their
78
<PAGE>
readiness for Year 2000 and has monitored their responses. Overall, 43.7% of
our borrowers responded to the survey. 65.5% of the borrowers who responded
indicated that they had developed a comprehensive plan for Year 2000
compliance. 69.6% of the borrowers who responded indicated that they had taken
some action regarding Year 2000 compliance. Finally, 25.6% of the borrowers who
responded indicated that they did not have any information technology systems
which were susceptible to Year 2000 issues. Lakeland is comfortable with the
accuracy and level of the representation made by the borrowers in their
responses. Additionally, a brochure was sent to all demand deposit customers to
make them aware of the Year 2000 issue and Lakeland's concern regarding the
same. Lakeland does consider Year 2000 compliance of potential borrowers in its
lending practice.
Lakeland employed a consultant to assist in the preparation of a contingency
plan in the event there are any system interruptions due to Year 2000 issues.
As part of the contingency plan:
. each manager identified the resources required to sustain daily
operations in his or her area of responsibility;
. Lakeland prepared a list of various Year 2000 potential interruption
scenarios and assigned a probability as to the scenario occurring; and
. Lakeland will allocate contingency plan resources based on the
likelihood of each scenario occurring.
Lakeland's Year 2000 committee will coordinate and monitor the contingency
plan. As Lakeland continues to monitor Year 2000 issues throughout 1999, it
will adjust its contingency plan accordingly. In a worse case scenario,
Lakeland would not be able to update its records and service its customers.
However, based on the written assurances that Lakeland has received from its
major software vendor and upon Lakeland's own testing, Lakeland believes that
the likelihood of this scenario happening is very remote.
Lakeland believes that its costs related to Year 2000 will be approximately
$75,000. At December 31, 1998, Lakeland had expensed approximately $36,000
relating to its Year 2000 project.
There can be no assurances, however, that the plan developed in the Year
2000 project or the performance by Lakeland's vendors will be effective to
remedy all potential problems. To the extent Lakeland's systems are not fully
Year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a
materially adverse effect on Lakeland's business, financial condition, results
of operations or business prospects.
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 for 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. Lakeland 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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Quarters Ended March 31, 1999 and 1998
Overview. During the first quarter of 1998, Lakeland consummated its
acquisition of Metropolitan State Bank. The transaction was accounted for as a
pooling of interests. As a result, Lakeland's financial statements have been
retroactively adjusted to combine Lakeland's accounts and Metropolitan's
accounts for all prior periods. See Notes to Consolidated Financial Statements.
Three Month Summary. The first three months of 1999 resulted in slightly
increased earnings for Lakeland, when compared to the same period in 1998. Net
income increased $59,494, or 4.36%, to $1,424,939 for the first three months of
1999 from $1,365,445 for the same period in 1998. Net income per share basic
and
79
<PAGE>
diluted increased $.01 to $.17. Increases of $159,448 in net interest income
and a decrease of $73,027 in income tax expense more than offset increases of
$56,118 in the provision for loan losses and $74,054 in total other expenses,
and a decrease of $42,808 in total other income.
Lakeland's annualized return on average assets and average stockholders'
equity for the first three months of 1999 were 1.03% and 10.61%, respectively,
compared to 1.08% and 11.07%, respectively, for the same period in 1998.
Results of Operations. Total interest income increased $320,519, or 3.72% to
$8,928,303 for the three months ended March 31, 1999, when compared to
$8,607,784 for the same period in 1998. The overall increase in this category
was a result of increases of $47,184 or .76% in interest earned on the loan
portfolio and $273,739 or 12.41% in interest earned on the securities
portfolio.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $19.0 million, which was partially offset by a
46 basis point decrease in yield. Loan volume increases were reflected in
commercial loans, which increased on average by 5.2% and mortgage loans, which
increased on average by 13.8%, which were partially offset by a decrease in
consumer loans, which decreased on average by 2.8%. The increase in interest
income on investment securities was attributable to an increase in average
balances of $35.7 million (reflecting a $28.0 million increase in the average
volume of taxable securities and a $7.7 million increase in the average volume
of non-taxable securities), which was partially offset by a 35 basis point
decrease in yield. Interest income on federal funds sold was unchanged as a
$2.2 million increase in average balances was offset by a 78 basis point
decrease in yield.
Total interest expense increased $161,071 or 4.99%. Of this increase,
interest expense on deposits increased $153,276 or 4.80% to $3,343,505 for the
first quarter of 1999 compared to $3,190,229 for the same period in 1998. This
increase is primarily attributable to an increase of $36.4 million in average
balances of interest bearing deposits (which partially funded the increases in
loans and investment securities), which was partially offset by an 18 basis
point decline in yield.
Net interest income increased $159,448 or 2.96% to $5,540,036 for the first
three months of 1999 from $5,380,588 for the same period in 1998, primarily as
the result of increased balances of net earning assets. The annualized net
interest margin (the average yield on interest earning assets, less the average
cost of interest-bearing liabilities) decreased from 3.89% to 3.56%. While the
average yield on earning assets decreased 50 basis points from 7.51% to 7.01%,
the average rate paid on interest-bearing liabilities decreased 17 basis points
from 3.62% to 3.45%.
The provision for loan losses increased $56,118 or 114.80% to $105,000 for
the three months ended March 31, 1999, as compared with $48,882 for the same
prior year period. During the first quarter of 1999, Lakeland charged off loans
of $89,000 and recovered $30,000 in previously charged off loans compared to
$447,000 and $230,000, respectively, during the same period in 1998. The
$89,000 in charged-off loans in 1999 is the result of the charging off of nine
consumer installment loans. The allowance for loan losses at March 31, 1999,
and December 31, 1998, was 1.25% of total loans, compared to 1.36% at March 31,
1998. Lakeland believes, based on management's ongoing review of loan quality,
economic conditions, loss experience, and loan growth, that the allowance for
loan losses is adequate. This statement represents a forward-looking statement.
Actual results could differ materially from this statement based upon a number
of conditions, including the financial viability of Lakeland's loan customers,
the value of Lakeland's collateral, and general economic conditions.
80
<PAGE>
The following table sets forth for the three months ended March 31, 1999 and
1998, the activity of the allowance for loan losses account:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Balance of allowance at beginning of period......... $ 3,897 $ 4,142
----------- -----------
Charge-offs:
Commercial........................................ 35 232
Installment....................................... 54 49
Mortgage.......................................... -- 166
----------- -----------
Total charge-offs............................... 89 447
----------- -----------
Recoveries:
Commercial........................................ 21 211
Installment....................................... 9 19
Mortgage.......................................... -- --
----------- -----------
Total recoveries................................ 30 230
----------- -----------
Net charge-offs..................................... 59 217
----------- -----------
Provision for loan losses........................... 105 49
----------- -----------
Balance of allowance at end of period............... $ 3,943 $ 3,974
=========== ===========
Ratio of net charge-offs to average loans
outstanding........................................ .02% .07%
Balance of allowance at end of period as a percent
of total loans..................................... 1.25% 1.36%
</TABLE>
Lakeland has established criteria to identify loans which may be impaired.
Large groups of smaller-balance homogeneous loans are collectively evaluated
for impairment, while other larger-balance loans are independently evaluated.
A loan evaluated for impairment is deemed impaired when, based on current
information and events, it is probable that Lakeland 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 Lakeland, will not
cause a loan to be classified as impaired. Loan impairment is measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, if the loan is collateral dependent, the fair value
of the related collateral. Loan allowances, based upon impaired loan
evaluations, are included in the allowance for loan loss.
Lakeland's policy concerning non-accrual loans states that loans, without
consideration as to loan balance, are placed on a non-accrual status when
payments are 90 days delinquent or more, unless the asset is both well secured
and in the process of collection. Due to the difference in measurement
criteria, the populations of non-accrual and impaired loans, while having many
common elements, will be different in the aggregate.
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 non-accrual loans, Lakeland applies
any payments to principal as long as there is doubt as to the collectibility of
the loan balance.
As of March 31, 1999, based on the above criteria, Lakeland classified three
commercial loans, totaling $1,791,773; and, one mortgage loan, totaling
$126,160, as impaired. The impairment of these loans is based on the fair value
of the underlying collateral for these loans. Based upon such evaluation of
these impaired loans, $422,638 has been allocated to the allowance for loan
losses.
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<PAGE>
The following schedule sets forth certain information regarding Lakeland's
non-accrual, past due and renegotiated loans and other real estate owned as of
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31,
-------------
1999 1998
------ ------
(in
thousands)
<S> <C> <C>
Non-accrual loans.......................................... $1,520 $2,950
Past due loans............................................. 2,583 1,965
Renegotiated loans......................................... 1,888 913
------ ------
Total non-accrual, past due and renegotiated loans....... 5,991 5,828
Other real estate owned.................................... 394 648
------ ------
Total.................................................... $6,385 $6,476
====== ======
</TABLE>
Included in the above schedule at March 31, 1999, is one non-accrual
commercial loan, totaling $223,586; two commercial loans past due over 90 days,
totaling $1,568,187; and, one mortgage loan past due over 90 days, totaling
$126,160, which represents all loans categorized as impaired.
At March 31, 1999, non-accrual loans totaled $1,520,000, an increase of
$263,000 compared to December 31, 1998. This net change is primarily the result
of the addition of two commercial loans totaling $31,000 and one consumer loan
totaling $228,000, which have been added to this category. Of the total non-
accrual loans at March 31, 1999, all are either in foreclosure, in various
stages of litigation, or on a repayment schedule. At March 31, 1999, loans past
due 90 days or more and still accruing totaled $2,583,000, a decrease of
$1,665,000 compared to December 31, 1998. This net change is primarily the
result of the reduction of one commercial loan, totaling $1,332,000, which has
become current and the reduction of two commercial loans, totaling $274,000,
and one mortgage loan, totaling $161,000, which have been renegotiated. At
March 31, 1999, renegotiated loans totaled $1,888,000, an increase of $420,000
compared to December 31, 1998. All renegotiated loans are current with respect
to the revised terms with the exception of two loans past due over 90 days,
which are categorized as impaired. This net change is primarily the result of
the previously two noted renegotiated commercial loans and one renegotiated
mortgage loan, which have been added to this category. At March 31, 1999, other
real estate owned totaled $394,000, a decrease of $394,000 compared to December
31, 1998. This net change is primarily the result of the sale of properties
held in this category during the first quarter of 1999.
Total other income decreased $42,808 or 5.52% to $732,074 for the first
three months of 1999 from $774,883 for the same period in 1998. This decrease
is primarily the result of a $40,000 decrease in gain on disposition of
securities.
Other expenses increased by $74,054 or 1.83% to $4,130,487 for the first
three months of 1999 from $4,056,433 for the same period in 1998. Salaries and
benefits increased by $146,686 or 6.96%. This was due to increased staffing
levels, partially due to three additional branch offices being opened, along
with normal salary increases. Occupancy expense increased $20,654 or 5.27%.
Furniture and fixtures expense increased $47,278 or 12.49%. These increases are
a result of the aforementioned branch expansion. Other expenses decreased in
the aggregate $140,564 or 11.93%. Lakeland incurred $316,000 in acquisition
expense during the first quarter of 1998 with regard to the acquisition of
Metropolitan State Bank. Exclusive of this acquisition expense, other expenses
increased approximately $175,436 or 20.34%. Approximately $134,000 of this
increase is due to higher expenses incurred due to the increased number of
branches and Lakeland's banking business. The remaining $41,000 represents
supplemental pension expense incurred in 1999, relating to the funding of an
annuity for the Chief Executive Officer of Metropolitan State Bank. The
effective tax decreased from 33.39% at March 31, 1998, to 30.03% at March 31,
1999. The decrease in income tax expense was due primarily to an increase in
tax-exempt income, as well as a decrease in pre-tax earnings.
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<PAGE>
Financial Condition. Lakeland's total assets increased $7.8 million or 1.42%
from $548.5 million at December 31, 1998, to $556.3 million at March 31, 1999.
A $3.5 million decrease in cash and cash equivalents and a $1.2 million
decrease in other assets was offset by increases of $7.9 million in Lakeland's
securities portfolio, and $4.6 million in the loan portfolio.
At March 31, 1999, Lakeland's securities portfolio of $192.0 million is
segregated into classifications of "available for sale" and "held to maturity."
Unrealized gains and losses of $5,503,000 and $515,000, respectively, contained
in the available for sale portfolio, have been recorded, net of deferred taxes,
as a separate component of stockholders' equity. The effect of such adjustment
at March 31, 1999, is to increase stockholders' equity by $2,940,000.
Securities held to maturity at March 31, 1999, contain unrealized gains and
losses of $777,000 and $255,000, respectively. For the entire securities
portfolio, net unrealized gains were at $5,511,000 at March 31, 1999, as
compared with a $6,145,000 net unrealized gain at December 31, 1998.
Total loans increased $4.6 million or 1.49% from December 31, 1998 to March
31, 1999.
Total deposits increased $7.9 million or 1.62% from December 31, 1998, to
March 31, 1999. A $7.9 million increase in savings and interest-bearing demand
deposits and a $2.6 million increase in time deposits more than offset a $3.2
million decrease in non-interest bearing demand deposits. The overall increase
in deposits was primarily due to the additional branch offices, which were
opened. Time deposits at March 31, 1999, represented 31.56% of total deposits
as compared to 31.55% at December 31, 1998.
Stockholders' equity increased $590,000 or 1.11% as net income of $1,425,000
was offset by a $157,000 decrease in the equity component related to available
for sale securities, $638,000 in dividends paid to stockholders and $40,000 in
the repurchase of treasury stock.
Cash and cash equivalents decreased by $3.5 million during the three months
ended March 31, 1999. Operating activities, principally the result of
Lakeland's net income and the decrease of other assets, provided $3.1 million
in net cash. Investing activities used $13.0 million in net cash, primarily
reflecting the increase in Lakeland's investment portfolio. Financing
activities provided $6.5 million in net cash, reflecting an increase in
deposits partially offset by a decrease in short term borrowings and a cash
dividend paid on common stock.
Capital Resources. In March 1989, the FDIC adopted a risk-based capital
policy statement which imposed a minimum capital standard on insured banks. The
minimum ratio of off risk-based capital to risk-weighted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. At
least half of the total capital is to be comprised of common stock equity and
qualifying perpetual preferred stock, less goodwill ("Tier I capital"). The
remainder ("Tier II capital") may consist of mandatory convertible debt
securities, qualifying subordinated debt, other preferred stock and a portion
of the allowance for loan losses. The Federal Reserve Board adopted a similar
risk-based capital guideline for Lakeland which is computed on a consolidated
basis.
In addition, the Federal Reserve Board has established leverage ratio
guidelines (Tier I capital to average quarterly assets, less goodwill) for bank
holding companies. These guidelines provide for a minimum leverage ratio of 3%
for bank holding companies that meet certain specified criteria, including that
they have the highest regulatory rating. All other holding companies will be
required to maintain a leverage ratio of 3% plus an additional cushion of at
least 100 to 200 basis points.
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<PAGE>
The following table reflects Lakeland's capital ratios as of March 31, 1999:
<TABLE>
<CAPTION>
Amount Ratio
------- -----
(in
thousands)
<S> <C> <C>
Risk-Based Capital Ratios:
Actual Tier I Capital............................................ 50,963 15.85%
Tier I Capital minimum amount.................................... 12,862 4.00%
------- -----
Excess........................................................... $38,101 11.85%
======= =====
Actual Combined Tier I and Tier II Capital....................... $54,906 17.08%
Combined Tier I and Tier II Capital minimum requirement.......... 25,724 8.00%
------- -----
Excess........................................................... $29,182 9.08%
======= =====
Leverage Ratio:
Actual Tier I Capital to average first quarter assets............ $50,963 9.20%
Minimum leverage target*......................................... * *
------- -----
Excess........................................................... * *
</TABLE>
* No formal minimum leverage target (other than the three percent floor
described above) has been established for Lakeland or the Bank as of March 31,
1999.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
should be read in conjunction with the historical consolidated financial
statements and related notes of Lakeland and High Point, which are included
herein (in the case of Lakeland) and incorporated herein by reference (in the
case of High Point). The unaudited pro forma information is presented for
illustration purposes only in accordance with the assumptions set forth below.
This information is not necessarily indicative of the operating results or of
the financial position that would have occurred if the merger had been
consummated nor is it necessarily indicative of future operating results or
financial position of the combined enterprise. The unaudited pro forma
condensed combined financial information does not reflect any adjustments to
conform accounting practices or to reflect any cost savings or other synergies
anticipated as a result of the merger or any merger-related expenses. All share
and per share data concerning Lakeland common stock set forth in the following
unaudited pro forma condensed combined financial information have been adjusted
to reflect all stock splits and dividends paid by Lakeland through the date of
this joint proxy statement/prospectus, as though the payment of such dividends
occurred prior to the dates as to which this pro forma financial information
relates.
Unaudited Pro Forma Condensed Combined Balance Sheet
The following unaudited pro forma condensed combined balance sheet presents
under the pooling of interests method of accounting, the consolidated balance
sheets of Lakeland and High Point combined as of March 31, 1999 as if the
merger had occurred on that date.
85
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Lakeland High Point Pro
(historical) (historical) Adjustments Forma
------------ ----------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from
banks.................. $ 20,888 $ 9,569 $ 30,457
Federal funds sold...... 10,725 19,605 30,330
Securities available for
sale, at estimated fair
value.................. 108,972 60,857 (1,205) (1) 163,804
(4,820) (2)
Securities held to
maturity
(includes certificates
of deposit)............ 83,265 25,781 109,046
Loans held for sale..... 0 1,105 1,105
Loans, net.............. 312,174 133,828 446,002
Premises and equipment.. 14,088 6,665 20,753
Land held for sale...... 0 1,865 1,865
Accrued interest
receivable............. 4,304 1,429 5,733
Other assets............ 1,923 8,449 10,372
--------- --------- ------- ---------
Total assets........... $ 556,339 $ 269,153 $(6,025) $ 819,467
========= ========= ======= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Liabilities:
Deposits................ $ 496,814 $ 228,840 $ 725,654
Securities sold under
agreements to
repurchase............. 3,004 8,145 11,149
Long term debt.......... 0 5,000 5,000
Other Liabilities....... 2,618 2,697 (1,864) (2) 3,451
--------- --------- ------- ---------
Total Liabilities...... 502,436 244,682 (1,864) 745,254
--------- --------- ------- ---------
Stockholders' equity:
Preferred Stock......... 0 0
Common Stock............ 21,279 19,057 (1,033) (1) 31,680
(7,623) (3)
Surplus................. 18,938 5,385 (172) (1) 31,774
7,623 (3)
Undivided Profits
(accumulated deficit).. 10,915 (1) 10,914
Options exercised by
debt agreement......... 0 (169) (169)
Accumulated other
comprehensive income,
net of income tax...... 2,940 199 (2,956) (2) 183
Treasury stock.......... (169) 0 (169)
--------- --------- ------- ---------
Total stockholders'
equity................ 53,903 24,471 (4,161) 74,213
--------- --------- ------- ---------
Total liabilities and
stockholders' equity... $ 556,339 $ 269,153 $(6,025) $ 819,467
========= ========= ======= =========
</TABLE>
- --------
(1) To eliminate Lakeland's investment (at cost) in shares of High Point common
stock.
(2) To eliminate unrealized gains on the shares of High Point common stock
owned by Lakeland.
(3) To restate High Point common stock outstanding using the exchange ratio;
historical and pro forma common stock outstanding as of March 31, 1999 was as
follows:
<TABLE>
<CAPTION>
Lakeland High Point Adjustments Pro Forma
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Common Stock--Lakeland........ 8,511,588 8,511,588
Common Stock--High Point:
Common shares outstanding..... 3,811,480 (3,811,480)
Common shares times Exchange
Ratio (1.2).................. 4,573,776
Eliminate High Point shares
held by Lakeland............. (413,102)(a) 4,160,674
--------- ---------- ----------
Common stock--Pro Forma
total........................ 8,511,588 3,811,480 349,194 12,672,262
========= ========= ========== ==========
</TABLE>
- --------
(a) Lakeland's investment in shares of High Point common stock will be
retired upon conversion.
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<PAGE>
Unaudited Pro Forma Condensed Combined Income Statements
The following unaudited pro forma condensed combined income statements
present, under the pooling of interests accounting method, the consolidated
income statements of Lakeland and High Point for the three months ended March
31, 1999 and 1998, and the years ended December 31, 1998, 1997 and 1996, as if
the merger had occurred on January 1, 1999, 1998, 1997 and 1996, respectively.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Lakeland High Point Pro
(historical) (historical) Adjustments Forma
------------ ------------ ----------- -----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees.......... $ 6,261 $ 2,888 $ 9,149
Federal funds sold...... 187 206 393
Investment securities... 2,480 1,115 (9) (1) 3,586
---------- ---------- -------- -----------
Total interest
income............... 8,928 4,209 (9) (1) 13,128
---------- ---------- -------- -----------
INTEREST EXPENSE:
Deposits................ 3,343 1,591 4,934
Borrowed Money.......... 45 38 83
Long term debt.......... 0 75 75
---------- ---------- -----------
Total interest
expense.............. 3,388 1,704 5,092
---------- ---------- -----------
Net interest income....... 5,540 2,505 (9) (1) 8,036
PROVISION FOR POSSIBLE
LOAN LOSSES.............. 105 0 105
---------- ---------- -----------
Net interest income
after provision for
possible
loan losses............ 5,435 2,505 (9) (1) 7,931
Other income.............. 732 669 1,401
Other expenses............ 4,130 2,495 6,625
---------- ---------- -----------
INCOME BEFORE INCOME
TAXES.................... 2,037 679 (9) (1) 2,707
INCOME TAXES.............. 612 255 867
---------- ---------- -----------
NET INCOME................ $ 1,425 $ 424 $ (9) (1) $ 1,840
========== ========== ======== ===========
Per share data:
Net income per common
share--basic............. $ 0.17 $ 0.11 $ 0.15
Average number of common
shares--basic............ 8,501,619 3,811,480 762,296 (2) 12,662,293
(413,102) (3)
Net income per common
share--diluted........... $ 0.17 $ 0.11 $ 0.14
Average number of common
shares
and equivalents--
diluted.................. 8,501,619 3,873,449 774,690 (2) 12,736,656
(413,102) (3)
</TABLE>
- --------
(1) To eliminate dividends paid by High Point to Lakeland on shares of High
Point common stock owned by Lakeland.
(2) To restate average number of shares of High Point common stock and
equivalents using the exchange ratio.
(3) To eliminate the shares of High Point common stock owned by Lakeland using
the exchange ratio.
87
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Lakeland High Point
(historical) (historical) Adjustments Pro Forma
------------ ------------ ----------- ----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees......... $ 6,214 $ 2,831 $ 9,045
Federal funds sold..... 188 177 365
Investment securities.. 2,206 1,197 3,403
--------- --------- ----------
Total interest
income.............. 8,608 4,205 12,813
--------- --------- ----------
INTEREST EXPENSE:
Deposits............... 3,190 1,506 4,696
Borrowed Money......... 37 103 140
Long term debt......... 0 79 79
--------- --------- ----------
Total interest
expense............. 3,227 1,688 4,915
--------- --------- ----------
Net interest income...... 5,381 2,517 7,898
PROVISION FOR POSSIBLE
LOAN LOSSES............. 49 0 49
--------- --------- ----------
Net interest income after
provision for possible
loan losses............. 5,332 2,517 7,849
Other income............. 775 694 1,469
Other expenses........... 4,057 2,350 6,407
--------- --------- ----------
INCOME BEFORE INCOME
TAXES................... 2,050 861 2,911
INCOME TAXES............. 685 347 1,032
--------- --------- ----------
NET INCOME............... $ 1,365 $ 514 $ 1,879
========= ========= ==========
Per share data:
Net income per common
share--basic............ $ 0.16 $ 0.14 $ 0.15
Average number of common
shares--basic........... 8,488,138 3,786,480 757,296 (1) 12,618,812
(413,102) (2)
Net income per common
share--diluted.......... $ 0.16 $ 0.13 $ 0.15
Average number of common
shares and equivalents--
diluted................. 8,488,138 3,871,323 774,265 (1) 12,720,624
(413,102) (2)
</TABLE>
- --------
(1) To restate average number of shares of High Point common stock and
equivalents using the exchange ratio.
(2) To eliminate the shares of High Point common stock owned by Lakeland using
the exchange ratio.
88
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Lakeland High Point Pro
(historical) (historical) Adjustments Forma
------------ ------------ ----------- -----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees.......... $ 25,071 $ 11,899 $ 36,970
Federal funds sold...... 1,022 812 1,834
Investment securities... 8,842 4,583 $ (14) (1) 13,411
---------- ---------- -------- -----------
Total interest
income............... 34,935 17,294 (14) (1) 52,215
---------- ---------- -------- -----------
INTEREST EXPENSE:
Deposits................ 12,813 6,230 19,043
Borrowed Money.......... 196 335 531
Long term debt.......... 0 302 302
---------- ---------- -----------
Total interest
expense.............. 13,009 6,867 19,876
---------- ---------- -----------
Net interest income....... 21,926 10,427 (14) (1) 32,339
PROVISION FOR POSSIBLE
LOAN
LOSSES................... 698 0 698
---------- ---------- -----------
Net interest income
after provision for
possible loan losses... 21,228 10,427 (14) (1) 31,641
Other income.............. 3,165 2,608 5,773
Other expenses............ 15,752 9,281 25,033
---------- ---------- -----------
INCOME BEFORE INCOME
TAXES.................... 8,641 3,754 (14) (1) 12,381
INCOME TAXES.............. 2,916 1,508 4,424
---------- ---------- -------- -----------
NET INCOME................ $ 5,725 $ 2,246 $ (14) (1) $ 7,957
========== ========== ======== ===========
Per share data:
Net income per common
share--basic............. $ 0.67 $ 0.59 $ 0.63
Average number of common
shares--basic............ 8,492,953 3,798,397 759,679 (2) 12,637,927
(413,102) (3)
Net income per common
share--diluted........... $ 0.67 $ 0.58 $ 0.63
Average number of common
shares and equivalent--
diluted.................. 8,492,953 3,847,591 769,518 (2) 12,696,960
(413,102) (3)
</TABLE>
- --------
(1) To eliminate dividends paid by High Point to Lakeland on shares of High
Point common stock owned by Lakeland.
(2) To restate average number of shares of High Point common stock and
equivalents using the exchange ratio.
(3) To eliminate the shares of High Point common stock owned by Lakeland using
the exchange ratio.
89
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Lakeland High Point
(historical) (historical) Adjustments Pro Forma
------------ ------------ ----------- -----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees.......... $ 23,502 $ 11,031 $ 34,533
Federal funds sold...... 949 442 1,391
Investment securities... 8,954 5,046 14,000
---------- ---------- -----------
Total interest
income............... 33,405 16,519 49,924
---------- ---------- -----------
INTEREST EXPENSE:
Deposits................ 12,761 5,805 18,566
Borrowed Money.......... 164 377 541
Long term debt.......... 0 143 143
---------- ---------- -----------
Total interest
expense.............. 12,925 6,325 19,250
---------- ---------- -----------
Net interest income..... 20,480 10,194 30,674
PROVISION FOR POSSIBLE
LOAN LOSSES.............. 1,026 0 1,026
---------- ---------- -----------
Net interest income
after provision for
possible loan losses... 19,454 10,194 29,648
Other income............ 3,023 2,938 5,961
Other expenses.......... 14,508 9,241 23,749
---------- ---------- -----------
INCOME BEFORE INCOME
TAXES.................... 7,969 3,891 11,860
INCOME TAXES.............. 2,648 1,586 4,234
---------- ---------- -----------
NET INCOME................ $ 5,321 $ 2,305 $ 7,626
========== ========== ===========
Per share data:
Net income per common
share--basic............. $ 0.63 $ 0.61 $ 0.61
Average number of common
shares--basic............ 8,404,528 3,786,480 757,296 (1) 12,535,202
(413,102) (2)
Net income per common
share--diluted........... $ 0.63 $ 0.60 $ 0.60
Average number of common
shares and
equivalents--diluted..... 8,435,377 3,852,377 770,475 (1) 12,645,127
(413,102) (2)
</TABLE>
- --------
(1) To restate average number of shares of High Point common stock and
equivalents using the exchange ratio.
(2) To eliminate the shares of High Point common stock owned by Lakeland using
the exchange ratio.
90
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Lakeland High Point Pro
(historical) (historical) Adjustments Forma
------------ ------------ ----------- -----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees........ $ 21,442 $ 9,349 $ 30,791
Federal funds sold.... 742 614 1,356
Investment
securities........... 8,547 4,466 13,013
---------- ---------- -----------
Total interest
income............. 30,731 14,429 45,160
---------- ---------- -----------
INTEREST EXPENSE:
Deposits.............. 11,613 5,460 17,073
Borrowed Money........ 174 166 340
Long term debt........ -- 132 132
---------- ---------- -----------
Total interest
expense............ 11,787 5,758 17,545
---------- ---------- -----------
Net interest income..... 18,944 8,671 27,615
PROVISION FOR POSSIBLE
LOAN LOSSES............ 908 0 908
---------- ---------- ----------- ---
Net interest income
after provision for
possible loan losses... 18,036 8,671 26,707
Other income............ 2,671 2,552 5,223
Other expenses.......... 12,692 9,097 21,789
---------- ---------- -----------
INCOME BEFORE INCOME
TAXES (BENEFIT)........ 8,015 2,126 10,141
INCOME TAXES (BENEFIT).. 2,665 (2,681) 3,861 (3) 3,845
---------- ---------- --------- -----------
NET INCOME.............. $ 5,350 $ 4,807 $ (3,861) $ 6,296
========== ========== ========= ===========
Per share data:
Net income per common
share--basic........... $ 0.64 $ 1.27 $ 0.51
Average number of common
shares--basic.......... 8,304,142 3,779,364 755,873 (1) 12,426,277
(413,102) (2)
Net income per common
share--diluted......... $ 0.64 $ 1.27 $ 0.50
Average number of common
shares and
equivalents--diluted... 8,337,068 3,786,907 757,381 (1) 12,468,254
(413,102) (2)
</TABLE>
- --------
(1) To restate average number of shares of High Point common stock and
equivalents using the exchange ratio.
(2) To eliminate shares of High Point common stock owned by Lakeland using the
exchange ratio.
(3) The pro forma adjustment to income tax expense reflects the reversal of the
tax benefit recorded by High Point in 1996. On a combined basis the benefit
of $3.9 million would have been recorded in earlier periods based on the pre-
tax income of the combined entity.
91
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the merger, High Point's stockholders will receive shares of
Lakeland common stock in exchange for their shares of High Point common stock.
The following is a summary of certain material differences between the rights
of holders of High Point common stock and the rights of holders of Lakeland
common stock. Since both Lakeland and High Point are incorporated in New Jersey
and are both governed by the New Jersey Business Corporations Act, these
differences arise from their respective certificates of incorporation and by-
laws. Although it is impractical to compare all of the aspects in which the
companies' governing instruments differ with respect to stockholders' rights,
the following discussion summarizes certain significant differences. This
summary is qualified in its entirety by reference to the applicable provisions
of the companies' governing instruments.
Authorized Preferred Stock
The High Point restated certificate of incorporation provides for a class of
1,000,000 shares of preferred stock without par value, and empowers the High
Point Board of Directors to divide this preferred stock into series and to fix
the relative rights, preferences and limitations of each series. The Lakeland
certificate of incorporation does not authorize a class of preferred stock.
Directors
The High Point certificate imposes certain age limitations on directors and
outlines a nominating procedure for directors. The Lakeland certificate imposes
no age limitations or procedural requirements.
Removal of Directors
The Lakeland certificate limits removal of directors to removal for cause.
The High Point certificate limits removal to removal for cause and requires an
80% stockholder vote.
Stockholder Vote on Mergers; Business Combinations
The High Point certificate requires approval of holders of two-thirds of all
outstanding shares for any merger, consolidation or sale of all or
substantially all of the assets of High Point. The Lakeland certificate
requires approval of holders of only a majority of the shares voting for any
merger, consolidation or sale of all or substantially all of the assets of
Lakeland.
Both certificates of incorporation impose certain higher voting requirements
for certain business combinations. Lakeland's certificate also contains a
minimum price provision. If a "controlling party" 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 (1) not less than 80% of the outstanding shares entitled to vote on the
transaction and (2) not less than 67% of the outstanding shares of voting stock
of Lakeland held by stockholders other than the controlling party. However,
these voting requirements will not apply if (1) the proposed transaction is
approved by a majority of Lakeland's Board of Directors, or (2) the
stockholders 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. A "controlling person" is defined in the Lakeland
certificate to include persons who own or control 20% or more of Lakeland's
voting stock at the time of the proposed transaction. The High Point
certificate imposes an 80% voting requirement on a business combination with a
10% stockholder unless either two-thirds of the continuing directors
unaffiliated with the 10% stockholder approve the transaction or certain other
procedural safeguards have been met.
92
<PAGE>
DESCRIPTION OF LAKELAND'S CAPITAL STOCK
The authorized capital stock of Lakeland consists of 14,806,718 shares of
common stock. As of March 31, 1999, 8,500,788 shares of Lakeland common stock
were issued and outstanding. The amendment to Lakeland's certificate of
incorporation, if approved, would increase the authorized shares to 40,000,000.
Description of Lakeland Common Stock
The following description of Lakeland common stock sets forth certain
general terms of Lakeland common stock. The following summary is not complete.
Dividend Rights. The holders of Lakeland common stock are entitled to
receive dividends, when, as and if declared by the Lakeland Board of Directors
out of funds legally available therefor. The only statutory limitation on
payment of dividends is that dividends may not be paid when Lakeland is
insolvent. Since the funds used to pay dividends come primarily from the
earnings of Lakeland's bank subsidiaries, as a practical matter, any
restrictions on the ability of Lakeland Bank, Metropolitan State Bank or, after
the merger, NBSC, to pay dividends to Lakeland will act as a restriction on the
amount of dividends paid by Lakeland.
Lakeland Bank and Metropolitan State Bank are subject to restrictions on the
payment of dividends contained under the New Jersey Banking Act of 1948. Under
that act, Lakeland Bank and Metropolitan State Bank, may pay dividends only if,
upon payment of each such dividend, its capital stock will not be impaired and
either (1) the bank will have a surplus of not less than fifty percent of its
capital stock or (2) the payment of the dividend will not reduce the surplus of
the bank. NBSC may not declare dividends in excess of the current year's
earnings, plus the retained earnings from the prior two years, without prior
approval from the Office of the Comptroller of the Currency. In addition, if
NBSC sustains losses that exceed its aggregate retained earnings, NBSC may not
pay dividends until the losses are recovered.
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 Lakeland Bank, Metropolitan State Bank or NBSC to
Lakeland constitutes an unsafe or unsound practice. In addition, because the
FDIC insures the deposits of Lakeland Bank, Metropolitan State Bank and NBSC,
each bank is precluded from paying dividends or distributing any of its capital
assets to its parent corporation if it is in default on any assessment due to
the FDIC.
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 likely seek to
prohibit any dividend payment which would reduce a holding company's capital
below these minimum amounts. Similar capital restraints are imposed upon
Lakeland Bank, Metropolitan State Bank and NBSC by their primary bank
regulators.
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. This policy may serve to limit
Lakeland's ability to pay dividends.
At December 31, 1998, Lakeland Bank had approximately $38.8 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 stockholders, holders of Lakeland common stock
are entitled to one vote per share. The quorum for stockholders' meetings is a
majority of the outstanding shares entitled to vote
93
<PAGE>
represented in person or by proxy. Except as indicated below, all actions and
authorizations to be taken or given by stockholders 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 Lakeland Board of Directors is divided into three classes, each class
being as nearly equal in number of directors as possible. Approximately one-
third of the entire Lakeland Board of Directors is elected each year and the
directors serve for terms of up to three years, and, in all cases, until their
respective successors are duly elected and qualified.
The exact number of directors and the number constituting each class is
fixed from time to time by resolution adopted by a majority of the entire Board
of Directors. The affirmative vote of at least eighty percent of the
outstanding voting stock of Lakeland is required to amend or repeal the
provisions of the Lakeland certificate of incorporation relating to the
classification of the Board of Directors. In addition, stockholders may remove
any director from office only for cause, as defined in the Lakeland certificate
of incorporation.
The Lakeland certificate of incorporation contains a minimum price
provision. See "Comparison of Stockholder Rights--Stockholder Vote on Mergers;
Business Combinations."
Liquidation Rights. In the event of liquidation, holders of Lakeland common
stock are entitled to receive ratably any assets distributed to stockholders.
Assessment and Redemption. All outstanding shares of Lakeland common stock
are fully paid and nonassessable. Lakeland common stock is not redeemable.
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 stockholder approval. The affirmative vote of at
least eighty percent of the outstanding voting stock of Lakeland is required to
amend or repeal the provision of the Lakeland certificate of incorporation
relating to the issuance of capital stock of Lakeland.
Lakeland's certificate of incorporation provides for exculpation from
liability for the directors of Lakeland, to the fullest extent permitted by
law, for the breach of any duty owed to Lakeland or its stockholders.
ELECTION OF DIRECTORS
Lakeland's certificate of incorporation provides that the Lakeland Board of
Directors shall consist of not more than 25 directors nor less than 5
directors. The directors are divided into three approximately equivalent-sized
classes, each class serving for a period of three years on a staggered-term
basis. There are currently ten directors, including Mr. Roger Bosma. At the
Lakeland annual meeting, there are four nominees for Class III directors. Three
of these nominees have terms expiring this year and the fourth nominee is Mr.
Bosma.
Unless a stockholder either indicates "withhold authority" on its proxy or
indicates on its proxy that its shares should not be voted for certain
nominees, the persons named in the proxy will vote for the election as
directors of the four persons named in Table I below to serve until the
expiration of their respective terms and thereafter until their successors
shall have been duly elected and shall have qualified. If elected, the four
nominees will serve three year terms. Discretionary authority is also solicited
to vote for the election of a substitute for any of the nominees who, for any
reason presently unknown, cannot be a candidate for election.
Table I sets forth the names and ages of the nominees for election to the
Lakeland Board of Directors, the positions and offices presently held by each
such person within Lakeland, the period during which each such
94
<PAGE>
person has served on Lakeland's Board, the expiration of their respective terms
if elected at the annual meeting, the principal occupations and employment of
each such person during the past five years, and the number of shares of
Lakeland common stock which they beneficially owned as of February 1, 1999.
Table II sets forth comparable information with respect to those directors
whose terms of office will continue beyond the date of the annual meeting.
Tables I and II also contain the beneficial ownership of each of Lakeland's two
Named Executive Officers. Table III sets forth comparable information with
respect to Messrs. Dickerson, Tice and Guptill, directors of High Point who
will become directors of Lakeland if the merger is approved. Unless otherwise
indicated, positions have been held for more than five years. Unless otherwise
stated in the footnotes following the tables, the persons listed in the tables
have sole power to vote and dispose of the shares which they beneficially owned
as of February 1, 1999. All of the persons named in Tables I and II have been
directors of Lakeland for at least five years with the exception of: (1) Mark
J. Fredericks, who was appointed to the Board of Directors of Lakeland and
Lakeland Bank on October 12, 1994, to fill the unexpired term of Henry T.
Drost; (2) Mary Ann Deacon, who was appointed to the Board of Directors of
Lakeland and Lakeland Bank on November 8, 1995; (3) Paul P. Lubertazzi and
Joseph P. O'Dowd, who were appointed to the Board of Directors of Lakeland and
Lakeland Bank on February 25, 1998, following Lakeland's acquisition of
Metropolitan State Bank; and (4) Roger Bosma who became Lakeland's Chief
Executive Officer and was appointed a director effective June 1, 1999. Mark J.
Fredericks is John W. Fredericks' son.
95
<PAGE>
TABLE I
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
Shares Beneficially
Owned as of
February 1, 1999
--------------------
Director Expiration Business Number of Percent of
Name and Age Since of Term Experience Shares Class
- ------------ -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mark J. Fredericks 1994 2002 President of Keil Oil 278,234 3.27%
Age 37 Company, Riverdale, (a)
NJ
Robert B. Nicholson 1989 2002 Vice Chairman, 342,507 4.02%
Age 70 Lakeland Bancorp, (b)
Inc. (6/1/99 to
present);
Vice Chairman,
Lakeland Bank (6/1/99
to present);
Chairman, Lakeland
Bancorp, Inc.
(5/19/89 to 5/31/99);
Chairman, Lakeland
Bank (5/19/69 to
5/31/99); Eastern
Propane Corp., Oak
Ridge, NJ (9/21/88 to
present)
Arthur L. Zande 1989 2002 Vice President and 21,715 .26%
Age 64 Treasurer, Lakeland (c)
(6/1/99 to present);
CEO, Lakeland Bank
(6/1/99 to present);
President, Lakeland Bank
(6/1/99 to present);
Executive Vice
President and CEO,
Lakeland Bancorp,
(5/19/89 to 5/31/99);
Executive Vice
President and CEO,
Lakeland Bank
(10/1/72 to 5/31/99)
Roger Bosma June, 1999 2002 CEO and President, -- --
Age 56 Lakeland Bancorp,
Inc. (6/1/99 to
present);
Executive Vice
President, Retail
Lending, HUBCO, Inc.;
President and CEO of
Independence Bank of
New Jersey.
</TABLE>
96
<PAGE>
TABLE II
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
Shares Beneficially
Owned as of
February 1, 1999
--------------------
Director Expiration Business Number of Percent of
Name and Age Since of Term Experience Shares Class
- ------------ -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Bruce G. Bohuny 1989 2000 Senior Vice 132,675 1.56%
Age 66 President--Real (d)
Estate, Lakeland
Bancorp, Inc. (6/1/99
to present);
Secretary, Lakeland
Bancorp, Inc.
(5/19/89 to present);
Secretary, Lakeland
Bank (5/19/69 to
present); President,
Brooks Limited (a
real estate
development corp.),
Wyckoff, NJ
Mary Ann Deacon 1995 2000 Secretary/Treasurer 37,448 .44%
Age 47 of Deacon Homes Inc. (e)
and Deacon
Development Corp.
(real estate
development), Sparta,
NJ
John W. Fredericks 1989 2001 Chairman, Lakeland 469,198 5.51%
Age 62 Bancorp, Inc. (6/1/99 (f)
to present);
Chairman, Lakeland
Bank (6/1/99 to
present); President,
Lakeland Bancorp,
Inc. (5/19/89 to
5/31/99); President,
Lakeland Bank
(5/19/69 to 5/31/99);
President and Owner,
Fredericks Fuel and
Heating Service, Oak
Ridge, NJ
Joseph P. O'Dowd 1998 2000 President and Owner 12,896 .15%
Age 52 of O'Dowd Advertising (g)
of Montville, NJ
(4/14/82 to present);
partner of O'Dowd
Associates (real
estate holding
company) (7/1/86 to
present) and O'Dowd
Realty (7/1/86 to
present)
John Pier, Jr. 1989 2001 Dentist, West 89,089 1.05%
Age 72 Milford, NJ (h)
Paul P. Lubertazzi 1998 2001 President and CEO, 43,232 .51%
Age 64 Metropolitan State (i)
Bank (6/88 to present); Chairman,
Metropolitan State
Bank (4/96 to
present)
</TABLE>
- --------
Included in the amounts beneficially owned listed in the tables, the
directors of Lakeland held the following interests:
(a) Includes: 22,023 shares owned by Mr. Fredericks' wife, Shelley B.
Fredericks; 16,951 shares held by Mark J. Fredericks custodian for Douglas;
16,951 held by Mark J. Fredericks custodian for William; 16,952 shares held
by Mark J. Fredericks custodian for Leanne; 16,948 shares held by Mark J.
Fredericks custodian for Emily; 17,043 shares held by Keil Oil Employee
Profit Sharing Plan; and 117,816 held by John W. Fredericks, Jane D.
Fredericks, and Mark J. Fredericks Trustees for Fredericks Fuel and Heating
Service Profit Sharing Plan.
(b) Includes: 93,844 shares owned by Mr. Nicholson's wife, Shirley M.
Nicholson; 39,206 shares registered in the name of Eastern Propane Corp. (a
corporation of which Mr. Nicholson is Chairman of the Board); and 10,275
shares owned by Mr. Nicholson's son, Robert B. Nicholson III.
97
<PAGE>
(c) Includes 2,042 shares held by Mr. Zande's wife, Nancy T. Zande.
(d) Includes: 16,229 shares owned by Mr. Bohuny's wife, Judy Bohuny; 766 shares
held in name of the Estate of Emma Bohuny -- Bruce G. Bohuny, Executor;
8,099 shares owned by Mr. Bohuny's son; 1,233 shares held by Brooks Ltd. of
which Mr. Bohuny is president; 1,360 shares held by the Zurick Group, of
which Mr. Bohuny is managing partner; and 3,198 shares held in a Merrill
Lynch retirement fund for Mr. Bohuny's benefit.
(e) Includes: 12,065 shares in the name of Philip Deacon, husband of Mary Ann
Deacon.
(f) Includes: 117,994 shares owned by Mr. Fredericks' wife, Jane D. Fredericks;
117,816 shares held in the name of John W. Fredericks, Jane D. Fredericks
and Mark J. Fredericks, Trustees for Fredericks Fuel and Heating Service
Employee Profit Sharing Plan; and 97,996 shares held in the name of Edward
J. Fredericks and John W. Fredericks Trustees U/W Wilbur Fredericks Trust.
(g) Includes 12,644 shares owned jointly by Joseph O'Dowd and his wife
Patricia.
(h) Includes: 4,514 shares owned by Mr. Pier's wife, Jane Pier; 9,432 shares
owned by Mr. Pier and his wife, Jane Pier, jointly; 252 shares held by Mr.
Pier's wife, Jane Pier, as Custodian for Mr. and Mrs. Pier's son, John
Pier, under the N.J. Uniform Gift to Minors Act; and 12,720 shares held in
an IRA with Merrill Lynch for Mr. Pier.
(i) Includes: 39,326 shares owned jointly by Paul and Barbara Lubertazzi, Mr.
Lubertazzi's spouse; 250 shares owned jointly by Paul and Leslie
Lubertazzi, Mr. Lubertazzi's daughter; 250 shares owned jointly by Paul and
Sandra Lubertazzi, Mr. Lubertazzi's daughter; 250 shares owned jointly by
Paul and Glen Lubertazzi, Mr. Lubertazzi's son and 250 shares owned jointly
by Paul and Mathew Lubertazzi, Mr. Lubertazzi's son.
The executive officers and directors of Lakeland (10 persons) beneficially
owned 1,325,388 shares, or 16%, of Lakeland's outstanding common stock on
February 1, 1999.
Mr. Bosma purchased 1,000 shares of Lakeland common stock in May 1999.
98
<PAGE>
TABLE III
HIGH POINT DIRECTORS WHO WILL BE NAMED TO LAKELAND'S
BOARD UPON CONSUMMATION OF THE MERGER
<TABLE>
<CAPTION>
Shares
Beneficially Owned
as of
February 1, 1999(1)
----------------------
Director Expiration Business Number of Percent of
Name and Age Since of Term Experience Shares Class
- ------------ -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Michael A. Dickerson -- 2000 President and CEO, 37,890 .29%
Age 62 High Point Financial
Corp. (6/29/88 to
present); President,
The National Bank of
Sussex County
(2/11/92 to
11/17/98); CEO, the
National Bank of
Sussex County
(2/11/92 to present)
Charles L. Tice -- 2001 Chairman, High Point 15,130 .11%
Age 65 Financial Corp.
(5/21/96) to
present); Retired
since 1993
George H. Guptill, Jr. -- 2002 President, Franklin 332,713(2) 2.59%
Age 60 Mutual Insurance Co.,
Branchville, NJ
</TABLE>
- --------
(1) Represents the number of shares of High Point common stock beneficially
owned by Messrs. Dickerson, Tice and Guptill multiplied by the exchange
ratio of 1.2.
(2) Includes 301,171 shares which would be owned by Franklin Mutual Insurance
Co., of which Mr. Guptill is president. All voting and investment decisions
made by Franklin Mutual Insurance Co. with respect to those shares would be
made by a board of directors' committee of which Mr. Guptill is not a
member.
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<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires Lakeland's directors,
executive officers and 10% stockholders to file with the SEC certain reports
regarding such persons' ownership of Lakeland's securities. Lakeland is
required to disclose any failures to file such reports on a timely basis. There
were no untimely filings for the fiscal year ended December 31, 1998.
Executive Compensation
The following table sets forth, for the years ended December 31, 1998, 1997
and 1996, the cash compensation paid by Lakeland and its subsidiaries to
Lakeland's Chief Executive Officer and Metropolitan State Bank's Chief
Executive Officer, for services rendered as an executive officer during such
periods. Arthur L. Zande and Paul P. Lubertazzi are the only executive officers
whose total annual salary and bonus for 1998 exceeded $100,000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation (A)
Name and Principal ----------------- All Other (B)
Position Year Salary Bonus Compensation
- ------------------ ----------------- ------- ------------
<S> <C> <C> <C> <C>
Arthur L. Zande 1998 $ 210,000 $ -- $137,160
Executive Vice 1997 195,000 -- 140,890
President and 1996 180,000 -- 74,350
Chief Executive
Officer of Lakeland and
Lakeland Bank
Paul P. Lubertazzi (C) 1998 $ 165,000 $15,000(D) $ 9,124
President and Chief 1997 150,000 15,000 9,192
Executive Officer of 1996 140,000 -- 3,580
Metropolitan State Bank
</TABLE>
- --------
(A) During the three years ended December 31, 1998, Mr. Zande and Mr.
Lubertazzi did not receive perquisites (i.e., personal benefits) in excess
of 10% of their reported salary and bonus.
(B) All other compensation for Mr. Zande in 1998 was comprised of the
following: An annual contribution of $1,404 made by Lakeland Bank for
annual premiums for term life insurance in excess of $50,000 for Mr. Zande;
annual contributions to Lakeland Bank's profit sharing plan on behalf of
Mr. Zande of $17,976; increases to Mr. Zande's profit sharing plan account
of $111,283, reflecting his allocated portion of plan earnings and
forfeitures; and the fair market value of the personal use of a company car
of $6,497. All other compensation for Mr. Lubertazzi in 1998 was comprised
of the following: a contribution of $3,600 to Metropolitan State Bank's
401(k) plan to match pre-tax elective deferral contributions (included
under "Salary") made by Mr. Lubertazzi to such plan; $2,800 paid by
Metropolitan State Bank as insurance premiums for Mr. Lubertazzi's benefit;
and the fair market value of the personal use of an automobile of $2,724.
(C) Mr. Lubertazzi became an executive officer of Lakeland upon the
consummation of Lakeland's acquisition of Metropolitan State Bank. See "--
Related Party Transactions".
(D) Mr. Lubertazzi's bonus was approved by the Board of Directors of
Metropolitan State Bank and was based upon both the bank's performance and
Mr. Lubertazzi's individual performance in 1998. In particular, the
Metropolitan Board focused on Metropolitan's return on average assets and
return on average equity for 1998 in deciding to grant Mr. Lubertazzi a
bonus.
Related Party Transactions
Pursuant to the Amended and Restated Agreement and Plan of Reorganization,
dated January 14, 1998, between Lakeland and Metropolitan State Bank,
Lakeland's Board of Directors appointed Paul P. Lubertazzi, Metropolitan's
Chairman and President, and Joseph O'Dowd, another member of Metropolitan's
Board of Directors, to Lakeland's Board.
100
<PAGE>
Lakeland also agreed in the Metropolitan merger agreement to retain Paul P.
Lubertazzi as the Chairman of the Board, Chief Executive Officer and President
of Metropolitan under the terms and conditions of his then current employment
agreement. In addition, to induce Mr. Lubertazzi to provide additional services
relating to the integration of Metropolitan into Lakeland's consolidated
enterprise, Lakeland has agreed to (1) provide to Mr. Lubertazzi an additional
annuity comparable to the annuity provided to Mr. Lubertazzi by Metropolitan at
a cost to Lakeland of $278,000 and (2) provide to Mr. Lubertazzi certain
retiree medical benefits at a cost to Lakeland of $45,000.
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 Metropolitan. If 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 previously entered into a separate agreement with
Metropolitan which was assumed by Lakeland. Pursuant to that agreement,
Metropolitan is required to pay Mr. Lubertazzi or his beneficiary an aggregate
of $525,000 payable in 15 annual installments beginning on his retirement date
or date of death. No benefits are payable under the agreement if Mr. Lubertazzi
is terminated for intentional wrongdoing. In order to fund this obligation,
Metropolitan has obtained a variable life insurance policy, which has a cash
surrender value of approximately $106,000, and has accrued approximately
$260,000 in expenses. Although no assurance can be given, Lakeland does not
expect to expend additional significant amounts to fund this obligation.
Board Committees and Directors' Compensation
During 1998, the Lakeland Board of Directors held nine meetings and the
Board's Nominating Committee held one meeting. The Nominating Committee,
presently consisting of Mary Ann Deacon and John Pier, Jr. is responsible for
interviewing potential candidates for election to the Board and for nominating
individuals each year for election to the Board. The Nominating Committee has
not established any procedures for considering nominations made by
stockholders. Each director currently receives a fee of $625 for each meeting
of the Board which he or she attends. Each member of Lakeland's Board was
present for 75% or more of the aggregate of the total meetings of the Board and
each Board committee on which he or she serves.
The Board of Directors of Lakeland adopted a plan, effective January 1,
1996, which provides that any director having attained age 72 (75 for directors
active as of the date of plan inception) and having completed fifteen years of
service may retire and continue to be paid for a period of ten years at a rate
of $5,000, $7,500 or $10,000 per annum, depending upon years of credited
service. This plan is unfunded.
During 1998, the Lakeland Bank Board of Directors held twenty-four meetings
and the Board's Audit Committee held four meetings. In addition, the Lakeland
Bank Board of Directors has a Marketing Committee which met on a regular basis
in 1998. The Audit Committee, presently consisting of John Pier, Jr., Mark
Fredericks and Mary Ann Deacon, is responsible for reviewing the reports
submitted by Lakeland Bank's independent accountants and for reporting to the
Board on significant audit and accounting principles, policies and practices.
Each director of Lakeland Bank receives an annual retainer fee of $5,300, with
the exception of Arthur L. Zande and Paul Lubertazzi. In addition, each
director currently receives a fee of $575 for each meeting of the Board which
he or she attends. No remuneration was paid in 1998 for attendance at committee
meetings. Each member of Lakeland Bank's Board was present for 75% or more of
the aggregate of the total meetings of the Board and each Board committee on
which he or she serves.
During 1998, the Metropolitan State Bank Board of Directors held twelve
meetings, the Board's Executive Committee held one meeting, the Board's
Remuneration Committee held one meeting, the Board's Asset/Liability Committee
held four meetings, the Board's Loan Committee held twelve meetings and the
101
<PAGE>
Board's Audit Committee held three meetings. The Executive Committee, presently
consisting of Carl Carambio, Frederick Eckhardt, Joseph O'Dowd, Peter Fioretti
and Paul Lubertazzi, has the power of the full Board. The Remuneration
Committee, presently consisting of Carl Carambio, Frederick Eckhardt, Joseph
O'Dowd, Peter Fioretti and Paul Lubertazzi, is responsible for determining the
salaries of employee-officers of Metropolitan State Bank. The Asset/Liability
Committee, presently consisting of Henry Fein, Joseph O'Dowd, Samuel Raia,
Allan Sedler, Salvatore Yodice and Paul Lubertazzi, is responsible for
reviewing the financial condition of Metropolitan. The Loan Committee,
consisting of Frederick Eckhardt, Paul Lubertazzi, Joseph O'Dowd, Samuel Raia,
Allan Sedler and Salvatore Yodice, is responsible for reviewing the loans made
and proposed to made by Metropolitan. The Audit Committee, presently consisting
of Carl Carambio, Joseph O'Dowd, Allan Sedler and Salvatore Yodice, is
responsible for reviewing the reports submitted by Metropolitan's independent
accountants and consulting internal auditors, and for reporting to the Board on
significant audit and accounting principles, policies and practices.
Each member of Metropolitan's Board of Directors receives a fee of $300 for
each meeting he or she attends. In addition, each member of the Board's
committees receives a fee of $50 for each meeting he or she attends, except for
the members of the Loan Committee who each receive $125. Paul Lubertazzi is not
paid a fee for his attendance at any committee meeting. Each member of
Metropolitan's Board was present for 75% or more of the aggregate of the total
meetings of the Board and each Board committee on which he or she serves.
Compensation Committee Interlocks and Insider Participation
The Lakeland Board of Directors does not maintain a compensation committee.
Accordingly, compensation decisions are made by the entire Board. During the
year ended December 31, 1998, the following individuals served as members of
the Board of Directors: Bruce G. Bohuny, Mary Ann Deacon, John W. Fredericks,
Mark J. Fredericks, Paul P. Lubertazzi, Robert B. Nicholson, Joseph P. O'Dowd,
John Pier, Jr. and Arthur L. Zande. Of the persons named, Messrs. Bohuny,
Lubertazzi, Nicholson, John Fredericks and Zande were and are employees of
Lakeland or its subsidiaries. None of such individuals participated in any
determination with respect to his own annual salary.
Mr. John Fredericks and Mr. Nicholson are two of the three partners in a
joint venture which owns certain property in Newton, New Jersey. Lakeland Bank
rents space, pursuant to a lease expiring on October 1, 2000, in the building
located on this property for a branch office, at an annual rental of $58,359.
Mr. John Fredericks and Mr. Nicholson are currently the Chairman and Vice
Chairman, respectively, of Lakeland.
Lakeland Bank and/or Metropolitan State Bank has had, and expects to have in
the future, transactions in the ordinary course of its business with Lakeland's
directors, officers, principal stockholders, and their associates. These
transactions will be on the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with others, and that do not involve more than the normal risk of
collectability or other unfavorable features.
Board Report on Executive Compensation
Notwithstanding anything to the contrary set forth in any of Lakeland's
previous filings under the Securities Act or the Securities Exchange Act that
might incorporate future filings, including this joint proxy
statement/prospectus, in whole or in part, the following report and the
Performance Graph set forth below shall not be incorporated by reference into
any such filings.
Lakeland does not have a compensation committee. Accordingly, policies
concerning the compensation of executive officers, including the Chief
Executive Officer, are established by the entire Board of Directors. Pursuant
to regulations adopted by the SEC, the Lakeland Board has prepared the
following report with respect to compensation for executive officers.
102
<PAGE>
Lakeland's current compensation program focuses upon the salaries of
executive officers and is designated to provide appropriate reimbursement for
services rendered. Traditionally, the salaries of the Chief Executive Officer
and the other executive officers have been set at levels which are perceived by
the Lakeland Board to be comparable to the salaries of executive officers of
other banks which the Board considers to be comparable to Lakeland. Included in
this comparison of comparable banks are 14 banks in New Jersey ranging in asset
size from $187,000,000 to $685,000,000. Of these 14 banks, 4 are included in
the Peer Group Index, which is comprised of Media General Financial Services
Regional Northeast Group, and are represented in the Performance Graph, which
is shown later in this joint proxy statement/prospectus.
Salaries are determined annually, and, accordingly, the Lakeland Board
reviews each executive officer's performance on a yearly basis. With respect to
Mr. Zande's salary, in addition to the comparative analysis described above,
the Board specifically focused on the Chief Executive Officer's individual
performance and the manner in which such performance contributed to Lakeland's
overall performance during the prior year. Mr. Zande did not participate in the
determination of his own salary.
Executive officers are also provided with standard benefits, including
various health and life insurance benefits. Lakeland also makes contributions
to the Lakeland Bank's profit sharing plan on behalf of executive officers, as
well as all other employees. The Board of Directors authorized a total
contribution to the Lakeland Bank Profit Sharing Plan of $200,000 in 1998. The
total profit sharing contribution made on behalf of Mr. Zande is included in
the column entitled "All Other Compensation" in the Summary Compensation Table.
Lakeland has not granted stock options to its executive officers, other than
options previously granted by Metropolitan State Bank prior to its acquisition
by Lakeland.
The Lakeland Board believes that an appropriate compensation program can
help foster Lakeland's growth. The Board seeks to reflect an appropriate
balance between providing rewards to executive officers while at the same time
effectively controlling cash compensation costs. The Lakeland Board intends to
continue monitoring Lakeland's compensation program so that this balance is
appropriately maintained.
By The Board of Directors: Paul P. Lubertazzi
Bruce G. Bohuny Robert B. Nicholson
Mary Ann Deacon Joseph P. O'Dowd
John W. Fredericks John Pier, Jr.
Mark J. Fredericks Arthur L. Zande
Performance Graph
The following chart compares Lakeland's cumulative total stockholder return,
on a dividend reinvested basis, over the past five years with the Nasdaq Market
Index and the Peer Group Index. The Peer Group Index is comprised of Media
General Financial Services' Regional Northeast Group which consists of 135
financial institutions.
103
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG LAKELAND BANCORP, NASDAQ MARKET INDEX AND MG GROUP INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fiscal Years ended December
31
-----------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lakeland..................................... 100 123 153 197 235 259
Nasdaq....................................... 100 104 136 169 207 291
Peer Group................................... 100 96 156 195 336 351
</TABLE>
Assumes $100 invested on January 1, 1994 and reinvestment of dividends.
104
<PAGE>
PROPOSED AMENDMENT TO
LAKELAND'S CERTIFICATE OF INCORPORATION
The Lakeland Board of Directors has unanimously approved an amendment to
Article 3 of the Lakeland certificate of incorporation to increase the
authorized number of Lakeland common stock from 14,806,718 to 40,000,000 and
recommends that Lakeland stockholders approve and adopt the amendment. In
addition, the amendment would change the par value of Lakeland common stock
from $2.50 per share to no par value per share. The full text of Article 3
reflecting this amendment is attached to this joint proxy statement/prospectus
as annex E.
The additional Lakeland common stock would have the same rights and
privileges as the Lakeland common stock presently outstanding. See "Description
of Lakeland's Capital Stock." Holders of Lakeland common stock have no
preemptive rights to subscribe to or for any additional shares of Lakeland.
As of the Lakeland record date, [ ] shares of Lakeland common
stock were outstanding and [ ] were issued and held in treasury. As
of such date a balance of [ ] authorized shares of Lakeland common
stock would have been available for issuance without stockholder action. As a
result of the merger, it is currently contemplated that Lakeland will issue up
to 4,325,073 additional shares of Lakeland common stock. Although Lakeland has
no other present agreement or commitment for the issuance of additional
Lakeland common stock, the Lakeland Board of Directors believes that the number
of shares of Lakeland common stock currently available for issuance will be
insufficient to meet the future needs of Lakeland.
The Lakeland Board of Directors believes that it is desirable to have
additional shares of Lakeland common stock available for possible employee
benefit programs, financing and acquisition transactions, and other general
corporate purposes. Although there can be no assurance that such transactions
will occur in the future, the Lakeland Board wishes to have Lakeland common
stock available for such purposes if conditions warrant. Like the presently
authorized but unissued Lakeland common stock, the additional Lakeland common
stock would be available for issuance without further action by the Lakeland
stockholders, unless such action is required by applicable law. The
authorization of additional Lakeland common stock will enable Lakeland, as the
need may arise, to take timely advantage of market conditions and the
availability of favorable opportunities without the delay and expense
associated with the holding of a special meeting of its stockholders.
The existence of additional shares of Lakeland common stock that could be
issued without further stockholder action could discourage or render more
difficult an attempt to obtain control of Lakeland by means of a tender offer,
merger or proxy contest. The additional authorized shares will not have a
dilutive effect until they are issued.
The Lakeland Board of Directors also believes that it is desirable to reduce
the Lakeland common stock par value from $2.50 per share to no par value per
share. Under New Jersey corporate law, a corporation's stock is not required to
have a par value. Reducing the par value will not affect in any way the value
of your Lakeland common stock.
Under New Jersey law, the affirmative vote of the holders of a majority of
the votes cast by the holders of Lakeland common stock entitled to vote thereon
is required for the approval of the amendment to Lakeland's certificate of
incorporation.
Lakeland's Board of Directors recommends that Lakeland's stockholders vote FOR
the amendment to Lakeland's Certificate of Incorporation.
105
<PAGE>
OTHER ACTION TO BE TAKEN AT THE HIGH POINT SPECIAL MEETING
High Point Adjournment Proposal
High Point is submitting to its stockholders a proposal to authorize the
persons named in its proxy to vote in favor of adjourning the High Point
special meeting if there are not sufficient votes to approve the merger
agreement. Even though a quorum may be present at the special meeting, it is
possible that High Point may not have received sufficient votes to approve the
merger agreement. In that event, the merger agreement could not be approved
unless the special meeting were adjourned in order to permit further
solicitation of proxies.
In order to allow the proxies that have been received by High Point at the
time of the special meeting to be voted for such adjournment, if necessary,
High Point has submitted the question of adjournment under such circumstances
to High Point's stockholders for their consideration. Assuming that a quorum is
present, a majority of the shares of High Point common stock voted at the
special meeting is required in order to approve any adjournment.
The High Point Board recommends that High Point's stockholders vote their
proxies in favor of the adjournment proposal so that their proxies may be used
for such purpose should it become necessary. Properly executed proxies will be
voted in favor of the adjournment proposal unless otherwise noted thereon. If
it is necessary to adjourn the special meeting, no notice of the time and place
of the adjourned meeting is required to be given to High Point's stockholders
other than an announcement of such time and place at the special meeting. The
adjournment proposal relates only to an adjournment occurring for purposes of
soliciting additional proxies for approval of the merger agreement in the event
that there are insufficient votes to approve the merger agreement at the
special meeting. Any other adjournment (e.g., an adjournment required because
of the absence of a quorum) would be voted upon pursuant to the discretionary
authority granted by the proxy.
The High Point Board retains full authority to postpone the special meeting
prior to the special meeting being convened without the consent of any
stockholder.
The High Point Board of Directors recommends that High Point's stockholders
vote FOR the adjournment proposal.
LEGAL MATTERS
The validity of the shares of Lakeland common stock to be issued in the
merger will be passed upon for Lakeland by Lowenstein Sandler PC, counsel to
Lakeland. Lowenstein Sandler PC has also rendered the opinion referred to under
"United States Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Lakeland Bancorp, Inc. and its
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, included herein, have been audited
by Radics & Co., LLC, independent certified public accountants, as stated in
their report. These consolidated financial statements of Lakeland and its
consolidated subsidiaries are included herein in reliance upon the report of
Radics given upon its authority as experts in accounting and auditing. Radics
did not audit the financial statements of Metropolitan State Bank, a wholly-
owned subsidiary, which statements reflect, at December 31, 1998 and 1997,
total assets constituting 18% and 19%, respectively, and for each of the years
in the three-year period ended December 31, 1998, total income of 19%, 18% and
17%, respectively, of the related consolidated totals. Those statements were
audited by other independent certified public accountants.
The financial statements of Metropolitan State Bank and subsidiary as of
December 31, 1998 and 1997 and for the two years ended December 31, 1998 whose
total assets constituted 18% and 19%, respectively, and
106
<PAGE>
whose total income constituted 19% and 18%, respectively, of the consolidated
financial statements of Lakeland have been audited by Grant Thornton LLP,
independent certified public accountants. Grant Thornton's report on
Metropolitan State Bank and subsidiary appears herein, and in reliance upon
such report, given upon the authority of such firm as experts in accounting and
auditing. The financial statements of Metropolitan State Bank and subsidiary
are not presented separately herein.
The consolidated financial statements for High Point and its subsidiary as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, have been incorporated in this joint proxy
statement/prospectus by reference from High Point's Annual Report on Form 10-K.
These consolidated financial statements of High Point 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 their
authority as experts in accounting and auditing in giving their report.
The consolidated statements of income, changes in shareholders' equity and
cash flows of Metropolitan State Bank and subsidiary for the year ended
December 31, 1996 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 their authority as experts in accounting and
auditing in giving their report. The consolidated statements of income, changes
in shareholders' equity and cash flows of Metropolitan State Bank and
subsidiary are not presented separately herein.
OTHER MATTERS
No representatives of Radics or Grant Thornton are expected to be present at
the Lakeland annual meeting. Representatives of Arthur Andersen are expected to
be present at the High Point special meeting with the opportunity to make
statements if they so desire. Such representatives are also expected to be
available to respond to appropriate questions.
The High Point Board of Directors knows of no matters to be presented at the
special meeting other than the ones set forth in the High Point Notice of
Special Meeting. However, if any other matters do come before the special
meeting, it is intended that the holders of the proxies will vote thereon in
their discretion.
The Lakeland Board of Directors knows of no matters to be presented at the
annual meeting other than the ones set forth in the Lakeland Notice of Annual
Meeting. However, if any other matters do come before the annual meeting, it is
intended that the holders of the proxies will vote thereon in their discretion.
STOCKHOLDERS PROPOSALS
Any Lakeland stockholder who intends to present a proposal at Lakeland's
2000 annual meeting of stockholders for inclusion in the proxy statement and
form of proxy relating to that meeting is advised that the proposal must be
received by Lakeland at its principal executive offices not later than February
, 2000 and not later than April , 2000 in order for the proposal to be
considered at next year's annual meeting, but not included in the proxy
statement for that meeting. Lakeland will not be required to include in its
proxy statement a form of proxy or stockholder proposal which is received after
the specified date or which otherwise fails to meet the requirements for
stockholder proposals established by regulations of the SEC.
WHERE YOU CAN FIND MORE INFORMATION
Lakeland filed a registration statement on Form S-4 to register with the SEC
the Lakeland common stock to be issued to High Point stockholders in the
merger. This joint proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of Lakeland in addition to being a proxy
statement of Lakeland and High Point for their stockholder meetings. As allowed
by SEC rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
107
<PAGE>
In addition, Lakeland and High Point file reports, proxy statements and
other information with the SEC. You may read and copy this information at the
following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
Please call the SEC at l-800-SEC-0330 for further information on the public
reference rooms. You may also obtain copies of this information by mail from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains an Internet
world wide web site that contains reports, proxy statements and other
information about issuers, like Lakeland and High Point, who file documents
electronically with the SEC. The address of that site is "http://www.sec.gov."
The SEC allows High Point to "incorporate by reference" information into
this joint proxy statement/prospectus. This means that High Point can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is
considered to be a part of this joint proxy statement/prospectus, except for
any information that is superseded by information that is included directly in
this joint proxy statement/prospectus. This joint proxy statement/prospectus
incorporates by reference the documents listed below that High Point has
previously filed with the SEC. A copy of those documents accompanies this joint
proxy statement/prospectus. The incorporated document contains important
information about High Point and its financial condition.
<TABLE>
<S> <C>
High Point SEC Filings (File Period/As of Date
No. 0-12430)
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
</TABLE>
High Point is also incorporating by reference additional documents that it
may file with the SEC between the date of this joint proxy statement/prospectus
and the date of the special meeting.
High Point's Annual Report on Form 10-K and Quarterly Report on Form 10-Q
are being mailed with this joint proxy statement/prospectus. You can obtain any
of the other documents incorporated by reference in this joint proxy
statement/prospectus through High Point, or from the SEC through the SEC's
world wide web site at the address described above. Documents incorporated by
reference are available from High Point without charge, excluding any exhibits
to those documents unless the exhibit is specifically incorporated by reference
in this joint proxy statement/prospectus. You can obtain documents incorporated
by reference in this joint proxy statement/prospectus and other documents filed
by Lakeland and High Point with the SEC by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
For Lakeland Stockholders: For High Point Stockholders:
Lakeland Bancorp, Inc. High Point Financial Corp.
250 Oak Ridge Road P.O. Box 460
Oak Ridge, New Jersey Branchville, New Jersey 07826
Telephone: (973) 697-2000 Telephone: (973) 948-3300
Attention: Bruce G. Bohuny,
Secretary Attention: Rita A. Myers, Comptroller
</TABLE>
If you would like to request documents, please do so by , 1999 to
receive them before the stockholders meetings. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
108
<PAGE>
A copy of Lakeland's Annual Report to Stockholders for the year ended
December 31, 1998, including financial statements, accompanies this joint proxy
statement/prospectus sent to Lakeland stockholders. The Annual Report is not to
be regarded as proxy soliciting material or as a communication by means of
which any solicitation is to be made.
A copy of Lakeland's Annual Report on Form 10-K for the year ended December
31, 1998, filed with the SEC, is available, excluding exhibits, without cost to
stockholders upon written request made to Bruce G. Bohuny, Lakeland Bank, 250
Oak Ridge Road, Oak Ridge, New Jersey 07438.
We have not authorized anyone to give you any information or to make any
representation about Lakeland, High Point or the proposed merger that differs
from or adds to the information contained in this joint proxy
statement/prospectus or in the documents our companies have publicly filed with
the SEC. Therefore, if anyone gives you any different or additional
information, you should not rely on it.
The information contained in this joint proxy statement/prospectus speaks
only as of the date indicated on the cover unless the information specifically
indicates that another date applies.
Information in this joint proxy statement/prospectus regarding High Point
has been supplied by High Point and information in this joint proxy
statement/prospectus regarding Lakeland has been supplied by Lakeland.
109
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
The following financial information of Lakeland is set forth on the following
pages:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report of Radics & Co., LLC......................... F-1
Report of Independent Certified Public Accountants of Grant Thornton LLP.. F-2
Report of Independent Public Accountants of Arthur Andersen LLP........... F-3
Consolidated Statements of Condition as of December 31, 1998 and 1997..... F-4
Consolidated Statements of Income for Each of the Years in the Three-Year
Period Ended December 31, 1998........................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for Each of the
Years in the Three-Year Period Ended December 31, 1998................... F-6
Consolidated Statements of Cash Flows for Each of the Years in the Three-
Year Period Ended December 31, 1998...................................... F-7
Notes to Consolidated Financial Statements................................ F-9
Consolidated Statements of Condition as of December 31, 1998 and March 31,
1999 (unaudited)......................................................... F-27
Consolidated Statements of Income for the Three Months Ended March 31,
1998 and 1999 (unaudited)................................................ F-28
Consolidated Statements of Comprehensive Income for the Three Months Ended
March 31, 1998 and 1999 (unaudited)...................................... F-29
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1998 and 1999 (unaudited)................................................ F-30
Notes to Consolidated Financial Statements (unaudited).................... F-31
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Lakeland Bancorp, Inc.
We have audited the accompanying consolidated statements of condition of
Lakeland Bancorp, Inc. (the "Corporation") and Subsidiaries as of December 31,
1998 and 1997 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. We did not audit the financial statements of
Metropolitan State Bank, a wholly-owned subsidiary, which statements reflect,
at December 31, 1998 and 1997, total assets constituting 18 percent and
19 percent, respectively, and, for each of the years in the three-year period
ended December 31, 1998, total income of 19 percent, 18 percent and 17
percent, respectively, of the related consolidated totals. Those statements
were audited by other auditors whose reports have been furnished to us, and
our opinion, insofar as it relates to the amounts included for Metropolitan
State Bank, is based solely on the reports of the other auditors. The auditors
report on the financial statements of Metropolitan State Bank for the year
ended December 31, 1996 does not cover the restatement of net income per
common share upon the implementation in 1997 of Statement of Financial
Accounting Standards ("SFAS") No. 128 and the restatement to present
comprehensive income upon the implementation in 1998 of SFAS No. 130. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to in the second preceding
paragraph present fairly, in all material respects, the financial position of
Lakeland Bancorp, Inc. and Subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
We also audited the adjustments applied, as they relate to the financial
statements of Metropolitan State Bank for the year ended December 31, 1996, to
restate net income per common share and to present comprehensive income. In
our opinion, such adjustments are appropriate and have been properly applied.
Radics & Co., LLC
Pine Brook, New Jersey
January 11, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Metropolitan State Bank
We have audited the consolidated balance sheets of Metropolitan State Bank
(a wholly owned subsidiary of Lakeland Bancorp, Inc.) (a New Jersey State
Chartered Bank) and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income and cash flows for the years then ended. These financial
statements (not presented separately herein) are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the consolidated
financial position of Metropolitan State Bank and Subsidiary as of December
31, 1998 and 1997, and the consolidated results of their operations and their
consolidated cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
January 8, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Metropolitan State Bank:
We have audited the consolidated statements of income, changes in
shareholders' equity and cash flows of Metropolitan State Bank (a New Jersey
State Chartered Bank) and subsidiary for the year ended December 31, 1996.
These financial statements (not presented separately herein) are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 misstatements. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the results of
operations and cash flows of Metropolitan State Bank and subsidiary for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Roseland, New Jersey
January 23, 1997
F-3
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks............................. $ 24,193,899 $ 28,443,103
Federal funds sold.................................. 10,875,000 12,725,000
------------ ------------
Cash and cash equivalents......................... 35,068,899 41,168,103
Certificates of deposit............................. 204,033 101,768
Securities available for sale, at estimated fair
value.............................................. 116,847,825 102,333,878
Securities held to maturity; estimated fair value of
$68,271,000 in 1998 and $57,372,000 in 1997........ 67,302,146 57,009,136
Loans............................................... 307,596,324 287,003,467
Premises and equipment.............................. 14,260,225 13,812,631
Accrued interest receivable......................... 4,414,733 4,210,406
Other assets........................................ 2,863,222 2,085,816
------------ ------------
Total assets.................................... $548,557,407 $507,725,205
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest-bearing demand....................... $107,097,017 $ 97,491,314
Savings and interest-bearing demand............... 225,894,802 208,419,317
Club accounts..................................... 1,661,786 1,698,523
Time.............................................. 125,144,292 122,252,678
Time of $100,000 and over......................... 29,082,870 23,608,695
------------ ------------
Total deposits.................................. 488,880,767 453,470,527
Borrowed money...................................... 3,795,114 3,535,792
Other liabilities................................... 2,567,989 2,056,637
------------ ------------
Total liabilities............................... 495,243,870 459,062,956
------------ ------------
Commitments......................................... -- --
Stockholders' Equity
Common stock (par value $2.50 per share)
Authorized shares 14,806,718 in 1998 and 7,403,359
in 1997; issued shares 8,511,588 in 1998 and
4,239,861 in 1997; outstanding shares 8,502,988
in 1998 and 4,239,861 in 1997.................... 21,278,970 10,599,653
Surplus............................................. 29,557,747 29,147,426
(Accumulated deficit) undivided profits............. (491,609) 6,849,079
Accumulated other comprehensive income, net of
income tax......................................... 3,097,429 2,066,091
Treasury stock, at cost; 8,600 shares............... (129,000) --
------------ ------------
Total stockholders' equity...................... 53,313,537 48,662,249
------------ ------------
Total liabilities and stockholders' equity...... $548,557,407 $507,725,205
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans and fees........................... $25,070,997 $23,501,595 $21,442,534
Federal funds sold....................... 1,022,314 948,964 741,574
Investments securities:
U.S. Treasury.......................... 3,910,071 4,187,778 4,072,688
U.S. Government agencies............... 2,819,773 3,149,005 2,813,594
State and political subdivisions....... 1,586,486 1,243,756 1,091,139
Other.................................. 525,157 373,920 569,419
----------- ----------- -----------
Total interest income................ 34,934,798 33,405,018 30,730,948
----------- ----------- -----------
Interest expense:
Deposits................................. 12,813,023 12,761,155 11,613,464
Borrowed money........................... 195,980 163,621 173,661
----------- ----------- -----------
Total interest expense............... 13,009,003 12,924,776 11,787,125
----------- ----------- -----------
Net interest income.................... 21,925,795 20,480,242 18,943,823
Provisions for loan losses................. 698,377 1,025,664 907,697
----------- ----------- -----------
Net interest income after provision for
loan losses........................... 21,227,418 19,454,578 18,036,126
----------- ----------- -----------
Other income:
Service charges on deposit accounts...... 2,410,357 2,400,649 2,152,637
Gain (loss) on dispositions of
securities.............................. 142,858 55,239 24,108
Other.................................... 611,999 566,642 494,444
----------- ----------- -----------
Total other income................... 3,165,214 3,022,530 2,671,189
----------- ----------- -----------
Other expenses:
Salaries and benefits.................... 8,484,565 7,984,130 6,932,458
Occupancy, net........................... 1,561,020 1,459,668 1,380,403
Furniture and equipment.................. 1,546,438 1,294,073 1,175,864
Stationary, supplies and postage......... 967,276 924,934 779,641
Legal fees............................... 455,340 236,665 194,392
Other.................................... 2,736,844 2,608,807 2,228,890
----------- ----------- -----------
Total other expenses................. 15,751,483 14,508,277 12,691,648
----------- ----------- -----------
Income before income taxes................. 8,641,149 7,968,831 8,015,667
Income taxes............................... 2,915,794 2,648,109 2,665,326
----------- ----------- -----------
Net income................................. $ 5,725,355 $ 5,320,722 $ 5,350,341
=========== =========== ===========
Net income per common share--basic and
diluted................................... $ 0.67 $ 0.63 $ 0.64
=========== =========== ===========
Weighted average number of common shares
outstanding:
Basic..................................... 8,492,953 8,404,528 8,304,142
Diluted................................... 8,492,953 8,435,377 8,337,068
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Undivided Accumulated
Profits Other Total
Number of Common Comprehensive (Accumulated Treasury Comprehensive Stockholders'
Shares Stock Income Surplus Deficit) Stock Income Equity
--------- ----------- ------------- ----------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... 3,827,847 $ 9,569,618 $21,082,355 $ 6,693,400 $ -- $1,254,642 $38,600,015
Net income........ -- -- $5,350,341 -- 5,350,341 -- -- 5,350,341
----------
Other
comprehensive
income, net of
income taxes:
Unrealized loss
on securities
available for
sale............. (25,857)
Reclassification
adjustment for
gains included
in income........ (14,270)
----------
Other
comprehensive
income........... (40,127) -- -- -- (40,127) (40,127)
----------
Comprehensive
income........... $5,310,214
==========
Stock dividend.... 66,185 165,462 1,422,978 (1,588,440) -- -- --
Stock issuances... 62,451 156,128 1,216,381 -- -- -- 1,372,509
Cash dividend..... -- -- -- (1,703,641) -- -- (1,703,641)
--------- ----------- ----------- ------------ --------- ---------- -----------
Balance, December
31, 1996......... 3,956,483 9,891,208 23,721,714 8,751,660 -- 1,214,515 43,579,097
Net income........ -- -- $5,320,722 -- 5,320,722 -- -- 5,320,722
----------
Other
comprehensive
income, net of
income taxes:
Unrealized gain
on securities
available for
sale............. 885,043
Reclassification
adjustment for
gains included
in income........ (33,467)
----------
Other
comprehensive
income, net of
income........... -- -- 851,576 -- -- -- 851,576 851,576
----------
Comprehensive
income........... $6,172,298
==========
Stock dividend.... 227,693 569,233 4,666,062 (5,235,295) -- -- --
Stock issuances... 55,685 139,212 759,650 -- -- -- 898,862
Cash dividend..... -- -- -- (1,988,008) -- -- (1,988,008)
--------- ----------- ----------- ------------ --------- ---------- -----------
Balance, December
31, 1997......... 4,239,861 10,599,653 29,147,426 6,849,079 -- 2,066,091 48,662,249
Net Income........ -- -- $5,725,355 -- 5,725,355 -- -- 5,725,355
----------
Other
comprehensive
income, net of
income taxes:
Unrealized gain
on securities
available for
sale............. 1,118,196
Reclassification
adjustment for
gains included
in income........ (86,858)
----------
Other
comprehensive
income........... -- -- 1,031,338 -- -- -- 1,031,338 1,031,338
----------
Comprehensive
income........... $6,756,693
==========
Stock dividend.... 4,247,919 10,619,797 -- (10,619,797) -- -- --
Stock issuances... 23,808 59,520 410,321 -- -- -- 469,841
Purchase of
treasury stock... -- -- -- -- (129,000) -- (129,000)
Cash dividends.... -- -- -- (2,446,246) -- -- (2,446,246)
--------- ----------- ----------- ------------ --------- ---------- -----------
Balance--December
31, 1998......... 8,511,588 $21,278,970 $29,557,747 $ (491,609) $(129,000) $3,097,429 $53,313,537
========= =========== =========== ============ ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 5,725,355 $ 5,320,722 $ 5,350,341
Adjustments to reconcile net income
to net cash provided by operating
activities:
Net amortization of premiums,
discounts and deferred loan fees
and costs......................... 463,389 1,057,452 1,407,563
Depreciation and amortization...... 1,106,581 980,607 900,991
Provision for loan losses.......... 698,377 1,025,664 907,697
Gain on sales and calls of
securities........................ (142,858) (55,239) (24,108)
Gain on sale of student loans...... -- (10,604) --
Gain on dispositions of premises
and equipment..................... -- -- (54,452)
(Gain) loss on sales of other real
estate owned...................... (9,634) 16,576 24,468
Deferred federal income tax
(benefit)......................... 165,336 (206,391) (87,890)
(Increase) decrease in accrued
interest receivable............... (204,327) (173,939) 19,514
(Increase) in other assets......... (525,329) (99,056) (226,954)
(Decrease) increase in other
liabilities....................... (192,480) 1,143,353 (1,128)
------------ ------------ ------------
Net cash provided by operating
activities...................... 7,084,410 8,999,145 8,216,042
------------ ------------ ------------
Cash flows from investing activities:
Net change in certificates of
deposit............................ (102,265) 98,232 (200,000)
Proceeds from repayments on and
maturities of securities available
for sale........................... 44,651,498 36,134,181 25,553,182
Proceeds from sales of securities
available for sale................. 20,182,000 15,829,622 8,999,037
Purchases of securities available
for sale........................... (87,849,435) (70,420,721) (36,746,204)
Proceeds from repayments on and
maturities of securities held to
maturity........................... 14,995,000 18,004,462 23,731,751
Purchases of securities held to
maturity........................... (15,479,509) (17,482,870) (21,064,358)
Net increase in loans............... (21,708,126) (24,537,564) (36,592,461)
Purchase of loans................... -- (2,854,877) --
Sale of loans and participation
interest in loan................... 312,069 3,378,045 --
Proceeds from dispositions of
premises and equipment............. -- -- 64,539
Additions to premises and
equipment.......................... (1,826,258) (2,218,697) (2,550,872)
Net decrease in other real estate
owned.............................. 77,255 260,393 830,204
------------ ------------ ------------
Net cash used in investing
activities...................... (46,747,771) (43,809,794) (37,975,182)
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits............. $35,410,240 $43,739,852 $ 17,712,957
Net increase (decrease) in short-term
borrowings.......................... 259,322 199,554 (2,053,304)
Repayment of mortgage payable........ -- (322,000) --
Proceeds from common stock
issuances........................... 469,841 898,862 1,372,509
Purchase of treasury stock........... (129,000) -- --
Cash dividends paid on common stock.. (2,446,246) (1,988,008) (1,703,641)
----------- ----------- ------------
Net cash provided by financing
activities........................ 33,564,157 42,528,260 15,328,521
----------- ----------- ------------
Net (decrease) increase in cash and
cash equivalents...................... (6,099,204) 7,717,611 (14,430,619)
Cash and cash equivalents--beginning... 41,168,103 33,450,492 47,881,111
----------- ----------- ------------
Cash and cash equivalents--ending...... $35,068,899 $41,168,103 $ 33,450,492
=========== =========== ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes (federal and state)... $ 2,989,383 $ 2,894,502 $ 2,866,680
Interest........................... 12,962,187 12,531,612 11,851,537
Supplemental schedule of noncash
investing and financing activities:
Transfer of securities available for
sale to securities held to
maturity............................ $10,100,590 $ -- $ --
Transfer of loans receivable to other
real estate owned................... 772,454 771,169 80,394
Loans to facilitate the sale of other
real estate owned................... 565,000 33,000 --
Transfer of premises to other real
estate owned........................ 272,222 -- --
Mortgage payable incurred in
connection with purchase of
premises............................ -- 322,000 --
Stock dividend....................... 10,619,797 5,235,295 1,588,440
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition
On September 16, 1997, Lakeland Bancorp, Inc. (the "Corporation") entered in
an Agreement and Plan of Merger with Metropolitan State Bank ("Metropolitan"),
pursuant to which, on February 20, 1998, each outstanding share of
Metropolitan common stock was converted into Corporation common stock and
Metropolitan became a wholly-owned subsidiary of the Corporation. Each share
of Metropolitan's common stock (711,868 shares of Metropolitan's common stock
were outstanding as of December 31, 1997) was converted into 0.941 shares of
Corporation common stock. The merger was accounted for as a pooling of
interests. Amounts previously reported by the Corporation in its consolidated
statement of condition as of December 31, 1997 and in its Consolidated
Statements of Income, Changes in Stockholders' Equity and Cash Flows for the
years ended December 31, 1997 and 1996 have been retroactively restated to
include the accounts of Metropolitan. Acquisition costs of approximately
$324,000 and $372,000 were expensed during the years ended December 31, 1998
and 1997, respectively, in regard to this acquisition.
Pending Acquisition
On December 7, 1998, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") and a Stock Option Agreement (the "Option
Agreement") with High Point Financial Corp. ("High Point") pursuant to which
outstanding shares of High Point common stock will be converted into shares of
Corporation common stock and The National Bank of Sussex County will become a
wholly-owned subsidiary of the Corporation. Pursuant to the Merger Agreement,
each share of High Point common stock (3,811,480 shares of High Point common
stock were outstanding as of September 30, 1998) will be converted into 1.2
shares of Corporation common stock. As of September 30, 1998, High Point had
total assets, deposits and stockholders' equity of $252.7 million, $214.5
million and $24.2 million, respectively. The merger is subject to regulatory
approval, the approval of the Corporation's and High Point's shareholders and
other standard conditions. If consummated, the merger is intended to be
accounted for as a pooling of interests. As of December 31, 1998, costs
incurred in regard to the pending acquisition totaled $15,000 and are included
in other assets. Such amount will be expensed upon either consummation or
termination of the Merger Agreement.
In 1994, the Corporation, for $1,204,882, purchased 344,252 shares of High
Point common stock and has retained such shares since. At December 31, 1998,
these shares are carried as securities available for sale at a fair value of
$5,594,095, including an unrealized gain of $4,389,213 ($2,625,298 net of
deferred income taxes). If the merger is consummated, these shares will be
canceled and stockholders' equity reduced accordingly.
In the event the merger is terminated, under certain circumstances, the
Option Agreement provides the Corporation with the option to purchase an
additional 772,243 shares of High Point common stock at a price of $13.25 per
share.
Nature of Operations
The Corporation is a bank holding company whose principal activity is the
ownership and management of its wholly-owned subsidiaries, Lakeland Bank (the
"Bank") and Metropolitan. The Bank and Metropolitan combine to generate
commercial, mortgage and consumer loans and receive deposits from customers
located primarily in Northern New Jersey. The Bank and Metropolitan operate
under state bank charters and provide full banking services and, as state
banks, each is subject to regulation by the New Jersey Department of Banking
and Insurance and the Federal Deposit Insurance Corporation.
F-9
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting Principles
Principles of consolidation
The consolidated financial statements include the accounts of the
Corporation, the Corporation's wholly owned subsidiaries, the Bank and
Metropolitan, the Bank's wholly owned subsidiary, Lakeland Investment
Corporation ("LIC"), and Metropolitan's wholly owned subsidiary, Metropolitan
State Bank Investment Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Basis of consolidated financial statement presentation
The consolidated financial statements of the Corporation have been prepared
in conformity with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the date of the statement of condition and revenues and expenses for the
period then ended. Actual results could differ significantly from those
estimates.
A material estimate that is particularly susceptible to significant changes
relates to the determination of the allowance for loan losses. Management
believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance for loan losses may be necessary based on changes in economic
conditions in the market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's and Metropolitan's
allowance for loan losses. Such agencies may require additions to the
allowance based on their judgments about information available to them at the
time of their examination.
Cash and cash equivalents
Cash and cash equivalents include cash and due from banks and federal funds
sold. Generally, federal funds sold are for one-day periods.
Securities
Investments in debt securities that the Corporation has the positive intent
and ability to hold to maturity are classified as held to maturity securities
and reported at amortized cost. Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with unrealized
holding gains and losses included in earnings. Debt and equity securities not
classified as trading securities nor as held to maturity securities, are
classified as available for sale securities and reported at fair value, with
unrealized holding gains or losses, net of deferred income taxes, reported in
a separate component of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which includes
amortization of premiums and accretion of discounts, is recognized in the
consolidated financial statements when earned. The adjusted cost basis of an
identified security sold or called is used for determining security gains or
losses recognized in the consolidated statements of income.
Loans
Loans are stated at the amount of unpaid principal less unearned income,
which includes unearned interest and net deferred loan origination fees, and
the allowance for loan losses. Interest on commercial, mortgage and
F-10
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
simple interest installment loans is recognized as income based on the loan
principal outstanding. Interest on discounted installment loans is credited to
income based on a method which approximates the actuarial method. Recognition
of interest on the accrual method is generally discontinued when factors
indicate that the collection of such amounts is doubtful. At the time a loan
is placed on non-accrual status, previously accrued and uncollected interest
is reversed against interest income in the current period. Interest on such
loans, if appropriate, is recognized as income when payments are received. A
loan is returned to an accrual status when factors indicating doubtful
collectibility no longer exist.
Loan origination fees
Loan origination fees and certain direct loan origination costs are deferred
and subsequently amortized as an adjustment of yield over the contractual
lives of the related loans.
Allowance for loan losses
The allowance for loan losses is maintained at a level considered adequate
to absorb future losses. Management determines the adequacy of the allowance
based upon reviews of individual credits, recent loss experience, current
economic conditions, the risk characteristics of the various categories of
loans and other pertinent factors. Loans deemed uncollectible are charged to
the allowance. Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
Loans are deemed to be impaired when, based on current information and
events, the collection of all amounts due according to the contractual terms
of the loan agreement is not probable. Impaired loans are measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. All loans identified as impaired are evaluated independently.
Payments received on impaired loans are applied to principal, accrued
interest receivable and interest income, in that order.
Concentration of risk
Lending activity is concentrated in loans secured by real estate located in
Bergen, Essex, Morris, Passaic, Sussex and adjacent counties in the State of
New Jersey.
Premises and equipment
Land is carried at cost. Buildings, building improvements, furniture,
fixtures and equipment and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization
charges are computed on the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Buildings and building
improvements..................... 10 to 50 years
Furniture, fixtures and
equipment........................ 2 to 30 years
Leasehold improvements............ Shorter of useful life or term of lease
</TABLE>
Significant renewals and betterments are charged to the premises and
equipment account. Maintenance and repairs are charged to expense in the years
incurred. Rental income is netted against occupancy expense in the
consolidated statements of income.
Other real estate owned ("OREO")
OREO is carried at the lower of cost or fair value, less estimated cost to
sell. When a property is acquired, the excess of the carrying amount over fair
value, if any, is charged to the allowance for loan losses. An
F-11
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
allowance for OREO has been established, through charges to OREO expense, to
maintain properties at the lower of cost or fair value less estimated cost to
sell. Operating results of OREO, including rental income, operating expenses,
and gains and losses realized from the sale of properties owned, are included
in non-interest expenses.
Income taxes
The Corporation uses the accrual basis of accounting for financial and
income tax reporting. Provisions for income taxes in the consolidated
financial statements differ from the amounts reflected in the Corporation's
income tax returns due to temporary differences in the reporting of certain
items, primarily depreciation and the provision for loan losses, for financial
reporting and income tax reporting purposes. The income tax provisions shown
in the consolidated financial statements relate to items of income and expense
in those statements irrespective of temporary differences for income tax
return purposes. The tax effect of these temporary differences is accounted
for as deferred income taxes applicable to future years.
The Corporation and its subsidiaries file separate state income tax returns
and a consolidated federal income tax return with the amount of income tax
expense or benefit computed and allocated on a separate return basis.
Net income per common share
Basic net income per share of common stock is calculated by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted net income per share is calculated by dividing net
income by the weighted average number of shares of common stock outstanding
during the period plus the potential dilutive effect of outstanding stock
options. Other than outstanding stock options, which were fully exercised in
1997, there are no other potentially dilutive securities. On August 27, 1997,
the Corporation's Board of Directors authorized a 5% stock dividend, which was
distributed on October 15, 1997. On August 26, 1998, the Corporation's Board
of Directors authorized a 2 for 1 stock split effected in the form of a 100%
stock dividend, which was distributed on October 1, 1998. Basic and diluted
net income per common share have been retroactively restated to give effect to
the stock dividends and splits.
Comprehensive income
Effective January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
Statement No. 130 requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of
net income. As required, the provisions of SFAS No. 130 have been
retroactively applied to previously reported periods. The application of SFAS
No. 130 had no material effect on the Corporation's consolidated financial
condition or operations.
Unrealized gains and losses reflected in the consolidated statements of
changes in stockholders' equity at December 31, 1998, 1997 and 1996 are
reflected net of deferred income tax assets (liabilities) of $(754,000),
$(582,000) and $13,000, while the reclassification adjustments for gains
included in income for the same periods are shown net of income tax expense of
$56,000, $22,000 and $10,000, respectively.
Interest-rate risk
The Corporation, through the Bank and Metropolitan, is principally engaged
in the business of attracting deposits from the general public and using these
deposits, together with borrowings and other funds, to make loans secured by
real estate and, to a lesser extent, commercial and consumer loans.
Additionally, such funds are utilized to purchase investment securities. The
potential for interest-rate risk exists as a result of the differences
F-12
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
in the duration of the Corporation's interest-sensitive liabilities compared
to its interest-sensitive assets. In a changing interest rate environment,
liabilities will reprice at different speeds and to different degrees than
assets, thereby impacting net interest income. For this reason, management
regularly monitors the maturity structure of the Corporation's assets and
liabilities in order to measure its level of interest-rate risk and plan for
future volatility.
Reclassification
Certain amounts for the years ended December 31, 1997 and 1996 have been
reclassified to conform to the current year's presentation.
Securities Available for Sale
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------
Gross Unrealized
Amortized ------------------ Carrying
Cost Gains Losses Value
--------- -------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury........................ $ 28,552 $ 587 $ 19 $ 29,120
U.S. Government agencies............. 25,719 62 110 25,671
Mortgage-backed securities........... 3,279 32 14 3,297
States and political subdivisions.... 38,456 384 60 38,780
Other debt securities................ 14,163 25 100 14,088
Equity securities.................... 1,503 4,389 -- 5,892
-------- -------- ------- --------
$111,672 $ 5,479 $ 303 $116,848
======== ======== ======= ========
<CAPTION>
December 31, 1997
-------------------------------------
Gross Unrealized
Amortized ------------------
Cost Gains Losses Carrying
--------- -------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury........................ $ 30,425 $ 340 $ -- $ 30,765
U.S. Government agencies............. 29,074 121 42 29,153
Mortgage-backed securities........... 5,524 35 18 5,541
States and political subdivisions.... 30,062 217 11 30,268
Other debt securities................ 2,299 8 -- 2,307
Equity securities.................... 1,503 2,797 -- 4,300
-------- -------- ------- --------
$ 98,887 $ 3,518 $ 71 $102,334
======== ======== ======= ========
<CAPTION>
December 31,
-------------------------------------
1998 1997
------------------ ------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
--------- -------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less.............. $ 21,669 $ 21,755 $26,708 $ 26,667
Due after one year through five
years............................... 60,842 61,384 54,628 55,145
Due after five years through ten
years............................... 15,293 15,441 8,748 8,916
Due after ten years.................. 9,086 9,079 1,776 1,765
Mortgage-backed securities........... 3,279 3,297 5,524 5,541
Equity securities.................... 1,503 5,892 1,503 4,300
-------- -------- ------- --------
$111,672 $116,848 $98,887 $102,334
======== ======== ======= ========
</TABLE>
F-13
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following presents details of sales of securities available for sale:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1998 1997 1996
------- ------- ------
(In Thousands)
<S> <C> <C> <C>
Sales proceeds........................................ $20,182 $15,830 $8,999
Gross gains........................................... 143 63 26
Gross losses.......................................... -- 8 2
</TABLE>
Securities with a carrying value of approximately $12,494,000 and
$15,133,000 at December 31, 1998 and 1997, respectively, were pledged to
secure public deposits and for other purposes required by applicable laws and
regulations.
Equity securities include shares of common stock of an institution with
which the Corporation is involved in a proposed merger. See "Pending
Acquisition" for further discussion.
Securities Held to Maturity
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------
Gross Unrealized
Amortized ------------------ Estimated
Cost Gains Losses Fair Value
--------- --------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury....................... $32,576 $ 630 $ -- $33,206
U.S. Government agencies............ 21,910 317 27 22,200
Mortgage-backed securities.......... 2,165 23 5 2,183
States and political subdivisions... 4,513 78 -- 4,591
Other............................... 6,138 6 53 6,091
------- --------- ------- -------
$67,302 $ 1,054 $ 85 $68,271
======= ========= ======= =======
<CAPTION>
December 31, 1997
---------------------------------------
Gross Unrealized
Amortized ------------------ Estimated
Cost Gains Losses Fair Value
--------- --------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury....................... $34,488 $ 319 $ 8 $34,799
U.S. Government agencies............ 14,929 47 36 14,940
Mortgage-backed securities.......... 2,400 32 35 2,397
States and political subdivisions... 4,492 42 1 4,533
Other............................... 700 3 -- 703
------- --------- ------- -------
$57,009 $ 443 $ 80 $57,372
======= ========= ======= =======
</TABLE>
F-14
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
-------------------- --------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less.......... $14,916 $15,007 $13,561 $13,619
Due after one year through five
years........................... 48,257 49,095 38,531 38,839
Due after five years through ten
years........................... 1,664 1,677 2,317 2,314
Due after ten years.............. 300 309 200 203
Mortgage-backed securities....... 2,165 2,183 2,400 2,397
------- ------- ------- -------
$67,302 $68,271 $57,009 $57,372
======= ======= ======= =======
</TABLE>
There were no sales of securities held to maturity during the years ended
December 31, 1998, 1997 and 1996.
Loans
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Commercial................................................ $114,979 $108,549
Construction.............................................. 5,251 7,696
Mortgage.................................................. 113,627 96,911
Home equity and improvement............................... 67,251 62,153
Other consumer............................................ 10,563 16,050
-------- --------
311,671 291,359
-------- --------
Less: Unearned income..................................... 178 214
Allowance for loan losses.............................. 3,897 4,142
-------- --------
4,075 4,356
-------- --------
$307,596 $287,003
======== ========
</TABLE>
At December 31, 1998, 1997 and 1996, loans serviced by the Bank for the
benefit of others totaled approximately $1,252,000, $1,669,000 and $849,000,
respectively.
Non-performing loans consist of nonaccrual and renegotiated loans.
Nonaccrual loans are those on which income under the accrual method has been
discontinued with subsequent interest payments credited to interest income
when received, or if ultimate collectibility of principal is in doubt, applied
as principal reductions. Renegotiated loans are loans whose contractual
interest rates have been reduced or where other significant modifications have
been made due to borrowers' financial difficulties. Interest on these loans is
either accrued or credited directly to interest income. Non-performing loans
were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997 1996
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Nonaccrual.............................................. $1,257 $2,007 $1,845
Renegotiated............................................ 1,468 1,529 2,567
------ ------ ------
$2,725 $3,536 $4,412
====== ====== ======
</TABLE>
F-15
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The impact of the above non-performing loans on interest income is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Interest income if performing in accordance with
original terms................................... $ 239 $ 329 $ 414
Interest income actually recorded................. 127 154 232
------- ------- -------
$ 112 $ 175 $ 182
======= ======= =======
</TABLE>
The Bank and Metropolitan have entered into lending transactions in the
ordinary course of business with directors, executive officers, principal
stockholders and affiliates of such persons on the same terms as those
prevailing for comparable transactions with other borrowers. These loans, at
December 31, 1998, were current as to principal and interest payments, and do
not involve more than normal risk of collectibility. A summary of lending
activity with respect to such persons who had borrowings of $60,000 or more,
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997
--------- ---------
(In Thousands)
<S> <C> <C> <C>
Balance--beginning............................... $ 17,289 $ 13,615
Loans originated................................. 13,772 11,920
Repayments....................................... (14,105) (8,317)
Other changes.................................... -- 71
--------- ---------
Balance--ending.................................. $ 16,956 $ 17,289
========= =========
</TABLE>
Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
-------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Balance--beginning............................... $ 4,142 $ 3,585 $ 3,470
Provision for loan losses........................ 698 1,026 908
Loans charged off................................ (1,260) (599) (849)
Recoveries....................................... 317 130 56
-------- ------- -------
Balance--ending.................................. $ 3,897 $ 4,142 $ 3,585
======== ======= =======
</TABLE>
Impaired loans and related amounts recorded in the allowance for loan losses
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
------ ------
(In Thousands)
<S> <C> <C> <C>
Recorded investment in impaired loans:
With recorded allowances................................. $1,133 $1,738
Without recorded allowances.............................. 1,119 704
------ ------
Total impaired loans..................................... 2,252 2,442
Related allowance for loan losses........................ 381 865
------ ------
Net impaired loans....................................... $1,871 $1,577
====== ======
</TABLE>
F-16
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1998, 1997 and 1996, the average recorded
investment in impaired loans totaled $3,139,000, $3,976,000 and $4,324,000,
respectively. Interest income recognized, primarily on the cash basis, on such
loans during the time each was impaired totaled $153,000, $179,000 and
$211,000, respectively.
Premises and Equipment
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Land........................................................ $ 3,252 $ 3,463
Buildings and building improvements......................... 8,138 8,153
Leasehold improvements...................................... 972 910
Furniture, fixtures and equipment........................... 6,563 5,492
------- -------
18,925 18,018
Less accumulated depreciation and amortization.............. 4,665 4,205
------- -------
$14,260 $13,813
======= =======
</TABLE>
Included in premises and equipment at December 31, 1998 and 1997 is
$1,518,000 and $1,348,000, respectively, related to properties purchased which
have not yet been placed in service. Management intends to use such properties
for future expansion of the Bank's branch network. Additionally, at December
31, 1997, premises and equipment included a property having a carrying value
of $274,000 and which is no longer in the Bank's future expansion plans. The
ultimate disposition of this property, which was reclassified as other real
estate owned in 1998, is not expected to result in any loss.
Depreciation and amortization expense charged to operations was $1,106,000,
$981,000 and $901,000 during the years ended December 31, 1998, 1997 and 1996,
respectively.
Deposits
At December 31, 1998, the schedule of maturities of certificates of deposit
is as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1999........................................................... $130,472
2000........................................................... 12,578
2001........................................................... 9,579
2002........................................................... 1,298
2003........................................................... 288
Thereafter..................................................... 12
--------
$154,227
========
</TABLE>
Borrowed Money
Borrowed money at December 31, 1998 and 1997 consisted of short-term
securities sold under agreements to repurchase. Securities underlying the
agreements were under Metropolitan's control.
As of December 31, 1998, Metropolitan had an approved but unused borrowing
capacity with the Federal Home Loan Bank ("FHLB"), collateralized by FHLB
stock, of $9,443,000. Borrowings under this arrangement have an interest rate
that fluctuates based on market conditions and customer demand. As of December
31, 1998 and 1997, there were no related outstanding borrowings.
F-17
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income tax assets and liabilities are reflected in the consolidated
statements of condition under the captions "other assets" and "other
liabilities", as applicable, and are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Prepaid state............................................... $ 418 $ 444
Current state liability..................................... (46) (78)
Current federal refundable (payable)........................ 194 (17)
Deferred federal and state (liability) asset................ (704) 159
------- ------
$ (138) $ 508
======= ======
</TABLE>
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan and real estate losses in excess of
tax reserves........................................... $ 1,224 $ 1,275
Non-accrued interest.................................... 104 110
Depreciation............................................ 70 100
Deferred loan fees...................................... 52 46
Other................................................... 56 139
------- -------
1,506 1,670
------- -------
Deferred tax liabilities:
Unrealized gain on securities available for sale........ 2,079 1,382
Discount accretion...................................... 131 118
Other................................................... -- 11
------- -------
2,210 1,511
------- -------
Net deferred tax (liabilities) assets..................... $ (704) $ 159
======= =======
</TABLE>
The components of income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
---------------------
1998 1997 1996
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Current............................................... $2,751 $2,854 $2,753
Deferred.............................................. 165 (206) (88)
------ ------ ------
$2,916 $2,648 $2,665
====== ====== ======
</TABLE>
F-18
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a reconciliation between the reported income
taxes and the income taxes that would have been computed by applying the
normal federal income tax rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax............. $2,938 34.0 $2,709 34.0 $2,725 34.0
Add (deduct) effect of:
Non-taxable interest income.. (464) (5.4) (353) (4.4) (312) (3.9)
State income tax, net of
federal income tax effect... 327 3.8 278 3.5 260 3.2
Other items, net............. 115 1.3 14 0.1 (8) --
------ ---- ------ ---- ------ ----
$2,916 33.7 $2,648 33.2 $2,665 33.3
====== ==== ====== ==== ====== ====
</TABLE>
Employee Benefit Plans
The Bank has a profit sharing plan for all its eligible employees. The plan
meets the requirements of the Employee Retirement Income Security Act of 1974.
The Bank's annual contribution to the plan is determined by the Board of
Directors with the maximum amount being the maximum tax deduction permitted
for that year under the Internal Revenue Code. Annual contributions are
allocated to participants on a point basis with accumulated benefits payable
at retirement or, at the discretion of the plan committee, upon termination of
employment. The cost of the plan charged to expense for each of the years
ended December 31, 1998, 1997 and 1996 was approximately $200,000.
Metropolitan has a noncontrbutory 401(k) savings plan covering substantially
all employees. Beginning January 1, 1997, Metropolitan matches 50% of employee
contributions for all participants, not to exceed 5% of their total salary.
Contributions made by Metropolitan were $27,000, $26,000 and $- ,
respectively, for the years ended December 31, 1998, 1997 and 1996.
In January 1996, Metropolitan entered into an agreement with its Chief
Executive Officer ("CEO"), which provides for an annual retirement benefit of
$35,000 for a 15-year period. In February 1998, the Corporation entered into
an additional agreement with Metropolitan's CEO. Such agreement provides for
an additional retirement benefit of $35,000 per annum for a fifteen year
period as well as certain retiree medical benefits. Although there are certain
provisions for early retirement, it is expected that the officer will remain
in the employment of Metropolitan until his retirement date in 2000 at age 65.
The present value of this obligation is being charged to operations. During
1998, 1997 and 1996, $154,000, $194,000 and $40,000, respectively, was charged
to operations related to these obligations.
F-19
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Directors Retirement Plan
The Board of Directors of the Corporation adopted a plan, effective January
1, 1996, which provides that any director having attained age 72 (75 for
directors active as of the date of plan inception) and having completed
fifteen years of service may retire and continue to be paid for a period of
ten years at a rate of $5,000, $7,500 or $10,000 per annum, depending upon
years of credited service. This plan is unfunded. The following tables present
the status of the plan and the components of net periodic plan cost for the
years then ended:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested............................................. $ 266,629 $ 259,519
Nonvested.......................................... 10,756 9,165
--------- ---------
$ 277,385 $ 268,684
========= =========
Projected benefit obligation......................... $ 293,087 $ 285,330
Unrecognized net loss................................ (13,507) (15,939)
Unrecognized prior service cost being amortized over
fifteen years....................................... (193,260) (208,896)
--------- ---------
Accrued plan cost included in other liabilities...... $ 86,320 $ 60,495
========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net periodic plan cost included the following
components:
Service cost.................................... $ 742 $ 1,868 $ 1,754
Interest cost................................... 19,447 18,666 16,935
Amortization of prior service cost.............. 15,636 15,636 15,636
------- ------- -------
$35,825 $36,170 $34,325
======= ======= =======
</TABLE>
A discount rate of 7% was assumed in the plan valuation. As the benefit
amount is not dependent upon compensation levels, a rate of increase in
compensation assumption was not utilized in the plan valuation.
Stock Option Plan
During 1989, the shareholders of Metropolitan approved a stock option plan
(the "Plan") for officers and key employees of Metropolitan. In accordance
with the Plan, options for the purchases of 33,275 shares of Metropolitan's
common stock could be granted. Prior to 1997, options to purchase 19,965 and
12,856 shares of the Metropolitan common stock at a price of $7.51 per share
were granted to Metropolitan's President and Executive Vice President,
respectively. All such options were exercisable within and would expire 10
years from the date of grant. All options under the Plan were exercised during
1997. The aforementioned amounts have not been adjusted to reflect either the
subsequent conversion to Corporation shares or subsequent stock dividends as
such disclosure is not meaningful.
Commitments
The Bank and Metropolitan are parties to financial instruments with off-
balance-sheet risk in the normal course of business to meet the financing
needs of their customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated financial
F-20
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statements. The contract or notional amounts of those instruments reflect the
extent of involvement in particular classes of financial instruments. The
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit and standby letters
of credit is represented by the contractual notional amount of those
instruments. The Bank and Metropolitan use the same credit policies in making
commitments and conditional obligations as they do for on-balance-sheet
instruments. The commitments to extend credit are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C> <C>
Commitments to extend credit............................. $59,192 $54,064
Standby letters of credit and financial guarantees....... 2,668 3,539
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank and Metropolitan
evaluate each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained if deemed necessary upon extension of credit is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include accounts receivable, inventory, property, plant, and
equipment, residential real estate and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank and Metropolitan to guarantee the performance
of a customer to a third party. Those guarantees are primarily issued to
support public and private borrowing arrangements, including commercial paper,
bond financing, and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank and Metropolitan hold collateral supporting
those commitments for which collateral is deemed necessary.
Rentals under long-term operating leases amounted to approximately $264,000,
$206,000, and $189,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998, the minimum commitments, which include
rental, real estate tax and other related amounts, under all noncancellable
leases with remaining terms of more than one year and expiring through 2008
are as follows:
<TABLE>
<CAPTION>
December 31, Amount
------------ --------------
(In Thousands)
<S> <C>
1999...................................................... $ 376
2000...................................................... 282
2001...................................................... 256
2002...................................................... 219
2003...................................................... 159
Thereafter................................................ 537
------
$1,829
======
</TABLE>
The Corporation and its subsidiaries are also subject to litigation which
arises primarily in the ordinary course of business. In the opinion of
management, the ultimate disposition of such litigation should not have a
material adverse effect on the consolidated financial position or results of
operations of the Corporation.
F-21
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Dividend Limitation
A limitation exists on the ability of the Bank and Metropolitan to pay
dividends to the Corporation. State of New Jersey Banking laws specify that no
dividend shall be paid by a bank on its capital stock unless, following the
payment of each such dividend, the capital stock of the bank will be
unimpaired and the bank will have a surplus of not less than 50% of its
capital stock, or, if not, the payment of such dividend will not reduce the
surplus of the bank. Under this limitation, approximately $38.8 million was
available for payment of dividends to the Corporation as of December 31, 1998.
F-22
<PAGE>
Lakeland Bancorp, Inc. (Parent Company Only)
Condensed financial statements of the Corporation (parent company only)
follow:
Statements of Condition
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets:
Cash and due from banks.............................. $ 277,597 $ 270,493
Securities available for sale........................ 5,594,095 4,001,929
Investment in subsidiaries........................... 48,384,672 44,563,868
Other assets......................................... 821,088 950,022
----------- -----------
Total assets....................................... $55,077,452 $49,786,312
=========== ===========
Liabilities:
Deferred income taxes................................ $ 1,763,915 $ 1,124,063
Stockholders' equity................................... 53,313,537 48,662,249
----------- -----------
Total liabilities and stockholders' equity............. $55,077,452 $49,786,312
=========== ===========
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Dividends from subsidiary bank............. $1,983,524 $1,720,707 $ 568,021
Other expenses............................. 14 67 3,493
---------- ---------- ----------
Income before income tax (benefit)
expense................................... 1,983,510 1,720,640 564,528
Income tax (benefit) expense............... (65) (1,096) 44
---------- ---------- ----------
Income before undistributed earings of
subsidiaries.............................. 1,983,575 1,721,736 564,484
Equity in undistributed earnings of
subsidiaries.............................. 3,741,780 3,598,986 4,785,857
---------- ---------- ----------
Net income................................. $5,725,355 $5,320,722 $5,350,341
========== ========== ==========
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 5,725,355 $ 5,320,722 $ 5,350,341
Adjustments to reconcile net income to
net cash provided by operating
activities:
Decrease (increase) in other
assets............................. 128,934 (326,221) (178,135)
Equity in undistributed earnings of
subsidiaries....................... (3,741,780) (3,598,986) (4,785,857)
----------- ----------- -----------
Net cash provided by operating
activities....................... 2,112,509 1,395,515 386,349
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuances of common
stock................................ 469,841 648,862 1,372,509
Cash dividends paid on common stock... (2,446,246) (1,988,008) (1,703,641)
Purchase of treasury stock............ (129,000) -- --
----------- ----------- -----------
Net cash (used in) financing
activities....................... (2,105,405) (1,339,146) (331,132)
----------- ----------- -----------
Net increase in cash and cash
equivalents............................ 7,104 56,369 55,217
Cash and cash equivalents--beginning.... 270,493 214,124 158,907
----------- ----------- -----------
Cash and cash equivalents--ending....... $ 277,597 $ 270,493 $ 214,124
=========== =========== ===========
</TABLE>
F-23
<PAGE>
Estimated Fair Value of Financial Instruments
The fair value of a financial instrument is defined as the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than a forced or liquidation sale. Significant estimations were
used for the purposes of this disclosure. Estimated fair values have been
determined using the best available data and estimation methodology suitable
for each category of financial instruments. For those loans and deposits with
floating interest rates, it is presumed that estimated fair values generally
approximate their recorded book balances. The estimation methodologies used
and the estimated fair values and carrying values of the financial instruments
are set forth below:
Cash and cash equivalents, accrued interest receivable and certificates of
deposit
The carrying amounts for cash and cash equivalents, accrued interest
receivable and certificates of deposit approximate fair value.
Securities
The fair values for securities are based on quoted market prices or dealer
prices, if available. If quoted market prices or dealer prices are not
available, fair value is estimated using quoted market prices or dealer prices
for similar securities.
Loans
The fair value of loans is estimated by discounting the future cash flows,
using the current rates at which similar loans with similar remaining
maturities would be made to borrowers with similar credit ratings.
Deposits
For demand, savings and club accounts, fair value is the carrying amount
reported in the consolidated financial statements. For fixed-maturity
certificates of deposit, fair value is estimated using the rates currently
offered for deposits of similar remaining maturities.
Commitments
The fair values of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
F-24
<PAGE>
The carrying values and estimated fair values of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
------------------- -------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents......... $ 35,069 $ 35,069 $ 41,168 $ 41,168
Certificates of deposit........... 204 204 102 102
Securities available for sale..... 116,848 116,848 102,334 102,334
Securities held to maturity....... 67,302 68,271 57,009 57,372
Loans............................. 307,596 313,357 287,003 290,149
Accrued interest receivable....... 4,415 4,415 4,210 4,210
Financial liabilities
Deposits.......................... 488,881 490,166 453,471 453,959
Borrowed money.................... 3,795 3,795 3,536 3,536
Commitments
To extend credit.................. 59,192 59,192 54,064 54,064
Standby letters of credit......... 2,668 2,668 3,539 3,539
</TABLE>
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the entire holdings of a particular financial
instrument. Because no established secondary market exists for a significant
portion of the financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of the financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
In addition, fair value estimates are based on existing on-and-off balance
sheet financial instruments without attempting to estimate the value of
anticipated future business, and exclude the value of assets and liabilities
that are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets and liabilities include
premises and equipment, other assets and other liabilities. In addition, the
income tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and have not
been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform evaluation
methodologies introduces a greater degree of subjectivity to these estimated
fair values.
F-25
<PAGE>
Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Total interest income........... $8,608 $8,598 $8,734 $8,995
Total interest expense.......... 3,227 3,143 3,249 3,390
------ ------ ------ ------
Net interest income........... 5,381 5,455 5,485 5,605
Provision for loan losses....... 49 53 62 534
Other income.................... 775 717 788 885
Other expenses.................. 4,057 3,829 3,829 4,037
Income taxes.................... 685 773 786 672
------ ------ ------ ------
Net income...................... $1,365 $1,517 $1,596 $1,247
====== ====== ====== ======
Net income per share--basic and
diluted........................ $0.161 $0.179 $0.188 $0.147
====== ====== ====== ======
Weighted average number of
common shares outstanding--
basic and diluted.............. 8,488 8,496 8,492 8,496
====== ====== ====== ======
<CAPTION>
Quarter Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Total interest income........... $8,061 $8,205 $8,484 $8,614
Total interest expense.......... 3,198 3,172 3,256 3,258
------ ------ ------ ------
Net interest income........... 4,863 5,033 5,228 5,356
Provision for loan losses....... 116 77 98 735
Other income.................... 741 728 717 837
Other expenses.................. 3,383 3,484 3,523 4,118
Income taxes.................... 702 713 769 464
------ ------ ------ ------
Net income...................... $1,403 $1,487 $1,555 $ 876
====== ====== ====== ======
Net income per share:
Basic......................... $0.168 $0.177 $0.185 $0.104
Diluted....................... 0.167 0.176 0.184 0.104
====== ====== ====== ======
Weighted average number of
common shares outstanding:
Basic......................... 8,374 8,390 8,400 8,454
Diluted....................... 8,414 8,431 8,442 8,454
====== ====== ====== ======
</TABLE>
Net income per common share and weighted average number of common shares
outstanding for the quarters ended June 30, 1998 and prior have been restated
to give retroactive effect to subsequent stock dividends.
F-26
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks............................ $ 24,193,899 $ 20,888,158
Federal funds sold................................. 10,875,000 10,725,000
------------ ------------
Cash and cash equivalents.......................... 35,068,899 31,613,158
Certificates of deposit............................ 204,033 214,033
Securities available for sale, at estimated fair
value............................................. 116,847,825 108,971,956
Securities held to maturity; estimated fair value
of $68,271,000
in 1998 and $83,573,295 in 1999................... 67,302,146 83,051,009
Loans.............................................. 307,596,324 312,173,467
Premises and equipment............................. 14,260,225 14,087,694
Accrued interest receivable........................ 4,414,733 4,304,270
Other assets....................................... 2,863,222 1,923,447
------------ ------------
Total assets................................. $548,557,407 $556,339,034
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest-bearing demand.................... $107,097,017 $103,873,407
Savings and interest-bearing demand............ 225,894,802 233,755,617
Club accounts.................................. 1,661,786 2,397,405
Time........................................... 125,144,292 127,977,167
Time of $100,000 and over...................... 29,082,870 28,810,516
------------ ------------
Total deposits............................... 488,880,767 496,814,112
------------ ------------
Borrowed money..................................... 3,795,114 3,004,038
Other liabilities.................................. 2,567,989 2,617,489
------------ ------------
Total liabilities............................ 495,243,870 502,435,639
Commitments
Stockholders' equity
Common stock, par value $2.50 per share;
authorized shares 14,806,718; issued shares
8,511,588 in 1998 and 8,511,588 in 1999;
outstanding shares 8,502,988 in 1998 and
8,500,788 in 1999............................... 21,278,970 21,278,970
Surplus.......................................... 29,557,747 18,937,950
Undivided profits (accumulated deficit).......... (491,609) 10,915,404
Accumulated other comprehensive income, net...... 3,097,429 2,940,221
Treasury stock, at cost (8,600 and 10,800 shares
in 1998 and 1999, respectively)................. (129,000) (169,150)
------------ ------------
Total stockholders' equity................... 53,313,537 53,903,395
------------ ------------
Total liabilities and stockholders' equity... $548,557,407 $556,339,034
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1999
-------------- --------------
<S> <C> <C>
INTEREST INCOME
Loans and fees................................. $ 6,214,297 $ 6,261,481
Federal funds sold............................. 187,709 187,305
Securities:
U.S. Treasury................................. 993,358 924,655
U.S. Government agencies...................... 767,600 795,620
States and political subdivisions............. 364,195 463,369
Other......................................... 80,625 295,873
-------------- --------------
Total interest income........................ 8,607,784 8,928,303
-------------- --------------
INTEREST EXPENSE
Deposits....................................... 3,190,229 3,343,505
Borrowed money................................. 36,967 44,762
-------------- --------------
Total interest expense....................... 3,227,196 3,388,267
-------------- --------------
Net interest income.......................... 5,380,588 5,540,036
PROVISION FOR LOAN LOSSES........................ 48,882 105,000
Net interest income after provision for loan
losses........................................ 5,331,706 5,435,036
OTHER INCOME
Service charges on deposit accounts............ 587,864 600,062
Gain on sale of investment securities.......... 53,542 13,591
Other income................................... 133,477 118,421
-------------- --------------
Total other income........................... 774,883 732,074
-------------- --------------
OTHER EXPENSES
Salaries and benefits.......................... 2,107,150 2,253,836
Occupancy expense, net......................... 392,129 412,783
Furniture and equipment........................ 378,577 425,855
Other.......................................... 1,178,577 1,038,013
-------------- --------------
Total other expenses......................... 4,056,433 4,130,487
-------------- --------------
INCOME BEFORE INCOME TAXES....................... 2,050,156 2,036,623
INCOME TAXES..................................... 684,711 611,684
-------------- --------------
NET INCOME....................................... $ 1,365,445 $ 1,424,939
============== ==============
Net income per common share
Basic.......................................... $ 0.16 $ 0.17
Diluted........................................ $ 0.16 $ 0.17
Weighted average number of shares outstanding
Basic.......................................... 8,488,138 8,501,619
Diluted........................................ 8,488,138 8,501,619
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Net income...................................... $ 1,365,445 $ 1,424,939
-------------- --------------
Other comprehensive income, net of income taxes
Unrecognized holding gains (losses) on
securities available for sale, net of income
taxes (benefit) of $161,990 and $(76,365),
respectively................................. 228,751 (148,238)
Less gains on dispositions of securities
available for sale, net of income taxes of
$18,204 and $4,621, respectively............. (35,338) (8,970)
-------------- --------------
Total other comprehensive income (loss)..... 193,413 (157,208)
-------------- --------------
Comprehensive income............................ $ 1,558,858 $ 1,267,731
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income................................... $ 1,365,445 $ 1,424,939
Adjustments to reconcile net income to net
cash provided by operating activities
Net amortization and accretion............. 152,935 76,375
Depreciation and amortization of premises
and equipment............................. 266,195 319,630
Provision for loan losses.................. 48,882 105,000
Gain on sales of investment securities..... (53,542) (13,591)
Decrease in accrued interest receivable.... 405,799 110,463
Decrease in other assets................... 310,995 939,776
Increase in other liabilities.............. 191,886 174,842
-------------- --------------
Net cash provided by operating
activities.............................. 2,688,595 3,137,434
Cash flows from investing activities
Net change in certificates of deposit........ (908) (10,000)
Proceeds from maturities of and repayments on
securities available for sale............... 10,826,000 5,576,303
Proceeds from sales of securities available
for sale.................................... 6,816,000 2,384,586
Proceeds from calls of securities available
for sale.................................... 1,500,000 --
Purchases of securities available for sale... (10,710,254) (15,744,340)
Proceeds from maturities of and repayments on
securities held to maturity................. 6,448,000 3,689,825
Purchases of securities held to maturity..... (5,931,687) (4,124,521)
Net increase in loans receivable............. (219,038) (4,682,143)
Additions to premises and equipment.......... (372,952) (147,101)
-------------- --------------
Net cash (used in) provided by investing
activities.............................. 8,355,161 (13,057,391)
Cash flows from financing activities
Net increase (decrease) in deposits.......... (1,712,030) 7,933,345
Net decrease in short-term borrowings........ (874,627) (791,076)
Proceeds from sale of common stock........... 229,653 --
Cash dividends paid on common stock.......... (535,500) (637,903)
Purchase of treasury stock................... -- (40,150)
-------------- --------------
Net cash provided by (used in) financing
activities.............................. (2,892,504) 6,464,216
Net (decrease) increase in cash and cash
equivalents................................... 8,151,252 (3,455,741)
Cash and cash equivalents--beginning........... 41,168,103 35,068,899
-------------- --------------
Cash and cash equivalents--ending.............. $ 49,319,355 $ 31,613,158
============== ==============
Supplemental disclosures of cash flow
information
Cash paid during the three month period for
Income taxes............................... $ 37,450 $ 225,000
Interest................................... $ 3,279,342 $ 3,422,419
Supplemental schedule of noncash investing and
financing activities
Transfer of investment securities transferred
from available for sale to held for sale.... $ -- $ 15,314,167
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. Certain
information and footnote disclosures normally included in financial statements
under generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations. These financial statements should be
read in conjunction with the annual financial statements and notes thereto
included in this joint proxy statement/prospectus. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements
have been included. The results of operations for the three months ended March
31, 1999, are not necessarily indicative of the results which may be expected
for the entire fiscal year.
Amounts previously reported by Lakeland in its consolidated statement of
income for the three months ended March 31, 1998, have been retroactively
restated to include the accounts of Metropolitan State Bank (Metropolitan),
which on February 20, 1998, was merged with a newly formed subsidiary of
Lakeland with Metropolitan as the surviving bank. Each share of Metropolitan
common stock outstanding was converted to 0.941 shares of Lakeland's common
stock, resulting in the issuance of 669,867 shares. The merger was accounted
for under the pooling of interests method of accounting.
On December 7, 1998, Lakeland entered into an Agreement and Plan of Merger
(the Merger Agreement) and a Stock Option Agreement (the Option Agreement)
with High Point Financial Corp. (High Point) pursuant to which outstanding
shares of High Point common stock will be converted into shares of Lakeland's
common stock and High Point's subsidiary, The National Bank of Sussex County,
will become a wholly owned subsidiary of Lakeland. Pursuant to the Merger
Agreement, each outstanding share of High Point common stock (3,811,480 shares
of High Point common stock were outstanding as of December 31, 1998) will be
converted into 1.2 shares of Lakeland common stock. At December 31, 1998,
Lakeland owned 344,252 shares of High Point common stock which will be
canceled upon the consummation of the merger. The merger is subject to
regulatory approval, the approval of Lakeland's and High Point's stockholders
and other standard conditions. The merger is anticipated to be accounted for
under the pooling of interests method of accounting.
NOTE 2--NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding. Diluted net
income per share is calculated by adjusting the weighted average number of
shares of common stock outstanding to include the effect of stock options, if
dilutive, using the treasury stock method.
On August 26, 1998, Lakeland's Board of Directors authorized a 2 for 1 stock
split in the form of a 100% stock dividend, which was distributed on October
1, 1998. Per share amounts have been retroactively restated to give effect to
this stock dividend.
NOTE 3--STOCKHOLDERS' EQUITY
The $491,609 deficit in undivided profits contained in the December 31, 1998
consolidated financial statements is the result of a bookkeeping entry
charging undivided profits $10,617,797 in connection with Lakeland's
accounting for its 2 for 1 stock split effected in the form of a 100% stock
dividend distributed October 1, 1998. In accordance with New Jersey corporate
law, Lakeland's Board of Directors on March 10, 1999, approved the reversing
of this accounting treatment of the stock dividend, thereby moving the
$10,617,797 from
F-31
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
the capital stock account to the undivided profits account to more accurately
reflect Lakeland's financial condition. This reclassifications was made in
Lakeland's unaudited consolidated statement of financial condition as of March
31, 1999.
NOTE 4--SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------
Gross
unrealized
Amortized ------------- Fair market
cost Gains Losses value
--------- ------ ------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $ 24,465 $ 334 $ (23) $ 24,776
U.S. Government agencies............... 26,284 35 (259) 26,062
Mortgage-backed securities............. 2,671 23 (11) 2,683
States and political subdivisions...... 40,010 309 (119) 40,200
Other debt securities.................. 9,041 3 (123) 8,919
Equity securities...................... 1,512 4,820 -- 6,332
-------- ------ ----- --------
$103,983 $5,524 $(535) $108,972
======== ====== ===== ========
<CAPTION>
December 31, 1998
------------------------------------
Gross
unrealized
Amortized ------------- Fair market
cost Gains Losses value
--------- ------ ------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $ 28,552 $ 587 $ (19) $ 29,120
U.S. Government agencies............... 25,719 62 (110) 25,671
Mortgage-backed securities............. 3,279 32 (14) 3,297
States and political subdivisions...... 38,456 384 (60) 38,780
Other debt securities.................. 14,163 25 (100) 14,088
Equity securities...................... 1,503 4,389 -- 5,892
-------- ------ ----- --------
$111,672 $5,479 $(303) $116,848
======== ====== ===== ========
</TABLE>
The following is a summary of securities available for sale by maturity:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Amortized Fair market Amortized Fair market
cost value cost value
--------- ----------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less........ $ 16,535 $ 16,576 $ 21,669 $ 21,755
Due after one year through five
years......................... 68,815 69,092 60,842 61,384
Due after five years through
ten years..................... 11,908 11,771 15,293 15,441
Due after ten years............ 2,542 2,518 9,086 9,079
Mortgage-backed securities..... 2,671 2,683 3,279 3,297
Equity securities.............. 1,512 6,332 1,503 5,892
-------- -------- -------- --------
$103,983 $108,972 $111,672 $116,848
======== ======== ======== ========
</TABLE>
F-32
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
NOTE 5--INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------
Gross
unrealized
Amortized ------------- Fair market
cost Gains Losses value
--------- ------ ------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $38,427 $ 486 $ (54) $38,859
U.S. Government agencies............... 26,853 201 (37) 27,017
Mortgage-backed securities............. 2,150 21 (36) 2,135
States and political subdivisions...... 4,372 67 -- 4,439
Other debt securities.................. 11,249 2 (128) 11,123
------- ------ ----- -------
$83,051 $ 777 $(255) $83,573
======= ====== ===== =======
<CAPTION>
December 31, 1998
------------------------------------
Gross
unrealized
Amortized ------------- Fair market
cost Gains Losses value
--------- ------ ------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $32,576 $ 630 $ -- $33,206
U.S. Government agencies............... 21,910 317 (27) 22,200
Mortgage-backed securities............. 2,165 23 (5) 2,183
States and political subdivisions...... 4,513 78 -- 4,591
Other debt securities.................. 6,138 6 (53) 6,091
------- ------ ----- -------
$67,302 $1,054 $ (85) $68,271
======= ====== ===== =======
</TABLE>
The following is a summary of securities held to maturity by maturity:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Amortized Fair market Amortized Fair market
cost value cost value
--------- ----------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less........ $13,697 $13,754 $14,916 $15,007
Due after one year through five
years......................... 66,501 66,964 48,257 49,095
Due after five years through
ten years..................... 503 411 1,664 1,677
Due after ten years............ 200 309 300 309
Mortgage-backed securities..... 2,150 2,135 2,165 2,183
------- ------- ------- -------
$83,051 $83,573 $67,302 $68,271
======= ======= ======= =======
</TABLE>
F-33
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
NOTE 6--LOANS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ---------
(in thousands)
<S> <C> <C>
Loans................................................ $311,671 $316,232
Less
Unearned income.................................... (178) (116)
Allowance for loan losses.......................... (3,897) (3,943)
-------- --------
$307,596 $312,173
======== ========
</TABLE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Balance--beginning................................... $4,142,340 $3,897,024
Provisions charged to operations..................... 48,882 105,000
Loans charged off.................................... (446,792) (89,064)
Recoveries of loans previously charged off........... 229,287 30,158
---------- ----------
Balance of allowance at end of period................ $3,973,717 $3,943,118
========== ==========
</TABLE>
Impaired loans and related amounts recorded in the allowance for loan losses
are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ---------
(in thousands)
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances............................ $1,133 $ 802
Without recorded allowances......................... 1,119 1,116
------ ------
Total impaired loans................................ 2,252 1,918
------ ------
Related allowance for loan losses................... 381 423
------ ------
Net impaired loans.................................... $1,871 $1,495
====== ======
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1998 1999
---------- --------
<S> <C> <C>
Average recorded investment............................. $3,388,188 $597,384
Interest income recognized.............................. 22,337 16,374
</TABLE>
F-34
<PAGE>
ANNEX A
<PAGE>
AGREEMENT AND PLAN OF MERGER
by and between
LAKELAND BANCORP, INC.
and
HIGH POINT FINANCIAL CORP.
Dated as of December 7, 1998
<PAGE>
INDEX TO DEFINITIONS
<TABLE>
<S> <C>
Acquiror........................................................ Introduction
Acquiror's Banks................................................ Section 4.1.2
Acquiror Branch Property........................................ Section 4.20
Acquiror Common Stock........................................... Section 2.1.1
Acquiror Common Stock Market Price.............................. Section 2.2.6
Acquiror Disclosure Schedules................................... Article IV
Acquiror Financial Statements................................... Section 4.4.1
Acquiror Meeting................................................ Section 5.11
Acquiror Plans.................................................. Section 4.13.1
Acquiror Real Property.......................................... Section 4.20
Acquiror Statement of Condition Date............................ Section 4.4.3
Acquiror Subsidiaries........................................... Section 4.1.2
Acquisition Agreement........................................... Section 5.1.2
Agreement....................................................... Introduction
Amount.......................................................... Section 6.1.7
BHCA............................................................ Section 3.1.1
Branch Property................................................. Section 3.24.1
Business Combination............................................ Section 7.2.2
CERCLA.......................................................... Section 3.24.1
Certificate..................................................... Section 2.2.1
Certificate of Merger........................................... Section 1.2
Claims.......................................................... Section 5.6.1
Closing......................................................... Section 1.4
Code............................................................ Recital 3
Common Stock.................................................... Section 2.1.1
Common Stock Consideration...................................... Section 2.1.1
Common Trust Account Shares..................................... Section 2.1.1
Company......................................................... Introduction
Company Affiliates.............................................. Section 5.10.1
Company Board Recommendation.................................... Section 5.1.1
Company Collateral Shares....................................... Section 2.1.1
Company Disclosure Schedules.................................... Article III
Company Financial Statements.................................... Section 3.4.1
Company Meeting................................................. Section 5.11
Company Option Plans............................................ Section 2.4
Company Statement of Condition Date............................. Section 3.4.3
Company Subsidiaries............................................ Section 3.1.2
Competing Transaction........................................... Section 5.1.1
Competing Transaction Filing.................................... Section 7.2.2.3
Comptroller..................................................... Section 3.3.2
Confidentiality Agreement....................................... Section 5.4
Constituent Corporations........................................ Section 1.2
Controlled Group Liability...................................... Section 3.17.1
Costs........................................................... Section 7.2.1
Covered Person.................................................. Section 3.16
Current Premium................................................. Section 5.6.3
D&O Insurance................................................... Section 5.6.3
Delivery Period................................................. Section 5.14
Department...................................................... Section 3.3.2
Effective Time.................................................. Section 1.2
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Environmental Law................................................ Section 3.24.1
ERISA Affiliate.................................................. Section 3.17.1
Exchange Agent................................................... Section 2.2.1
Exchange Ratio................................................... Section 2.1.1
FDIC............................................................. Section 3.1.2
FRB.............................................................. Section 3.3.2
GAAP............................................................. Section 3.4.1
Governmental Authority........................................... Section 3.3.2
Governmental Consents............................................ Section 6.1.2
Hazardous Substance.............................................. Section 3.24.1
HSR Act.......................................................... Section 5.5
ISRA............................................................. Section 3.24.1
Indemnitees...................................................... Section 5.6.1
Joint Proxy Statement/Prospectus................................. Section 5.9
Letter Agreement................................................. Section 5.15
Material Adverse Effect.......................................... Section 3.1.1
Merger........................................................... Section 1.1
Multiemployer Plan............................................... Section 3.17.6
Multiple Employer Plan........................................... Section 3.17.6
NBSC............................................................. Section 1.6
NBSC Seats....................................................... Section 1.6
NJDEP............................................................ Section 3.3.2
New Options...................................................... Section 2.4
Nonsigning Affiliate............................................. Section 2.2.1
Outside Date..................................................... Section 7.1.2
PCBs............................................................. Section 3.24.1
Plans............................................................ Section 3.17.1
Prior Options.................................................... Section 2.4
Qualified Acquiror Plan.......................................... Section 4.13.3
Qualified Plan................................................... Section 3.17.3
RCRA............................................................. Section 3.24.1
Real Property.................................................... Section 3.24.1
Registration Statement........................................... Section 5.9
SEC.............................................................. Section 3.3.2
SERPs............................................................ Section 6.1.7
Shares........................................................... Section 2.1.3
Side Letter...................................................... Section 6.1.7
State Act........................................................ Section l .1
Stock Option Agreement........................................... Recital 4
Surviving Corporation............................................ Section 1.3
Tax.............................................................. Section 3.8.5
Tax Return....................................................... Section 3.8.6
Third Party Consents............................................. Section 6.3.6
Transition Period................................................ Section 1.7
Withdrawal Liability............................................. Section 3.17.1
Year 2000 Compliant.............................................. Section 3.26
1933 Act......................................................... Section 3.9.1
1934 Act......................................................... Section 3.9.1
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of December 7,
1998, is made by and between LAKELAND BANCORP, INC., a New Jersey corporation
having its principal place of business at 250 Oak Ridge Road, Oak Ridge, New
Jersey 07438 ("Acquiror") and HIGH POINT FINANCIAL CORP., a New Jersey
corporation having its principal place of business at Branchville Square, P.O.
Box 460, Branchville, New Jersey 07826 (the "Company").
RECITALS
1. The respective Boards of Directors of the Acquiror and the Company have
each determined that it is in the best interests of the Acquiror and the
Company and their respective stockholders for the Company to merge with and
into the Acquiror upon the terms and subject to the conditions set forth
herein.
2. The respective Boards of Directors of the Acquiror and the Company have
each approved the merger of the Company with and into the Acquiror, upon the
terms and subject to the conditions set forth herein.
3. For Federal income tax purposes, it is intended that such merger shall
qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
4. To induce the Acquiror to enter into this Agreement, simultaneously with
the execution and delivery of this Agreement, the Company has entered into a
Stock Option Agreement with the Acquiror (the "Stock Option Agreement"),
pursuant to which the Company has granted to the Acquiror an option to
purchase shares of Common Stock (as hereinafter defined) pursuant to the terms
and conditions set forth in the Stock Option Agreement.
5. For accounting purposes, it is intended that the above-mentioned merger
shall be accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties
hereto hereby agree as follows:
I. THE MERGER
1.1. Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.2), the Company shall be merged with
and into the Acquiror (the "Merger") and the separate corporate existence of
the Company shall thereupon cease in accordance with the applicable provisions
of the New Jersey Business Corporation Act (the "State Act").
1.2. Effective Time. As soon as practicable following fulfillment or waiver
of the conditions specified in Article VI and consummation of the closing
described herein, and provided that this Agreement has not been terminated or
abandoned pursuant to Section 7.1, the Company and the Acquiror (the
"Constituent Corporations") shall cause a certificate of merger complying with
the requirements of N.J.S.A. 14A:10-4.1 (the "Certificate of Merger") to be
filed with the New Jersey Department of the Treasury. The Merger shall become
effective at the time and date at which the Certificate of Merger is filed
with the New Jersey Department of the Treasury (the "Effective Time").
1.3. Effect of Merger. The Merger shall have the effects specified in
N.J.S.A. 14A:10-6. Without limiting the generality of the foregoing, the
Acquiror shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to
be governed by the laws of the State of New Jersey, and the separate corporate
existence of the Company shall cease.
<PAGE>
1.4. Consummation of Merger. The closing of the Merger (the "Closing") shall
take place (a) at the offices of Lowenstein Sandler PC, 65 Livingston Avenue,
Roseland, New Jersey 07068 as promptly as practicable after the later of (i)
the day of (and immediately following) the receipt of approval of the Merger
by the Company's stockholders and the Acquiror's stockholders and (ii) the day
on which the last of the conditions set forth in Article VI (other than the
condition set forth in Section 6.1.1) is satisfied or duly waived or (b) at
such other time and place and on such other date as the Acquiror and the
Company may agree.
1.5. Certificate of Incorporation and Bylaws. The certificate of
incorporation of the Acquiror in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation, until duly amended
in accordance with its terms and the State Act. The by-laws of the Acquiror in
effect at the Effective Time shall be the bylaws of the Surviving Corporation,
until duly amended in accordance with their terms and the State Act.
1.6. Directors and Officers. The directors of the Acquiror immediately prior
to the Effective Time, together with Michael A. Dickerson, Charles Tice and
George Guptill, shall be the directors, and the officers of the Acquiror
immediately prior to the Effective Time shall be the officers, of the
Surviving Corporation from and after the Effective Time, until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the terms of the
Surviving Corporation's certificate of incorporation and by-laws and the State
Act. It is the intention of the parties that for a period of six years after
the Effective Time, the Board of Directors of the Acquiror, to the extent
consistent with its fiduciary duties, will make nominations to its Board such
that, if the shareholders of the Acquiror vote in favor of such nominations,
there will at all times be represented on the Acquiror's Board of Directors at
least three (or, after Michael A. Dickerson ceases to serve on such Board, at
least two) individuals who, prior to the Effective Time, were members of the
Board of Directors of the Company. After the Effective Time, the Acquiror
shall cause one member of its Board of Directors to serve as a director of The
National Bank of Sussex County ("NBSC") and shall cause another of its
directors, on a rotating basis, to attend meetings of NBSC's Board of
Directors as a non-voting observer.
1.7. NBSC as a Separate Subsidiary. At the Effective Time, NBSC, which is
currently a wholly-owned subsidiary of the Company, shall become a wholly-
owned subsidiary of the Acquiror. Except as set forth in the last sentence of
Section 1.6, the Board of Directors of NBSC immediately prior to the Effective
Time shall continue to be the Board of Directors of NBSC immediately after the
Effective Time, the executive officers of NBSC immediately prior to the
Effective Time shall continue to be the executive officers of NBSC immediately
after the Effective Time, and the articles of association and by-laws of NBSC
as in existence immediately prior to the Effective Time shall continue to be
the articles of association and by-laws of NBSC immediately after the
Effective Time. It is intended that the Acquiror will not terminate the
separate corporate existence of NBSC as a subsidiary of the Acquiror for a
period of two years following the Effective Time (the "Transition Period"),
unless required to do so by law or governmental authorities or as a result of
the fiduciary obligations of the Acquiror's Board of Directors. The Acquiror
has no present intention to remove any of NBSC's directors or executive
officers during the Transition Period, provided that NBSC is managed in a
manner consistent with the Acquiror's overall business strategies, as such
strategies may develop from time to time. However, nothing herein shall be
construed to limit the right of the Acquiror to remove and/or replace any or
all of the directors and executive officers of NBSC at any time following the
Effective Time, to amend the articles of association and by-laws of NBSC at
any time following the Effective Time or otherwise to exercise the rights and
prerogatives of the Acquiror as a stockholder of NBSC at any time following
the Effective Time, except that the Acquiror shall not terminate the separate
corporate existence of NBSC 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 the Acquiror's Board of Directors. The Acquiror
intends to merge NBSC with one of its other bank subsidiaries after the
termination of the Transition Period.
A-2
<PAGE>
II. CONVERSION OF SHARES
2.1. Conversion of Shares. Subject to Section 2.2.6, by virtue of the
Merger, automatically and without any action on the part of the holder
thereof, at the Effective Time, the following shall occur:
2.1.1. Each thenoutstanding share of common stock, no par value, of the
Company ("Common Stock"), other than (a) shares owned by the Acquiror or
any direct or indirect wholly-owned subsidiary of the Acquiror (except for
any shares of Common Stock held in trust accounts, managed accounts or in
any similar manner as trustee or in a fiduciary capacity ("Common Trust
Account Shares") and shares held as collateral or in lieu of a debt
previously contracted ("Company Collateral Shares")) and (b) shares held in
the treasury of the Company shall be converted into the right to receive
one and two tenths (1.2) shares of the common stock, par value $2.50 per
share, of the Acquiror ("Acquiror Common Stock"). The number of shares of
Acquiror Common Stock into which each share of Common Stock shall be
converted is hereinafter referred to as the "Exchange Ratio" or the "Common
Stock Consideration". In the event that the number of shares of Acquiror
Common Stock issued and outstanding changes prior to the Effective Time as
a result of a stock split, stock dividend, recapitalization or similar
transaction with respect to the outstanding Acquiror Common Stock and the
record date thereof shall be prior to the Effective Time, the Exchange
Ratio shall be proportionately adjusted.
2.1.2. Intentionally omitted.
2.1.3. Each of the thenoutstanding shares of the Company's capital stock
("Shares") owned by the Acquiror or any direct or indirect wholly-owned
subsidiary of the Acquiror (except for any Shares that are Company Trust
Account Shares or Company Collateral Shares) shall be canceled and retired.
2.1.4. Each Share issued and held in the Company's treasury shall be
canceled and retired.
2.2. Exchange of Certificates.
2.2.1. Exchange Agent. Prior to the Effective Time, the Acquiror shall
designate a bank or trust company that may be an affiliate of the Acquiror
to act as exchange agent (the "Exchange Agent") in connection with the
Merger pursuant to an exchange agency agreement providing for, among other
things, the matters set forth in this Section 2.2. Except as set forth
herein, from and after the Effective Time, each holder of a certificate
representing outstanding shares of Common Stock that is entitled to Common
Stock Consideration (each such certificate, a "Certificate") (other than
any affiliate who (i) is neither a director of the Company nor an employee
director of any of its subsidiaries and (ii) has not executed and delivered
an affiliate's letter pursuant to Section 5.10, or a transferee from such
affiliate (each, a "Nonsigning Affiliate")) shall be entitled to receive in
exchange therefor, upon surrender thereof to the Exchange Agent, the Common
Stock Consideration for each share of Common Stock so represented by the
Certificate surrendered by such holder thereof, with the certificates
representing shares of Acquiror Common Stock being properly issued and
countersigned and executed and authenticated, as appropriate.
Notwithstanding anything to the contrary contained in this Agreement, any
certificate held by any Nonsigning Affiliate shall only be deemed to be a
Certificate upon the later of (i) the execution and delivery of an
affiliate's letter by such Nonsigning Affiliate (as described in Section
5.10) and (ii) such time as the failure of such Nonsigning Affiliate to
deliver such an affiliate's letter would not affect the treatment of the
Merger as a pooling of interests.
2.2.2. Notice of Exchange. Promptly after the Effective Time, the
Acquiror shall cause the Exchange Agent to mail and/or make available to
each record holder of a Certificate a notice and letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and the procedures to be used in effecting the
surrender of the Certificates for exchange therefor. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal
duly executed and completed in accordance with the instructions thereon,
and such other documents as may reasonably be requested, the Acquiror shall
cause the Exchange Agent to promptly deliver to the person entitled thereto
the appropriate Common Stock Consideration for each share of
A-3
<PAGE>
Common Stock so represented by the Certificate surrendered by such holder
thereof, and such Certificate shall forthwith be canceled.
2.2.3. Transfer. If delivery of all or part of the Common Stock
Consideration is to be made to a person other than the person in whose name
a surrendered Certificate is registered, it shall be a condition to such
delivery or the exchange of such Certificate that such surrendered
Certificate be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such delivery or exchange shall
have paid any transfer and other taxes required by reason of such delivery
or exchange in a name other than that of the registered holder of the
Certificate surrendered or shall have established to the reasonable
satisfaction of the Acquiror that such tax either has been paid or is not
payable.
2.2.4. Right to Common Stock Consideration. Until surrendered and
exchanged in accordance with this Section 2.2, each Certificate shall,
after the Effective Time, represent solely the right to receive the Common
Stock Consideration, multiplied by the number of shares of Common Stock
evidenced by such Certificate, together with any dividends or other
distributions as provided in Section 2.2.5, and shall have no other rights.
From and after the Effective Time, the Acquiror shall be entitled to treat
any Certificates that have not yet been surrendered for exchange as
evidencing only the ownership of the aggregate Common Stock Consideration
into which the Shares represented by such Certificates have been converted,
notwithstanding any failure to surrender such Certificates. Neither the
Company nor the Acquiror shall be liable to any holder of shares of Common
Stock for any Common Stock Consideration (or dividends, distributions or
interest with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
2.2.5. Distribution with Respect to Unexchanged Certificates. No
dividends or other distributions with respect to Acquiror Common Stock
declared or paid by the Acquiror after the Effective Time and with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate until the holder of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any
such Certificate, there shall be paid to the holder of the certificates
representing shares of Acquiror Common Stock issued in exchange therefor,
without interest, (i) the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
shares of Acquiror Common Stock and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such shares of Acquiror Common Stock.
2.2.6. Fractional Shares. No certificates or scrip representing
fractional shares of Acquiror Common Stock shall be issued upon the
surrender for exchange of a Certificate or Certificates. No dividends or
distributions of the Acquiror shall be payable on or with respect to any
fractional share, and no such fractional share interest shall entitle the
owner thereof to vote or to any rights of stockholders of the Acquiror. In
lieu of any such fractional shares, holders of shares of Common Stock
otherwise entitled to fractional shares shall be entitled to receive
promptly from the Exchange Agent a cash payment in an amount equal to the
fraction of such share of Acquiror Common Stock to which such holder would
otherwise be entitled multiplied by the average of the closing bid prices
of Acquiror Common Stock during the five consecutive business days ending
three days prior to the date of the Closing (the "Acquiror Common Stock
Market Price").
2.2.7. No Interest. All payments of dividends or cash for fractional
shares shall be made without any payment of interest.
2.3. Dissenters' Rights. In accordance with N.J.S.A. 14A:11-1, no holder of
the Company's capital stock or the Acquiror's capital stock shall have the
right to dissent from the Merger.
2.4. Options. At the Effective Time, all options to purchase Common Stock
granted by the Company prior to the date hereof pursuant to the Company's 1987
Incentive Stock Option Plan, 1990 Employee Stock Option Incentive Plan, 1996
Employee Incentive Stock Option Plan and 1996 Non-Employee Director Stock
Option Plan (collectively, the "Company Option Plans") which are outstanding
and unexercised immediately prior to the
A-4
<PAGE>
Effective Time (the "Prior Options"), shall be converted automatically into
options to purchase shares of Acquiror Common Stock (the "New Options"), in
accordance with the terms of such options, appropriately adjusted (as to both
number of shares and exercise price) as follows:
2.4.1. The number of shares of Acquiror Common Stock covered by each New
Option shall equal the number of shares of Common Stock covered by the
applicable Prior Option immediately prior to the Effective Time, multiplied
by the Exchange Ratio and rounded down to the nearest whole number;
2.4.2. The per share exercise price for each New Option shall equal the
per share exercise price under the applicable Prior Option immediately
prior to the Effective Time of the Merger, divided by the Exchange Ratio;
and
2.4.3. In all other respects, the terms of the New Options shall be
identical to the terms of the Prior Options.
Notwithstanding the foregoing, in the case of any option to which Section
421 of the Code applies by reason of its qualification under Section 422 of
the Code, the exercise price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
References herein to "Company Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article III, dated as of the date hereof
and referenced to the specific sections and subsections of Article III of this
Agreement, which either have been delivered by the Company to the Acquiror on
the date hereof or shall be delivered by the Company to the Acquiror during
the Delivery Period (as defined in Section 5.14 hereof). The Company hereby
represents and warrants to the Acquiror as follows:
3.1. Corporate Organization.
3.1.1. Company. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey.
The Company has full power and authority, corporate and otherwise, to own
or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it makes such
licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse
effect on the business, results of operations, assets, condition (financial
or otherwise) or prospects (a "Material Adverse Effect") of the Company and
each Company Subsidiary (as defined in Section 3.1.2), taken as a whole.
The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA").
3.1.2. Subsidiaries. NBSC and NBSC's subsidiaries (all of which are
listed on the Company Disclosure Schedule) are the only Company
Subsidiaries of the Company. For purposes of this Agreement, (a) the term
"Company Subsidiary" means any corporation, partnership, company, joint
venture, limited liability company or other legal entity in which the
Company, directly or indirectly, owns at least a 50% stock or other equity
interest or for which the Company, directly or indirectly, acts as a
general partner and (b) the term "Company Subsidiaries" means each Company
Subsidiary. NBSC is a national bank duly organized and validly existing in
stock form and in good standing under the laws of the United States. All
eligible accounts of depositors issued by NBSC are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC") to the
fullest extent permitted by law. Each Company Subsidiary has full power and
authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business conducted by it or
the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary,
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except where the failure to be so licensed, qualified or in good standing
would not have a Material Adverse Effect on the Company and the Company
Subsidiaries, taken as a whole. The Company Disclosure Schedule sets forth
true and complete copies of the Certificate of Incorporation and By-laws,
as in effect on the date hereof, of the Company and the Company
Subsidiaries. Except with respect to the Company Subsidiaries, the Company
does not own or control, directly or indirectly, any equity interest in any
corporation, company, association, partnership, limited liability company,
joint venture or other entity.
3.2. Capitalization. The authorized capital stock of the Company consists
solely of shares of Company Common Stock and shares of the preferred stock, no
par value, of the Company. As of the date hereof, there are no shares of such
preferred stock issued or outstanding and there are 3,811,480 shares of
Company Common Stock issued and outstanding. As of the date hereof, there are
151,500 shares of Company Common Stock issuable upon exercise of outstanding
Prior Options granted pursuant to the Company Option Plans. The Company
Disclosure Schedule sets forth a true and complete copy of the Company Option
Plans and a true and complete list of each outstanding Prior Option issued
pursuant thereto, describing the option holder, the exercise price and the
number of Shares covered by each Prior Option. The Company and the Company
Subsidiaries have not adopted any plan pursuant to which capital stock may be
issued other than the Company Option Plans and the Company's Dividend
Reinvestment Plan (a copy of which Dividend Reinvestment Plan is included
within the Company Disclosure Schedule). All issued and outstanding shares of
Company Common Stock, and all issued and outstanding shares of capital stock
of the Company Subsidiaries, have been duly authorized and validly issued,
have been issued without violating the preemptive or other rights of
thirdparties, are fully paid, and are nonassessable. All of the outstanding
shares of capital stock of the Company Subsidiaries are owned by the Company
or NBSC and are free and clear of any liens, encumbrances, charges,
restrictions or rights of third parties. Except for the options issued and
outstanding as of the date hereof under the Company Option Plans and the
Option granted to the Acquiror pursuant to the Stock Option Agreement, dated
the date hereof, and the Company's obligations under its Dividend Reinvestment
Plan, neither the Company nor any of the Company Subsidiaries has granted or
is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase,
subscription or issuance of any shares of capital stock of the Company or the
Company Subsidiaries or has issued any securities representing the right to
purchase, subscribe or otherwise receive any shares of such capital stock or
any securities convertible into any such shares, and there are no agreements
or understandings to which the Company or any of the Company Subsidiaries is a
party with respect to the voting of any such shares.
3.3. Authority; No Violation.
3.3.1. Authority. Subject to the approval of this Agreement and the
transactions contemplated hereby by the stockholders of the Company, the
Company has full power and authority, corporate and otherwise, to execute
and deliver this Agreement and the Stock Option Agreement and to consummate
the transactions contemplated hereby and thereby in accordance with the
terms hereof and thereof. The execution and delivery of this Agreement and
the Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by the
Board of Directors of the Company in accordance with the Certificate of
Incorporation of the Company and all applicable laws and regulations.
Except for such stockholder approval, no other corporate proceedings on the
part of the Company are necessary to consummate the transactions so
contemplated. This Agreement and the Stock Option Agreement each constitute
a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
3.3.2. Neither the execution and delivery of this Agreement and the Stock
Option Agreement by the Company, nor the consummation by the Company of the
transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof, or compliance by the Company with any of the terms or
provisions hereof and thereof, will (i) violate any provision of the
Company's Certificate of Incorporation or comparable governing instruments
or By-laws, (ii) assuming that the consents and approvals set forth below
are duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Company or
the Company Subsidiaries or any of their respective properties
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or assets, or (iii) except as set forth in the Company Disclosure Schedule,
violate, conflict with, result in a breach of any provisions of, constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the respective properties
or assets of the Company or the Company Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
commitment, pledge, permit, deed of trust, license, lease, contract,
agreement or other instrument or obligation or any judgment, order, decree,
law, rule or other restriction of any Governmental Authority (as defined
below), in each case to which the Company or any of the Company
Subsidiaries is a party, or by which the Company or any of the Company
Subsidiaries may be bound or to which any of the assets or properties of
the Company or any of the Company Subsidiaries are subject except, with
respect to (ii) and (iii) above, such as individually or in the aggregate
will not have a Material Adverse Effect on the Company and the Company
Subsidiaries, taken as a whole, and which will not prevent or delay the
consummation of the transactions contemplated hereby. Except for consents
and approvals of or filings or registrations with or notices to the Board
of Governors of the Federal Reserve System (the "FRB"), the Office of the
Comptroller of the Currency (the "Comptroller"), the FDIC, the New Jersey
Department of Banking and Insurance (the "Department"), the New Jersey
Department of Environmental Protection (the "NJDEP"), the Securities and
Exchange Commission (the "SEC"), the New Jersey Department of the Treasury,
other banking authorities, and the stockholders of the Company, no consents
or approvals of or filings or registrations with or notices to any third
party or any Governmental Authority are necessary on behalf of the Company
in connection with (x) the execution and delivery by the Company of this
Agreement and the Stock Option Agreement and (y) the consummation by the
Company of the Merger and the other transactions contemplated hereby and
thereby. The term "Governmental Authority" shall mean any nation, state or
other political subdivision thereof (including any local, municipal, city
or county government), and any agency, natural person or other entity
exercising executive, legislative, regulatory or administrative functions
of or pertaining to government, and any corporation or other entity owned
or controlled by any of the foregoing.
3.4. Financial Statements.
3.4.1. The Company Disclosure Schedule sets forth copies of the
consolidated balance sheets of the Company as of December 31, 1996 and 1997
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the periods ended December 31, 1995, 1996 and
1997, in each case accompanied by the audit report of Arthur Andersen LLP,
independent public accountants with respect to the Company, and the
unaudited consolidated balance sheet of the Company as of September 30,
1998, and the related unaudited consolidated statements of income and cash
flows for the nine months ended September 30, 1997 and 1998 (collectively,
the "Company Financial Statements"). The Company Financial Statements
(including the related notes) have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
during the periods covered thereby (except as may be indicated therein or
in the notes thereto), and fairly present the consolidated financial
condition of the Company as of the respective dates set forth therein, and
the related consolidated statements of income, changes in stockholders'
equity and cash flows of the Company for the respective periods set forth
therein.
3.4.2. No unrecorded funds or assets of the Company and the Company
Subsidiaries have been established for any purpose; no accumulation or use
of the funds of the Company and the Company Subsidiaries has been made
without being properly accounted for in the respective books and records of
the Company and the Company Subsidiaries; all payments by or on behalf of
the Company and the Company Subsidiaries have been duly and properly
recorded and accounted for in the books and records of the Company and the
Company Subsidiaries; no false or artificial entry has been made in the
books and records of the Company and the Company Subsidiaries for any
reason; no payment has been made by or on behalf of the Company and the
Company Subsidiaries with the understanding that any part of such payment
is to be used for any purpose other than that described in the documents
supporting such payment; and the Company and the Company Subsidiaries have
not made, directly or indirectly, any illegal contributions to any
political party or candidate, either domestic or foreign, or any
contribution, gift, bribe, rebate, payoff,
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influence payment or kickback, whether in cash, property or services, to
any individual, corporation, partnership or other entity, to secure
business or to pay for business secured.
3.4.3. Except as and to the extent reflected, disclosed or reserved
against in the Company Financial Statements (including the notes thereto),
as of September 30, 1998 (the "Company Statement of Condition Date"),
neither the Company nor any of the Company Subsidiaries had any
liabilities, whether absolute, accrued, contingent or otherwise, material
to the business, operations, assets or financial condition of the Company
and the Company Subsidiaries, taken as a whole, which were required by GAAP
(consistently applied) to be disclosed in the Company's consolidated
balance sheet as of the Company Statement of Condition Date or the notes
thereto and which were not so disclosed. Since the Company Statement of
Condition Date, the Company and the Company Subsidiaries have not incurred
any liabilities except in the ordinary course of business and consistent
with prudent banking practice or except as directly related to the
transactions contemplated by this Agreement.
3.5. Broker's and Other Fees. Except for Capital Consultants of Princeton,
Inc., neither the Company nor the Company Subsidiaries nor any of their
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement. All agreements with
Capital Consultants of Princeton, Inc. providing for the payment of fees in
connection with the Merger are set forth in the Company Disclosure Schedule.
There are no other fees (other than time charges billed at usual and customary
rates) payable by the Company or the Company Subsidiaries to any advisors,
including without limitation lawyers and accountants, in connection with the
Merger or which would be triggered by consummation of the Merger or the
termination of the services of such advisors by the Company or the Company
Subsidiaries.
3.6. Absence of Certain Changes or Events.
3.6.1. There has not been any material adverse change in the business,
results of operations, assets, liabilities, properties, prospects or
condition (financial or otherwise) of the Company and the Company
Subsidiaries, taken as a whole, since the Company Statement of Condition
Date, and to the best of the Company's knowledge, no facts or conditions
exist which are likely to cause such a material adverse change in the
future.
3.6.2. Except as set forth in the Company Disclosure Schedule, since
December 31, 1997, there has not been:
3.6.2.1 any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the Company and the
Company Subsidiaries taken as a whole;
3.6.2.2 any disposition, mortgage, pledge, or subjection to any lien,
claim, charge, option, or encumbrance of any property or asset of the
Company or any of the Company Subsidiaries, any commitment made or
liability incurred by the Company or any of the Company Subsidiaries,
or any cancellation or compromise of any debt or claim of the Company
or any of the Company Subsidiaries otherwise than in the ordinary
course of business;
3.6.2.3 any dividend or distribution declared, set aside or paid in
respect of the Common Stock or any repurchase by the Company of shares
of Common Stock;
3.6.2.4 any employment contract entered into, or any increase or
decrease in the rates of compensation payable, as of the date of this
Agreement, to or to become payable by the Company or any of the Company
Subsidiaries to any of their officers, directors, employees or agents
over or under the rates in effect during the 12 months ended December
31, 1997, other than general increases made in accordance with past
practices; any declaration, payment, commitment, or obligation of any
kind for the payment by the Company or any of the Company Subsidiaries
of any bonus, additional salary or compensation outside of the ordinary
course of business; or any declaration, payment, commitment, or
obligation of any kind for the payment by the Company or any of the
Company Subsidiaries of any retirement, termination or severance
benefits to officers, directors, employees or consultants;
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3.6.2.5 any amendment, termination or threatened termination of any
material contract, agreement, insurance policy, plan, lease, or license
to which the Company or any Company Subsidiary is a party or by which
any such entity may be bound, otherwise than in the ordinary course of
business;
3.6.2.6 any material change by the Company or any of the Company
Subsidiaries in their method of doing business;
3.6.2.7 any other act, omission or transaction involving the Company
or any of the Company Subsidiaries outside of the ordinary course of
business; or
3.6.2.8 any catastrophic event affecting the Company or any of the
Company Subsidiaries or their assets, such as, but not limited to,
fire, explosion, earthquake, accident, flood, condemnation, act of God
or public enemy, riot or civil disturbance.
3.7. Legal Proceedings. Except as disclosed in the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries is a party
to any, and there are no pending or, to the best of the Company's knowledge,
threatened, legal, administrative, arbitrable or other proceedings, claims,
actions or governmental investigations of any nature against the Company or
the Company Subsidiaries which, if decided adversely to the Company or the
Company Subsidiaries, would have a Material Adverse Effect on the Company and
the Company Subsidiaries taken as a whole. Except as disclosed in the Company
Disclosure Schedule, neither the Company nor the Company Subsidiaries are a
party to any order, judgment or decree entered in any lawsuit or proceeding.
3.8. Taxes and Tax Returns.
3.8.1. Each of the Company and the Company Subsidiaries have duly filed
or requested an extension to file in accordance with applicable law (and
until the Effective Time will so file or request such an extension in
accordance with applicable law) all Tax Returns required to be filed by it
(including, without limitation, all Tax Returns required to be filed on a
consolidated, combined or unitary basis). All such Tax Returns were true
and complete in all respects. Each of the Company and the Company
Subsidiaries has duly paid (and until the Effective Time will so pay) all
Taxes due and payable, other than Taxes that are being contested in good
faith (and disclosed to the Acquiror in writing). The Company and the
Company Subsidiaries have established (and until the Effective Time will
establish) on their books and records reserves that are adequate for the
payment of all federal, state and local taxes not yet due and payable to
the extent required by GAAP (consistently applied). There is no lien on any
asset of any of the Company and the Company Subsidiaries that arose in
connection with any failure or alleged failure to pay any Tax. The Company
Disclosure Schedule identifies all federal, state, local and foreign income
or franchise Tax Returns filed with respect to any of the Company and the
Company Subsidiaries which have been examined by any Governmental Authority
within the past six years. No deficiency was asserted as a result of any
such examination which deficiency has not been finally resolved and paid in
full. To the knowledge of the Company, there are no audits or other
administrative or court proceedings presently pending nor any other
disputes pending with respect to, or claims asserted for, any Taxes of any
of the Company and the Company Subsidiaries. None of the Company and the
Company Subsidiaries has given any currently outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns.
3.8.2. Except as set forth in the Company Disclosure Schedule, neither
the Company nor any of the Company Subsidiaries (i) has requested any
extension of time within which to file any Tax Return which Tax Return has
not since been filed, (ii) is a party to any agreement providing for the
allocation or sharing of Taxes, (iii) is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by the Company or any of the Company
Subsidiaries (nor does the Company have any knowledge that the United
States Internal Revenue Service has proposed any such adjustment or change
of accounting method), (iv) has filed a consent pursuant to Section 341(f)
of the Code or agreed to have Section 341(f)(2) of the Code apply, (v) has
been a United States real property holding corporation as defined in
section 897(c)(2) of the Code during the applicable
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period specified in Section 897(c)(1)(A)(ii) of the Code, or (vi) has any
liability for the Taxes of any Person other than the Company and the
Company Subsidiaries under Treas. Reg. (S)1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
3.8.3. The Company Disclosure Schedule sets forth true copies of all Tax
Returns filed by the Company and the Company Subsidiaries since January 1,
1994.
3.8.4. Each of the Company and the Company Subsidiaries (i) has complied
in all respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes from the wages or salaries of
employees and independent contractors, (ii) has paid over to the proper
Governmental Authorities all amounts required to be so withheld and (iii)
is not liable for any Taxes for failure to comply with such laws, rules and
regulations.
3.8.5. "Tax" means any of the following imposed by or payable to any
Governmental Authority: any income, gross receipts, license, payroll,
employment, excise, severance, stamp, business, occupation, premium,
windfall profits, environmental (including taxes under section 59A of the
Code), capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, transfer, registration, or value added tax, any alternative or
add-on minimum tax, any estimated tax, and any levy, impost, duty,
assessment, withholding or any other governmental charge of any kind
whatsoever, in each case including any interest, penalty, or addition
thereto, whether disputed or not.
3.8.6. "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
3.9. Reports.
3.9.1. The Company Disclosure Schedule lists, and the Company has
previously delivered or will deliver during the Delivery Period to the
Acquiror a complete copy of, each (i) final registration statement,
prospectus, annual, quarterly or current report and definitive proxy
statement filed by the Company with the SEC (or maintained by the Company
pursuant to rules of the SEC) since January 1, 1996 pursuant to the
Securities Act of 1933, as amended ("1933 Act"), or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and (ii) communication (other
than general advertising materials and press releases) mailed by the
Company to its stockholders as a group since January 1, 1996, and each such
final registration statement, prospectus, annual, quarterly or current
report, definitive proxy statement and communication, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations enforced or promulgated by the SEC and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading; provided, however, that information as of a later date shall be
deemed to modify information as of an earlier date.
3.9.2. The Company and NBSC have, since January 1, 1996, duly filed with
the Comptroller and the FRB, in a form and with such substance as was
correct, accurate and complete in all material respects, the monthly,
quarterly and annual financial reports required to be filed under all
applicable laws and regulations, and the Company has made available to the
Acquiror accurate and complete copies of all such reports.
3.10. Company and NBSC Information. The information relating to the Company
and the Company Subsidiaries (including NBSC) to be contained in the Joint
Proxy Statement/Prospectus (as defined in Section 5.9) to be delivered to
stockholders of the Company and the Acquiror in connection with the
solicitation of their approval of the Merger, as of the respective dates that
the Joint Proxy Statement/Prospectus is mailed to such stockholders, and up to
and including the dates of the meetings of stockholders to which such Joint
Proxy Statement/Prospectus relates, will not contain any untrue statement of a
material fact regarding the Company and the Company Subsidiaries or omit to
state a material fact regarding the Company and the Company Subsidiaries
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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3.11. Certain Contracts.
3.11.1. Except for Plans referenced in Section 3.17 and agreements
disclosed in the Company Disclosure Schedule, (i) neither the Company nor
any of the Company Subsidiaries is a party to or bound by any written
contract or understanding (whether written or oral) with respect to the
employment of any officers, employees, directors or consultants, and (ii)
the consummation of the transactions contemplated by this Agreement will
not (either alone or upon the occurrence of any additional acts or events)
result in any payment (either of severance pay or otherwise) becoming due
from the Company or any of the Company Subsidiaries to any officer,
employee, director or consultant thereof. The Company Disclosure Schedule
sets forth true and correct copies of all severance and employment
agreements with officers, directors, employees, agents or consultants to
which the Company or any of the Company Subsidiaries is a party.
3.11.2. Except as disclosed in the Company Disclosure Schedule and except
for loan commitments issued in the ordinary course of business, (i) as of
the date of this Agreement, neither the Company nor any of the Company
Subsidiaries is a party to or bound by any commitment, agreement or other
instrument which is material to the business, operations, assets or
financial condition of the Company and the Company Subsidiaries taken as a
whole, but in no event shall a contract for less than $50,000 per year be
deemed material under this Section 3.11.2, (ii) no commitment, agreement or
other instrument to which the Company or any of the Company Subsidiaries is
a party or by which any of them is bound limits the freedom of the Company
or any of the Company Subsidiaries to compete in any line of business or
with any person, and (iii) neither the Company nor any of the Company
Subsidiaries is a party to any collective bargaining agreement.
3.11.3. Except as disclosed in the Company Disclosure Schedule, neither
the Company nor any of the Company Subsidiaries or, to the knowledge of the
Company, any other party thereto, is in default in any material respect
under any lease, contract, mortgage, promissory note, deed of trust, loan
or other commitment (except those under which NBSC is or will be the
creditor) or arrangement, except for defaults which individually or in the
aggregate would not have a Material Adverse Effect on the Company and the
Company Subsidiaries taken as a whole.
3.12. Properties and Insurance.
3.12.1. The Company and the Company Subsidiaries have good and, as to
owned real property, marketable title to all material assets and
properties, whether real or personal, tangible or intangible, reflected in
the Company's consolidated balance sheet (as set forth in the Company
Disclosure Schedule) as of the Company Statement of Condition Date, 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 the Company Statement of Condition Date), subject
to no encumbrances, liens, mortgages, security interests or pledges, except
(i) those items that secure liabilities that are reflected in said
consolidated balance sheet or the notes thereto or that secure liabilities
incurred in the ordinary course of business after the date of such
consolidated balance sheet, (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith, (iii) such
encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets and financial condition of the Company and the Company
Subsidiaries taken as a whole and (iv) with respect to owned real property,
title imperfections noted in title reports delivered to the Acquiror prior
to the date hereof or to be delivered during the Delivery Period. The
Company and the Company Subsidiaries as lessees have the right under valid
and subsisting leases to occupy, use, possess and control all real property
leased by the Company and the Company Subsidiaries in all material respects
as presently occupied, used, possessed and controlled by the Company and
the Company Subsidiaries.
3.12.2. The business operations and all insurable properties and assets
of the Company and the Company Subsidiaries are insured for their benefit
against all risks which, in the reasonable judgment of the management of
the Company, 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 the Company adequate for the business engaged in by the
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Company and the Company Subsidiaries. As of the date hereof, the Company
and the Company Subsidiaries have not received any notice of cancellation
or notice of a material amendment of any such insurance policy or bond and
are not in default under any such policy or bond, no coverage thereunder is
being disputed and all material claims thereunder have been filed in a
timely fashion. The Company Disclosure Schedule sets forth a complete and
accurate list of all primary and excess insurance coverage held by the
Company and/or the Company Subsidiaries currently or at any time during the
past three years.
3.13. Minute Books. The minute books of the Company and the Company
Subsidiaries contain accurate records of all meetings held and other corporate
action taken by their respective stockholders and Boards of Directors
(including committees of their respective Boards of Directors), except where
the failure to so maintain such records would not constitute a material
omission.
3.14. Reserves. As of the Company Statement of Condition Date, the allowance
for loan losses in the Company Financial Statements was adequate based upon
all factors required to be considered by the Company in determining the amount
of such allowance. The methodology used to compute the loan loss reserve
complies in all material respects with all applicable policies and regulations
of the Comptroller. As of the Company Statement of Condition Date, the reserve
for OREO properties in the Company Financial Statements was adequate based
upon all factors required to be considered by the Company in determining the
amount of such reserve.
3.15. No Parachute Payments. Except as set forth in the Company Disclosure
Schedule, no officer, director, employee or agent (or former officer,
director, employee or agent) of the Company or any of the Company Subsidiaries
is entitled to now, or will or may be entitled to as a consequence of this
Agreement or the Merger, any payment or benefit from the Company, any of the
Company Subsidiaries, the Acquiror or any of the Acquiror's Subsidiaries
which, if paid or provided, would constitute an "excess parachute payment", as
defined in Section 280G of the Code or regulations promulgated thereunder. The
Company Disclosure Schedule sets forth any accurate calculation of each such
excess parachute payment.
3.16. Indemnification. Except as set forth in the Certificate of
Incorporation and By-Laws of the Company or in the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary is a party to any
indemnification agreement with any of its present or future directors,
officers, employees, agents or other persons who serve or served in any other
capacity with any other enterprise at the request of the Company or any of the
Company Subsidiaries (a "Covered Person"), and (ii) to the knowledge of the
Company, there are no claims for which any Covered Person would be entitled to
indemnification under Section 5.6 if such provision were deemed to be in
effect.
3.17. Employee Benefit Plans.
3.17.1 For purposes of this Section 3.17, the following terms shall have
the definitions given below:
"Controlled Group Liability" means any and all liabilities under (i)
Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and
4971 of the Code, (iv) the continuation coverage requirements of
section 601 et seq. of ERISA and section 4980B of the Code, and (v)
corresponding or similar provisions of foreign laws or regulations, in
each case other than pursuant to the Plans.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the
first entity, trade or business pursuant to Section 4001(a)(13) of
ERISA.
"Plans" means all "employee welfare benefit plans" within the meaning
of Section 3(1) of ERISA and all "employee pension benefit plans"
within the meaning of Section 3(2) of ERISA sponsored or maintained by
the Company or any of the Company Subsidiaries or to which the Company
or any of the Company Subsidiaries contributes or is obligated to
contribute.
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"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer
Plan, as those terms are defined in Part I of Subtitle E of Title IV of
ERISA.
3.17.2. To the knowledge of the Company, with respect to each Plan, the
Company Disclosure Schedule sets forth a true, correct and complete copy of
the following (where applicable): (i) each writing constituting a part of
such Plan, including without limitation all plan documents, trust
agreements, and insurance contracts and other funding vehicles; (ii) the
three most recent Annual Reports (Forms 5500 Series) and accompanying
schedules, if any; (iii) the current summary plan description, if any; (iv)
the most recent annual financial report, if any; and (v) the most recent
determination letter from the Internal Revenue Service, if any.
3.17.3. Except as set forth in the Company Disclosure Schedule, the
Internal Revenue Service has issued a favorable determination letter with
respect to each Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code (a "Qualified Plan") and no
circumstance exists nor has any event occurred that could adversely affect
the qualified status of any Qualified Plan or the related trust in a manner
that would have a Material Adverse Effect on the Company and the Company
Subsidiaries taken as a whole.
3.17.4. All contributions required to be made to any Plan by any
applicable laws or by any plan document or other contractual undertaking,
and all premiums due or payable with respect to insurance policies funding
any Plan, before the date hereof have been made or paid in full on or
before the final due date thereof and through the date of Closing will be
made or paid in full on or before the final due date thereof.
3.17.5. The Company and each of the Company Subsidiaries has complied,
and is now in compliance, in all material respects, with all provisions of
ERISA, the Code and all laws and regulations applicable to the Plans. Each
Plan has been operated in material compliance with its terms. There is not
now, and there are no existing circumstances that would give rise to, any
requirement for the posting of security with respect to any Plan or the
imposition of any lien on the assets of the Company or any of the Company
Subsidiaries under ERISA or the Code. No circumstance exists, and no event
has occurred, which could cause the Company or any of the Company
Subsidiaries to incur liability, whether directly or indirectly, through
indemnification or otherwise, for any tax or penalty imposed pursuant to
Section 4971, 4972, 4975, 4976, 4977, 4978, 4978B, 4979, 4980 or 4980B of
the Code or arising under Sections 502(i) or 502(l) of ERISA.
3.17.6. Except as set forth in the Company Disclosure Schedule, no Plan
is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
(a "Multiemployer Plan") or a plan that has two or more contributing
sponsors at least two of whom are not under common control, within the
meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor have the
Company or any of the Company Subsidiaries or any of their respective ERISA
Affiliates, at any time within six years before the date hereof,
contributed to or been obligated to contribute to any Multiemployer Plan or
Multiple Employer Plan. With respect to each Multiemployer Plan described
in the Company Disclosure Schedule: (i) neither the Company nor any of the
Company Subsidiaries nor any of their respective ERISA Affiliates has
incurred any Withdrawal Liability that has not been satisfied in full; and
(ii) neither the Company nor any of the Company Subsidiaries nor any of
their respective ERISA Affiliates has received any notification, nor has
any reason to believe, that any such plan is in reorganization, is
insolvent, has been terminated, or would be in reorganization, be
insolvent, or be terminated. Except for Multiemployer Plans described in
the Company Disclosure Schedule, no Plan is subject to Title IV or Section
302 of ERISA or Section 412 or 4971 of the Code.
3.17.7. No circumstance exists, and no event has occurred, that would
result in, any material Controlled Group Liability that would be a
liability of the Acquiror, the Company or any of the Company Subsidiaries
following the Closing. Without limiting the generality of the foregoing,
neither the Company nor any of the Company Subsidiaries nor any of their
respective ERISA Affiliates has engaged in any transaction described in
Section 4069 or Section 4203 of ERISA.
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3.17.8. Except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA and except as set forth in
the Company Disclosure Schedule, neither the Company nor any of the Company
Subsidiaries has any material liability for life, health, medical or other
welfare benefits to former employees or beneficiaries or dependents
thereof.
3.17.9. Except as disclosed in the Company Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment or
benefit to any employee, officer, director or consultant of the Company or
any of the Company Subsidiaries.
3.17.10. Except as disclosed in the Company Disclosure Schedule, there
are no pending or, to the knowledge of the Company, threatened claims
(other than claims for benefits in the ordinary course of business),
lawsuits or arbitrations which have been asserted or instituted against the
Plans, any fiduciaries thereof with respect to their duties to the Plans or
the assets of any of the trusts under any of the Plans.
3.17.11. The Company Disclosure Schedule sets forth a list of each
employment, severance or similar agreement under which the Company or any
of the Company Subsidiaries is or could become obligated to provide
compensation or benefits in excess of $100,000 in any one calendar year,
and the Company will provide to the Acquiror during the Delivery Period a
copy of each such agreement.
3.18. Compliance with Laws and Orders. Except as set forth in the Company
Disclosure Schedule or as disclosed in the reports described in Section 3.9.1
filed by the Company with the SEC prior to the date of this Agreement, the
businesses of the Company and the Company Subsidiaries have not been, and are
not being, conducted in violation of any law, ordinance, regulation, judgment,
order, decree, license or permit of any Governmental Authority (including,
without limitation, in the case of Company Subsidiaries that are banks, all
statutes, rules and regulations pertaining to the conduct of the banking
business and the exercise of trust powers), except for violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future shall not, have a Material Adverse Effect on the
Company and the Company Subsidiaries, taken as a whole. Except as set forth in
the Company Disclosure Schedule, no investigation or review by any
Governmental Authority with respect to the Company or any of the Company
Subsidiaries is pending or, to the knowledge of the Company, threatened, nor
has any Governmental Authority indicated an intention to conduct the same, in
each case other than those the outcome of which is not reasonably expected to
have a Material Adverse Effect on the Company and the Company Subsidiaries,
taken as a whole.
3.19. Agreements with Bank Regulators. Neither the Company nor any of the
Company Subsidiaries is a party to any agreement or memorandum of
understanding with, or a party to any commitment letter, Board of Directors
resolution submitted to a regulatory authority or similar undertaking to, or
is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Governmental Authority which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies or its management, except
for those the existence of which has been described in the Company Disclosure
Schedule, nor has the Company been advised by any Governmental Authority that
it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment
letter or similar submission, except as disclosed in the Company Disclosure
Schedule. Neither the Company nor any Company Subsidiary is required by
Section 32 of the Federal Deposit Insurance Act to give prior notice to a
Federal banking agency of the proposed addition of an individual to its board
of directors or the employment of an individual as a senior executive officer.
3.20. Accounting Matters. Neither the Company nor any of the Company
Subsidiaries nor, to the knowledge of the Company, any of the Company's other
affiliates, has taken or agreed to take any action that would prevent the
Acquiror from accounting for the business combination to be effected by the
Merger as a "pooling of interests."
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3.21. Company Action. The Board of Directors of the Company (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and in the best interests of the
Company and its stockholders, (b) approved this Agreement and the Stock Option
Agreement and the transactions contemplated hereby and thereby, including the
Merger, (c) directed that this Agreement be submitted for consideration by the
Company's stockholders and (d) approved this Agreement, the Stock Option
Agreement and the Merger for purposes of Section 14A:10A-4 of the State Act.
3.22. Vote Required. The affirmative vote by holders of at least two-thirds
( 2/3) of the outstanding shares of Common Stock is the only vote of the
holders of any class or series of Company capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
3.23. No Triggering Events. Except as set forth in the Company Disclosure
Schedule, neither the execution and delivery by the Company of this Agreement
and the Stock Option Agreement, nor the consummation by the Company of the
transactions contemplated hereby and thereby will constitute a triggering
event (including a "first trigger"), under any Company Plans or any other plan
or agreement to which the Company or any of the Company Subsidiaries is bound,
that will, or upon the occurrence of subsequent events would, accelerate the
time of payment or vesting or increase the amount of compensation or benefits
due any director, officer, employee or former employee (or any dependent of a
former employee) of the Company or any Company Subsidiary.
3.24. Environmental Matters.
3.24.1. For purposes of this Agreement, the following terms shall have
the following meanings:
"Branch Property" means all real property presently or formerly owned
or operated by the Company or any Company Subsidiary on which branches
or facilities are or were located.
"Environmental Law" means any applicable federal, state or local
statute, law, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction,
directive, requirement or agreement with any Governmental Authority,
now existing, relating to: (a) the protection, preservation or
restoration of the environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (b) the exposure to, or the
use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
Hazardous Substances, in each case as amended. The term Environmental
Law includes, without limitation, (x) the following statutes, each as
amended:
(i) the federal Clean Air Act;
(ii) the federal Clean Water Act;
(iii) the federal Solid Waste Disposal Act (including the Resource
Conservation and Recovery Act and the Hazardous and Solid Waste
Amendments thereto) ("RCRA");
(iv) the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (including the Superfund
Amendments and Reauthorization Act of 1986) ("CERCLA");
(v) the Federal Toxic Substances Control Act;
(vi) the federal Occupational Safety and Health Act of 1970;
(vii) the federal Emergency Planning and Community Right-to-Know
Act of 1986;
(viii) the federal Safe Drinking Water Act;
(ix) the federal Insecticide, Fungicide and Rodenticide Act;
(x) the New Jersey Industrial Site Recovery Act ("ISRA"); and
(xi) the New Jersey Spill Compensation and Control Act ("Spill
Act"),
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and (y) any common law or equitable doctrine (including, without
limitation, any basis for injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened
as a result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance, whether liquid, solid or
gas, listed, defined, designated, or classified as hazardous, toxic,
radioactive, or dangerous under any applicable Environmental Law,
whether by type or by quantity. "Hazardous Substance" includes, without
limitation, (i) any "hazardous substance" as defined in CERCLA or the
Spill Act, (ii) any "hazardous waste" as defined in RCRA, and (iii) any
toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste or petroleum or any
derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyls ("PCBs").
"Real Property" means the Branch Property, all real property
classified by the Company or any Company Subsidiary as OREO and all
real property (including property held as trustee or in any other
fiduciary capacity) over which the Company or any Company Subsidiary
currently or formerly has exercised dominion, management or control.
3.24.2. Except as set forth in the Company Disclosure Schedule or as
would not have a Material Adverse Effect on the Company and the Company
Subsidiaries taken as a whole:
3.24.2.1 each of the Company and the Company Subsidiaries is and has
been in compliance with all applicable Environmental Laws at all times
since January 1, 1996;
3.24.2.2 to the knowledge of the Company, the Real Property does not
contain any Hazardous Substance in violation of any applicable
Environmental Law;
3.24.2.3 since January 1, 1995, neither the Company nor any of the
Company Subsidiaries has received any written notices, demand letters
or written requests for information from any Governmental Authority or
any third-party indicating that the Company or any of the Company
Subsidiaries may be in violation of, or liable under, any Environmental
Law;
3.24.2.4 there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending
or to the knowledge of the Company threatened against the Company or
any of the Company Subsidiaries with respect to the Company or any of
the Company Subsidiaries or the Real Property relating to any
violation, or alleged violation, of any Environmental Law or any
condition of the Real Property;
3.24.2.5 no reports have been filed, or are required to be filed, by
the Company or any of the Company Subsidiaries concerning the release
of any Hazardous Substance or the threatened or actual violation of any
Environmental Law on or at the Real Property;
3.24.2.6 to the knowledge of the Company, there are no underground
storage tanks on, in or under any of the Branch Property other than
heating oil tanks used for purposes of heating such Branch Properties
and no underground storage tanks have been closed or removed from any
Branch Property while such Branch Property was owned or operated by the
Company or any of the Company Subsidiaries; and
3.24.2.7 to the knowledge of the Company, neither the Company nor any
of the Company Subsidiaries has incurred, and none of the Real Property
is presently subject to, any liabilities (fixed or, to the knowledge of
the Company, contingent) relating to any suit, settlement, court order,
administrative order, judgment or claim asserted or arising under any
Environmental Law.
3.24.3. There are no permits or licenses required under any Environmental
Law with respect to the Branch Property presently operated by the Company
or any of the Company Subsidiaries.
3.24.4. Except as set forth in the Company Disclosure Schedule, neither
the Company nor any of the Company Subsidiaries has received written notice
that any part of the Real Property has been or is listed as a site
containing Hazardous Substances pursuant to any Environmental Law.
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3.25. Labor Relations. Except as set forth in the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries is a party
to or bound by any collective bargaining agreement respecting its employees,
nor is there pending, or to the knowledge of the Company threatened, any
strike, walk out or other work stoppage or labor organizational effort with
respect to any of such employees.
3.26. Year 2000. To the extent that any functionality of any computer system
or software used by the Company or the Company Subsidiaries is dependent upon
or interdependent with the use or specification of any calendar date, the
Company and the Company Subsidiaries have used commercially reasonable efforts
(including without limitation seeking written confirmations from all material
customers of and vendors to the Company and the Company Subsidiaries that such
customers' and vendors' computer systems are "Year 2000 Compliant" (as
hereinafter defined)) in implementing, and have implemented, a plan pursuant
to which any such computer system shall be "Year 2000 Compliant," except where
failure to do so will not materially adversely affect the Company and the
Company Subsidiaries. For purposes of this Agreement, the term "Year 2000
Compliant" means that neither the performance nor the functionality of such
computer systems or software shall be materially affected by dates in, into
and between the 20th and 21st centuries. To be deemed "Year 2000 Compliant,"
such computer systems shall conform in all material respects to the following
basic requirements: (i) no value for a current date shall cause any
interruption in the operations of the Company and the Company Subsidiaries (or
of the vendors or customers of the Company and the Company Subsidiaries) in
which computer systems or software are used; and (ii) any date-based functions
shall operate and perform in a consistent manner for dates in, into and
between the 20th and 21st centuries and such computer systems and software
shall calculate, manipulate and represent dates correctly, although no such
computer systems shall use particular date values for special meanings.
3.27. Disclosure. No representation or warranty contained in Article III of
this Agreement or in the Company Disclosure Schedule contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein not misleading.
IV. REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
References herein to "Acquiror Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article IV, dated as of the date hereof
and referenced to the specific sections and subsections of Article IV of this
Agreement, which either have been delivered by the Acquiror to the Company on
the date hereof or shall be delivered by the Acquiror to the Company during
the Delivery Period. The Acquiror hereby represents and warrants to the
Company as follows:
4.1. Corporate Organization.
4.1.1. Acquiror. The Acquiror is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey.
The Acquiror has full power and authority, corporate and otherwise, to own
or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it makes such
licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect with respect to the Acquiror and each of the Acquiror Subsidiaries
(as defined in Section 4.1.2), taken as a whole. The Acquiror is registered
as a bank holding company under the BHCA.
4.1.2. Subsidiaries. Lakeland Bank and Metropolitan State Bank
(collectively, the "Acquiror's Banks") and Lakeland Investment Corporation
and M.S.B. Investment, Inc. are the only Acquiror Subsidiaries of Acquiror.
For purposes of this Agreement, (a) the term "Acquiror Subsidiary" means
any corporation, partnership, company, joint venture, limited liability
company or other legal entity in which Acquiror, directly or indirectly,
owns at least a 50% stock or other equity interest or for which Acquiror,
directly or indirectly, acts as a general partner and (b) the term
"Acquiror Subsidiaries" means each
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Acquiror Subsidiary. Each of the Acquiror Banks is a state chartered
commercial bank duly organized and validly existing in stock form and in
good standing under the laws of the State of New Jersey. All eligible
accounts of depositors issued by the Acquiror Banks are insured by the Bank
Insurance Fund of the FDIC to the fullest extent permitted by law. Each
Acquiror Subsidiary has full power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed,
qualified or in good standing would not have a Material Adverse Effect on
the Acquiror and the Acquiror Subsidiaries, taken as a whole. The Acquiror
Disclosure Schedule sets forth true and complete copies of the Certificate
of Incorporation and Bylaws, as in effect on the date hereof, of the
Acquiror. Except with respect to the Acquiror Subsidiaries, the Acquiror
does not own or control, directly or indirectly, any equity interest in any
corporation, company, association, partnership, joint venture, limited
liability company or other entity.
4.2. Capitalization. The authorized capital stock of Acquiror consists
solely of shares of Acquiror Common Stock. As of September 30, 1998, there
were 8,495,838 shares of Acquiror Common Stock issued and outstanding. As of
the date hereof, the Acquiror and the Acquiror Subsidiaries have not adopted
any plan pursuant to which capital stock may be issued other than the
Acquiror's Dividend Reinvestment Plan. All issued and outstanding shares of
Acquiror Common Stock, and all issued and outstanding shares of capital stock
of the Acquiror Subsidiaries, have been duly authorized and validly issued,
have been issued without violating the preemptive or other rights of third-
parties, are fully paid, and are nonassessable. All of the outstanding shares
of capital stock of the Acquiror Subsidiaries are owned by the Acquiror,
directly or indirectly, and are free and clear of any liens, encumbrances,
charges, restrictions or rights of third parties. Except with respect to the
Acquiror's obligations under its Dividend Reinvestment Plan, neither the
Acquiror nor any of the Acquiror Subsidiaries has granted or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase, subscription or issuance
of any shares of capital stock of the Acquiror or the Acquiror Subsidiaries or
has issued any securities representing the right to purchase, subscribe or
otherwise receive any shares of such capital stock or any securities
convertible into any such shares, and there are no agreements or
understandings to which the Acquiror or the Acquiror Subsidiaries is a party
with respect to the voting of any such shares.
4.3. Authority, No Violation.
4.3.1. Authority. Subject to the approval of this Agreement and the
transactions contemplated hereby by the stockholders of the Acquiror, the
Acquiror has full power and authority, corporate and otherwise, to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby in accordance with the terms hereof. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly approved by the Board of Directors of the
Acquiror in accordance with the Certificate of Incorporation of the
Acquiror and all applicable laws and regulations. Except for such
stockholder approval, no other corporate proceedings on the part of the
Acquiror are necessary to consummate the transactions so contemplated. This
Agreement constitutes a valid and binding obligation of the Acquiror,
enforceable against the Acquiror in accordance with its terms.
4.3.2. Neither the execution and delivery of this Agreement by the
Acquiror, nor the consummation by the Acquiror of the transactions
contemplated hereby in accordance with the terms hereof, or compliance by
the Acquiror with any of the terms or provisions hereof, will (i) violate
any provision of the Acquiror's Certificate of Incorporation or By-laws,
(ii) assuming that the consents and approvals set forth below are duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Acquiror or the
Acquiror Subsidiaries or any of their respective properties or assets, or
(iii) except as set forth in the Acquiror Disclosure Schedule, violate,
conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or
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result in the creation of any lien, security interest, charge or other
encumbrance upon any of the respective properties or assets of the Acquiror
or the Acquiror Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, commitment, pledge,
permit, deed of trust, license, lease, contract, agreement or other
instrument or obligation or any judgment, order, decree, law, rule or other
restriction of any Governmental Authority, in each case to which the
Acquiror or any of the Acquiror Subsidiaries is a party, or by which the
Acquiror or any of the Acquiror Subsidiaries may be bound or to which any
of the assets or properties of the Acquiror or any of the Acquiror
Subsidiaries are subject except, with respect to (ii) and (iii) above, such
as individually or in the aggregate will not have a Material Adverse Effect
on the Acquiror and the Acquiror Subsidiaries, taken as a whole, and which
will not prevent or delay the consummation of the transactions contemplated
hereby. Except for consents and approvals of or filings or registrations
with or notices to the FRB, the Comptroller, the FDIC, the Department, the
NJDEP, the SEC, the New Jersey Department of the Treasury, other banking
authorities, state securities administrators and the stockholders of the
Acquiror, no consents or approvals of or filings or registrations with or
notices to any third party or any Governmental Authority are necessary on
behalf of the Acquiror in connection with (x) the execution and delivery by
the Acquiror of this Agreement and (y) the consummation by the Acquiror of
the Merger and the other transactions contemplated hereby.
4.4. Financial Statements.
4.4.1. The Acquiror Disclosure Schedule sets forth copies of the
consolidated statements of condition of the Acquiror as of December 31,
1996 and 1997 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1995,
1996 and 1997, in each case accompanied by the audit report of Radics &
Co., LLC, independent public accountants with respect to the Acquiror, and
the unaudited consolidated statement of condition of the Acquiror as of
September 30, 1998, and the related unaudited consolidated statements of
income and cash flows for the nine months ended September 30, 1997 and 1998
(collectively, the "Acquiror Financial Statements"). The Acquiror Financial
Statements (including the related notes) have been prepared in accordance
with GAAP consistently applied during the periods covered thereby (except
as may be indicated therein or in the notes thereto), and fairly present
the consolidated financial condition of the Acquiror as of the respective
dates set forth therein, and the related consolidated statements of income,
changes in stockholders' equity and cash flows fairly present the results
of the consolidated operations, changes in stockholders' equity and cash
flows of the Acquiror for the respective periods set forth therein.
4.4.2. No unrecorded funds or assets of the Acquiror and the Acquiror
Subsidiaries have been established for any purpose; no accumulation or use
of the funds of the Acquiror and the Acquiror Subsidiaries has been made
without being properly accounted for in the respective books and records of
the Acquiror and the Acquiror Subsidiaries; all payments by or on behalf of
the Acquiror and the Acquiror Subsidiaries have been duly and properly
recorded and accounted for in the books and records of the Acquiror and the
Acquiror Subsidiaries; no false or artificial entry has been made in the
books and records of the Acquiror and the Acquiror Subsidiaries for any
reason; no payment has been made by or on behalf of the Acquiror and the
Acquiror Subsidiaries with the understanding that any part of such payment
is to be used for any purpose other than that described in the documents
supporting such payment; and the Acquiror and the Acquiror Subsidiaries
have not made, directly or indirectly, any illegal contributions to any
political party or candidate, either domestic or foreign, or any
contribution, gift, bribe, rebate, payoff, influence payment or kickback,
whether in cash, property or services, to any individual, corporation,
partnership or other entity, to secure business or to pay for business
secured.
4.4.3. Except as and to the extent reflected, disclosed or reserved
against in the Acquiror Financial Statements (including the notes thereto),
as of September 30, 1998 (the "Acquiror Statement of Condition Date"),
neither the Acquiror nor any of the Acquiror Subsidiaries had any
liabilities, whether absolute, accrued, contingent or otherwise, material
to the business, operations, assets or financial condition of the Acquiror
and the Acquiror Subsidiaries, taken as a whole, which were required by
GAAP (consistently applied) to be disclosed in the Acquiror's consolidated
statement of condition as of the Acquiror Statement of Condition Date or
the notes thereto and which were not so disclosed.
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4.5. Broker's and Other Fees. Except for Ryan, Beck & Co., Inc., neither the
Acquiror nor the Acquiror Subsidiaries nor any of their directors or officers
has employed any broker or finder or incurred any liability for any broker's
or finder's fees or commissions in connection with any of the transactions
contemplated by this Agreement. All agreements with Ryan, Beck & Co., Inc.
providing for the payment of fees in connection with the Merger are set forth
in the Acquiror Disclosure Schedule. There are no other fees (other than time
charges billed at usual and customary rates) payable by the Acquiror or the
Acquiror Subsidiaries to any advisors, including without limitation lawyers
and accountants, in connection with the Merger or which would be triggered by
consummation of the Merger or the termination of the services of such advisors
by the Acquiror or the Acquiror Subsidiaries.
4.6. Absence of Certain Changes or Events.
4.6.1. There has not been any material adverse change in the business,
results of operations, assets, liabilities, properties, prospects or
condition (financial or otherwise) of the Acquiror and the Acquiror
Subsidiaries, taken as a whole, since the Acquiror Statement of Condition
Date, and to the best of the Acquiror's knowledge, no facts or conditions
exist which are likely to cause such a material adverse change in the
future.
4.6.2. Except as set forth in the Acquiror Disclosure Schedule, since
December 31, 1997, there has not been:
4.6.2.1 any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the Acquiror and the
Acquiror Subsidiaries taken as a whole;
4.6.2.2 any disposition, mortgage, pledge, or subjection to any lien,
claim, charge, option, or encumbrance of any property or asset of the
Acquiror or any of the Acquiror Subsidiaries, any commitment made or
liability incurred by the Acquiror or any of the Acquiror Subsidiaries,
or any cancellation or compromise of any debt or claim of the Acquiror
or any of the Acquiror Subsidiaries otherwise than in the ordinary
course of business;
4.6.2.3 any dividend or distribution declared, set aside or paid in
respect of the Acquiror Common Stock or any repurchase by the Acquiror
of shares of Acquiror Common Stock;
4.6.2.4 any material change by the Acquiror or any of the Acquiror
Subsidiaries in their method of doing business; or
4.6.2.5 any catastrophic event affecting the Acquiror or any of the
Acquiror Subsidiaries or their assets, such as, but not limited to,
fire, explosion, earthquake, accident, flood, condemnation, act of God
or public enemy, riot or civil disturbance.
4.7. Legal Proceedings. Except as disclosed in the Acquiror Disclosure
Schedule, and except for ordinary routine litigation incidental to the
business of the Acquiror and the Acquiror Subsidiaries, neither the Acquiror
nor any of the Acquiror Subsidiaries is a party to any, and there are no
pending or, to the best of the Acquiror's knowledge, threatened, legal,
administrative, arbitrable or other proceedings, claims, actions or
governmental investigations of any nature against the Acquiror or the Acquiror
Subsidiaries which, if decided adversely to Acquiror or the Acquiror
Subsidiaries, would have a Material Adverse Effect on the Acquiror and the
Acquiror Subsidiaries, taken as a whole. Except as disclosed in the Acquiror
Disclosure Schedule, neither the Acquiror nor the Acquiror Subsidiaries is a
party to any order, judgment or decree entered in any lawsuit or proceeding.
4.8. Reports.
4.8.1. The Acquiror Disclosure Schedule lists, and the Acquiror has
previously delivered or will deliver during the Delivery Period to the
Company a complete copy of, each (i) final registration statement,
prospectus, annual, quarterly or current report and definitive proxy
statement filed by the Acquiror with the SEC (or maintained by the Company
in accordance with the rules of the SEC) since January 1, 1996 pursuant to
the 1933 Act or the 1934 Act and (ii) communication (other than general
advertising materials and press releases) mailed by the Acquiror to its
stockholders as a group since January 1, 1996 and each
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such final registration statement, prospectus, annual, quarterly or current
report, definitive proxy statement and communication, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations enforced or promulgated by the SEC and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading; provided, however, that information as of a later date shall be
deemed to modify information as of an earlier date.
4.8.2. The Acquiror and the Acquiror Banks have, since January 1, 1996,
duly filed with the FDIC, the Department and the FRB, in a form and with
such substance as was correct, accurate and complete in all material
respects, the monthly, quarterly and annual financial reports required to
be filed under all applicable laws and regulations, and the Acquiror has
made or during the Delivery Period will make available to the Company
accurate and complete copies of all such reports.
4.9. Acquiror and Acquiror Bank Information. The information relating to the
Acquiror and the Acquiror Banks to be contained in the Joint Proxy
Statement/Prospectus to be delivered to stockholders of the Company and the
Acquiror in connection with the solicitations of their approval of the Merger,
as of the dates that the Joint Proxy Statement/Prospectus is mailed to such
stockholders, and up to and including the dates of the meetings of
stockholders to which such Joint Proxy Statement/Prospectus relates, will not
contain any untrue statement of a material fact regarding the Acquiror and the
Acquiror Banks or omit to state a material fact regarding the Acquiror and the
Acquiror Banks required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.10. Properties and Insurance.
4.10.1. The Acquiror and the Acquiror Subsidiaries have good and, as to
owned real property, marketable title to all material assets and
properties, whether real or personal, tangible or intangible, reflected in
the Acquiror's consolidated statement of condition (as set forth in the
Acquiror Disclosure Schedule) as of the Acquiror Statement of Condition
Date, 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 the Acquiror Statement of Condition
Date), subject to no encumbrances, liens, mortgages, security interests or
pledges, except (i) those items that secure liabilities that are reflected
in said consolidated statement of condition or the notes thereto or that
secure liabilities incurred in the ordinary course of business after the
date of such consolidated statement of condition, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith,
(iii) such encumbrances, liens, mortgages, security interests, pledges and
title imperfections that are not in the aggregate material to the business,
operations, assets and financial condition of the Acquiror and the Acquiror
Subsidiaries taken as a whole and (iv) with respect to owned real property,
title imperfections noted in title reports delivered to the Company prior
to the date hereof or to be delivered during the Delivery Period. The
Acquiror and the Acquiror Subsidiaries as lessees have the right under
valid and subsisting leases to occupy, use, possess and control all real
property leased by the Acquiror and the Acquiror Subsidiaries in all
material respects as presently occupied, used, possessed and controlled by
the Acquiror and the Acquiror Subsidiaries.
4.10.2. The business operations and all insurable properties and assets
of the Acquiror and the Acquiror Subsidiaries are insured for their benefit
against all risks which, in the reasonable judgment of the management of
the Acquiror, 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 the Acquiror adequate for the business engaged in by the
Acquiror and the Acquiror Subsidiaries. As of the date hereof, the Acquiror
and the Acquiror Subsidiaries have not received any notice of cancellation
or notice of a material amendment of any such insurance policy or bond and
are not in default under any such policy or bond, no coverage thereunder is
being disputed and all material claims thereunder have been filed in a
timely fashion. The Acquiror Disclosure Schedule sets forth a complete and
accurate list of all primary and excess insurance coverage held by the
Acquiror and/or the Acquiror Subsidiaries currently or at any time during
the past three years.
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4.11. Minute Books. The minute books of the Acquiror and the Acquiror
Subsidiaries contain accurate records of all meetings held and other corporate
action taken by their respective stockholders and Boards of Directors
(including committees of their respective Boards of Directors), except where
the failure to so maintain such records would not constitute a material
omission.
4.12. Reserves. As of the Acquiror Statement of Condition Date, the
allowance for loan losses in the Acquiror Financial Statements was adequate
based upon all factors required to be considered by Acquiror in determining
the amount of such allowance. The methodology used to compute the loan loss
reserve complies in all material respects with all applicable FDIC policies.
As of the Acquiror Statement of Condition Date, the reserve for OREO
properties in the Acquiror Financial Statements was adequate based upon all
factors required to be considered by the Acquiror in determining the amount of
such reserve.
4.13. Employee Plans.
4.13.1 For purposes of this Section 4.11, the following terms shall have
the definitions given below:
"Acquiror Plans" means all "employee welfare benefit plans" within
the meaning of Section 3(1) of ERISA and all "employee pension benefit
plans" within the meaning of Section 3(2) of ERISA sponsored or
maintained by Acquiror or any of the Acquiror Subsidiaries or to which
the Acquiror or any of the Acquiror Subsidiaries contributes or is
obligated to contribute.
4.13.2. To the knowledge of the Acquiror, with respect to each
Acquiror Plan, the Acquiror Disclosure Schedule sets forth a true,
correct and complete copy of the following (where applicable): (i) each
writing constituting a part of such Acquiror Plan, including without
limitation all plan documents, trust agreements, and insurance
contracts and other funding vehicles; (ii) the three most recent Annual
Reports (Forms 5500 Series) and accompanying schedules, if any; (iii)
the current summary plan description, if any; (iv) the most recent
annual financial report, if any; and (v) the most recent determination
letter from the Internal Revenue Service, if any.
4.13.3. Except as set forth in the Acquiror Disclosure Schedule, the
Internal Revenue Service has issued a favorable determination letter
with respect to each Acquiror Plan that is intended to be a "qualified
plan" within the meaning of Section 401(a) of the Code (a "Qualified
Acquiror Plan") and no circumstance exists nor has any event occurred
that could adversely affect the qualified status of any Qualified
Acquiror Plan or the related trust in a manner that would have a
Material Adverse Effect on the Acquiror and the Acquiror Subsidiaries
taken as a whole.
4.13.4. All contributions required to be made to any Acquiror Plan by
any applicable laws or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance
policies funding any Acquiror Plan, before the date hereof have been
made or paid in full on or before the final due date thereof and
through the date of Closing will be made or paid in full on or before
the final due date thereof.
4.13.5. The Acquiror and each of the Acquiror Subsidiaries has
complied, and is now in compliance, in all material respects, with all
provisions of ERISA, the Code and all laws and regulations applicable
to the Acquiror Plans. Each Acquiror Plan has been operated in material
compliance with its terms. There is not now, and there are no existing
circumstances that would give rise to, any requirement for the posting
of security with respect to any Acquiror Plan or the imposition of any
lien on the assets of the Acquiror or any of the Acquiror Subsidiaries
under ERISA or the Code. No circumstance exists, and no event has
occurred, which could cause the Acquiror or any of the Acquiror
Subsidiaries to incur liability, whether directly or indirectly,
through indemnification or otherwise, for any tax or penalty imposed
pursuant to Section 4971, 4972, 4975, 4976, 4977, 4978, 4978B, 4979,
4980 or 4980B of the Code or arising under Sections 502(i) or 502(l) of
ERISA.
4.13.6. Except as set forth in the Acquiror Disclosure Schedule, no
Acquiror Plan is a Multiemployer Plan or a Multiple Employer Plan, nor
has the Acquiror or the Acquiror Subsidiaries or any of their
respective ERISA Affiliates, at any time within six years before the
date hereof, contributed to or been obligated to contribute to any
Multiemployer Plan or Multiple Employer Plan. With respect
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to each Multiemployer Plan described in the Acquiror Disclosure
Schedule: (i) neither the Acquiror nor any of the Acquiror Subsidiaries
nor any of their respective ERISA Affiliates has incurred any
Withdrawal Liability that has not been satisfied in full; and (ii)
neither the Acquiror nor any of the Acquiror Subsidiaries nor any of
their respective ERISA Affiliates has received any notification, nor
has any reason to believe, that any such plan is in reorganization, is
insolvent, has been terminated, or would be in reorganization, be
insolvent, or be terminated. Except for Multiemployer Plans described
in the Acquiror Disclosure Schedule, no Acquiror Plan is subject to
Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code.
4.13.7. No circumstance exists, and no event has occurred, that would
result in, any material Controlled Group Liability that would be a
liability of the Acquiror or any of the Acquiror Subsidiaries following
the Closing. Without limiting the generality of the foregoing, neither
the Acquiror nor any of the Acquiror Subsidiaries nor any of their
respective ERISA Affiliates has engaged in any transaction described in
Section 4069 or Section 4203 of ERISA.
4.13.8. Except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA and except as
set forth in the Acquiror Disclosure Schedule, neither the Acquiror nor
any of the Acquiror Subsidiaries has any material liability for life,
health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof.
4.13.9. Except as disclosed in Section 3.11.1(ii) to the Acquiror
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will result in, cause the accelerated vesting or delivery of, or
increase the amount or value of, any payment or benefit to any
employee, officer, director or consultant of the Acquiror or the
Acquiror Subsidiaries.
4.13.10. Except as disclosed in the Acquiror Disclosure Schedule,
there are no pending or, to the knowledge of the Acquiror, threatened
claims (other than claims for benefits in the ordinary course of
business and claims which would not have a Material Adverse Effect upon
the Acquiror and the Acquiror Subsidiaries, taken as a whole), lawsuits
or arbitrations which have been asserted or instituted against the
Acquiror Plans, any fiduciaries thereof with respect to their duties to
the Acquiror Plans or the assets of any of the trusts under any of the
Acquiror Plans.
4.14. Compliance with Laws and Orders. Except as set forth in the Acquiror
Disclosure Schedule or as disclosed in the reports described in Section 4.8.1
filed by the Acquiror with the SEC prior to the date of this Agreement, the
businesses of the Acquiror and the Acquiror Subsidiaries have not been, and
are not being, conducted in violation of any law, ordinance, regulation,
judgment, order, decree, license or permit of any governmental entity
(including, without limitation, in the case of Acquiror Subsidiaries that are
banks, all statutes, rules and regulations pertaining to the conduct of the
banking business and the exercise of trust powers), except for violations
which individually or in the aggregate do not, and, insofar as reasonably can
be foreseen, in the future shall not, have a Material Adverse Effect on the
Acquiror and the Acquiror Subsidiaries, taken as a whole. Except as set forth
in the Acquiror Disclosure Schedule, no investigation or review by any
Governmental Authority with respect to the Acquiror or any of the Acquiror
Subsidiaries is pending or, to the knowledge of the Acquiror, threatened, nor
has any Governmental Authority indicated an intention to conduct the same, in
each case other than those the outcome of which is not reasonably expected to
have a Material Adverse Effect on the Acquiror and the Acquiror Subsidiaries,
taken as a whole.
4.15. Agreements with Bank Regulators. Neither the Acquiror nor any Acquiror
Subsidiary is a party to any agreement or memorandum of understanding with, or
a party to any commitment letter, Board of Directors resolution submitted to a
Governmental Authority or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter
from, any Governmental Authority which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit or
reserve policies or its management, except for those the existence of which
has been described in the Acquiror Disclosure Schedule, nor has the Acquiror
been advised by any Governmental Authority that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement,
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memorandum of understanding, extraordinary supervisory letter, commitment
letter or similar submission, except as disclosed in the Acquiror Disclosure
Schedule. Neither the Acquiror nor any Acquiror Subsidiary is required by
Section 32 of the Federal Deposit Insurance Act to give prior notice to a
Federal banking agency of the proposed addition of an individual to its board
of directors or the employment of an individual as a senior executive officer.
4.16. Accounting Matters. Neither the Acquiror nor any of the Acquiror's
Subsidiaries nor, to the Acquiror's knowledge, any of the Acquiror's other
affiliates, has taken or agreed to take any action that would prevent Acquiror
from accounting for the business combination to be effected by the Merger as a
"pooling of interests."
4.17. Acquiror Action. The Board of Directors of the Acquiror (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and in the best interests of the
Acquiror and its stockholders, (b) approved this Agreement and the
transactions contemplated hereby, including the Merger, and (c) directed that
the Agreement be submitted for consideration by the Acquiror's stockholders.
4.18. Vote Required. The affirmative vote of a majority of the votes cast by
the holders of the outstanding shares of Acquiror Common Stock entitled to
vote thereon is the only vote of the holders of any class or series of
Acquiror capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
4.19. No Triggering Events. Except as set forth in the Acquiror Disclosure
Schedule, neither the execution and delivery by the Acquiror of this
Agreement, nor the consummation by the Acquiror of the transactions
contemplated hereby will constitute a triggering event (including a "first
trigger"), under any Acquiror Plans or any other plan or agreement to which
the Acquiror or any of the Acquiror Subsidiaries is bound, that will, or upon
the occurrence of subsequent events would, accelerate the time of payment or
vesting or increase the amount of compensation or benefits due any director,
officer, employee or former employee (or any dependent of a former employee)
of the Acquiror or any Acquiror Subsidiary
4.20. Environmental Matters.
4.20.1. For purposes of this Agreement, the following terms shall have
the following meanings:
"Acquiror Branch Property" means all real property presently or
formerly owned or operated by the Acquiror or any Acquiror Subsidiary
on which branches or facilities are or were located.
"Acquiror Real Property" means the Acquiror Branch Property, all real
property classified by the Acquiror or any Acquiror Subsidiary as OREO
and all real property (including property held as trustee or in any
other fiduciary capacity) over which the Acquiror or any Acquiror
Subsidiary currently or formerly has exercised dominion, management or
control.
4.20.2. Except as set forth in the Acquiror Disclosure Schedule or as
would not have a Material Adverse Effect on the Acquiror and the Acquiror
Subsidiaries taken as a whole:
4.20.2.1 each of the Acquiror and the Acquiror Subsidiaries is and
has been in compliance with all applicable Environmental Laws at all
times since January 1, 1996,
4.20.2.2 to the knowledge of the Acquiror, the Acquiror Real Property
does not contain any Hazardous Substance in violation of any applicable
Environmental Law,
4.20.2.3 since January 1, 1995, neither the Acquiror nor any Acquiror
Subsidiary has received any written notices, demand letters or written
requests for information from any Governmental Authority or any third-
party indicating that the Acquiror or such Acquiror Subsidiary may be
in violation of, or liable under, any Environmental Law.
4.20.2.4 there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending
or to the knowledge of the Acquiror, threatened against the Acquiror or
any Acquiror Subsidiary with respect to the Acquiror or any Acquiror
Subsidiary or the
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Acquiror Real Property relating to any violation, or alleged violation,
of any Environmental Law or any condition of the Acquiror Real
Property;
4.20.2.5 no reports have been filed, or are required to be filed, by
the Acquiror or any Acquiror Subsidiary concerning the release of any
Hazardous Substance or the threatened or actual violation of any
Environmental Law on or at the Acquiror Real Property;
4.20.2.6 to the knowledge of the Acquiror, there are no underground
storage tanks on, in or under any of the Acquiror Branch Property and
no underground storage tanks have been closed or removed from any
Acquiror Branch Property while such Acquiror Branch Property was owned
or operated by the Acquiror or any of the Acquiror Subsidiaries; and
4.20.2.7 to the knowledge of the Acquiror, neither the Acquiror nor
any Acquiror Subsidiary has incurred, and none of the Acquiror Real
Property is presently subject to, any liabilities (fixed or, to the
knowledge of the Acquiror, contingent) relating to any suit,
settlement, court order, administrative order, judgment or claim
asserted or arising under any Environmental Law.
4.20.2.8 There are no permits or licenses required under any
Environmental Law with respect to the Acquiror Branch Property
presently operated by the Acquiror or any of the Acquiror Subsidiaries.
4.20.2.9 Except as set forth in the Company Disclosure Schedule,
neither the Acquiror nor any Acquiror Subsidiary has received written
notice that any part of the Acquiror Real Property has been or is
listed as a site containing Hazardous Substances pursuant to any
Environmental Law.
4.21. Labor Relations. Except as set forth in the Acquiror Disclosure
Schedule, neither the Acquiror nor any of the Acquiror Subsidiaries is a party
to or bound by any collective bargaining agreement respecting its employees,
nor is there pending, or to the knowledge of the Acquiror threatened, any
strike, walk out or other work stoppage or labor organizational effort with
respect to any of such employees.
4.22. Year 2000. To the extent that any functionality of any computer system
or software used by the Acquiror or the Acquiror Subsidiaries is dependent
upon or interdependent with the use or specification of any calendar date, the
Acquiror and the Acquiror Subsidiaries have used commercially reasonable
efforts (including without limitation seeking written confirmations from all
material customers of and vendors to the Acquiror and the Acquiror
Subsidiaries that such customers' and vendors' computer systems are Year 2000
Compliant) in implementing, and have implemented, a plan pursuant to which any
such computer system shall be Year 2000 Compliant, except where failure to do
so will not materially adversely affect the Acquiror and the Acquiror
Subsidiaries. To be deemed Year 2000 Compliant, such computer systems shall
conform in all material respects to the following basic requirements: (i) no
value for a current date shall cause any interruption in the operations of the
Acquiror and the Acquiror Subsidiaries (or of the vendors or customers of the
Acquiror and the Acquiror Subsidiaries) in which computer systems or software
are used; and (ii) any date-based functions shall operate and perform in a
consistent manner for dates in, into and between the 20th and 21st centuries
and such computer systems and software shall calculate, manipulate and
represent dates correctly, although no such computer systems shall use
particular date values for special meanings.
4.23. Disclosure. No representation or warranty contained in Article IV of
this Agreement or in the Acquiror Disclosure Schedule contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein not misleading.
V. COVENANTS
5.1. Acquisition Proposals.
5.1.1. The Company agrees that, during the term of this Agreement, it
shall not, and shall not authorize or permit any of its subsidiaries or any
of its or its subsidiaries' directors, officers, employees, agents or
representatives, directly or indirectly, to solicit, initiate, encourage or
facilitate, or furnish or disclose non-
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public information in furtherance of, any inquiries or the making of any
proposal with respect to any
recapitalization, merger, consolidation or other business combination
involving the Company or any of the Company Subsidiaries, or acquisition of
any capital stock from the Company (other than upon exercise of stock
options which are outstanding as of the date hereof) or 15% or more of the
assets of the Company and the Company Subsidiaries, taken as a whole, in a
single transaction or a series of related transactions, or any acquisition
by the Company of any material assets or capital stock of any other person,
or any combination of the foregoing (a "Competing Transaction"), or
negotiate, explore or otherwise engage in discussions with any person
(other than the Acquiror or its directors, officers, employees, agents and
representatives) with respect to any Competing Transaction or enter into
any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
contemplated by this Agreement; provided that, at any time prior to the
approval of the Merger by the stockholders of the Company, the Company may
furnish information to, and negotiate or otherwise engage in discussions
with, any party who delivers a written proposal for a Competing Transaction
which was not solicited or encouraged after the date of this Agreement if
and so long as the Board of Directors of the Company determines in good
faith by a majority vote, after consultation with and receipt of advice
from its outside legal counsel, that failing to take such action would
constitute a breach of the fiduciary duties of the Board of Directors of
the Company under applicable laws and determines that such a proposal is,
after consulting with Capital Consultants of Princeton, Inc. (or any other
recognized investment banking firm), more favorable to the Company's
stockholders from a financial point of view than the transactions
contemplated by this Agreement (including any adjustment to the terms and
conditions proposed by the Acquiror in response to such Competing
Transaction). The Company will immediately cease all existing activities,
discussions and negotiations with any parties conducted heretofore with
respect to any proposal for a Competing Transaction. Notwithstanding any
other provision of this Section 5.1, in the event that prior to the
approval of the Merger by the stockholders of the Company, the Board of
Directors of the Company determines in good faith by a majority vote, after
consultation with and receipt of advice from outside legal counsel, that
failure to do so would constitute a breach of the fiduciary duties of the
Company's Board of Directors under applicable laws, the Board of Directors
of the Company may (subject to this and the following sentences) withdraw,
modify or change, in a manner adverse to the Acquiror, its recommendation
that the stockholders approve this Agreement (the "Company Board
Recommendation") and, to the extent applicable, comply with Rule 14e-2
promulgated under the 1934 Act with respect to a Competing Transaction by
disclosing such withdrawn, modified or changed Company Board Recommendation
in connection with a tender or exchange offer for Company securities,
provided that it uses all reasonable efforts to give the Acquiror two days
prior written notice of its intention to do so (provided that the foregoing
shall in no way limit or otherwise affect the Acquiror's right to terminate
this Agreement pursuant to Section 7.1.8). The Company's Board of Directors
shall not, in connection with any such withdrawal, modification or change
of the Company Board Recommendation, take any action to change the approval
of the Board of Directors of the Company for purposes of causing any state
takeover statute or other state law to be inapplicable to the transactions
contemplated hereby, including the Merger or the Stock Option Agreement.
From and after the execution of this Agreement, the Company shall
immediately advise the Acquiror in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals
relating to a Competing Transaction (including the specific terms thereof
and the identity of the other party or parties involved) and furnish to the
Acquiror within 24 hours of such receipt an accurate description of all
material terms (including any changes or adjustments to such terms as a
result of negotiations or otherwise) of any such written proposal in
addition to any information provided to any third party relating thereto.
In addition, the Company shall immediately advise the Acquiror, in writing,
if the Board of Directors of the Company shall make any determination as to
any Competing Transaction as contemplated by the proviso to the first
sentence of this Section 5.1.1.
5.1.2. If, prior to the approval of the Merger by the Company's
stockholders, the Board of Directors of the Company shall determine in good
faith, after consultation with its financial and legal advisors, with
respect to any written proposal from a third party for a Competing
Transaction received after the date hereof that was not solicited or
encouraged by the Company or any of its subsidiaries or affiliates in
violation of
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this Agreement that failure to enter into such Competing Transaction would
constitute a breach of the fiduciary duties of the Board of Directors of
the Company under applicable law and that such Competing Transaction is
more favorable to the Company's stockholders from a financial point of view
than the transactions contemplated by this Agreement (including any
adjustment to the terms and conditions of such transaction proposed in
writing by the Acquiror in response to such Competing Transaction) and is
in the best interest of the Company's stockholders and the Company has
received (x) the advice of its outside legal counsel as to whether failure
to enter into such a Competing Transaction would constitute a breach of the
Board of Directors' fiduciary duties under applicable law and (y) an
opinion (a copy of which, if delivered in writing, has been delivered to
the Acquiror) from Capital Consultants of Princeton, Inc. (or any other
recognized investment banking firm) that the Competing Transaction is more
favorable from a financial point of view to the Company's stockholders than
the transactions contemplated by this Agreement (including any adjustment
to the terms and conditions of such transaction proposed in writing by the
Acquiror), the Company may terminate this Agreement and enter into a letter
of intent, agreement-in-principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") with respect to such Competing
Transaction provided that, prior to any such termination, (i) the Company
has provided the Acquiror written notice that it intends to terminate this
Agreement pursuant to this Section 5.1.2, identifying the Competing
Transaction then determined to be more favorable and the parties thereto
and delivering an accurate description of all material terms (including any
changes or adjustments to such terms as a result of negotiations or
otherwise) of the Acquisition Agreement to be entered into for such
Competing Transaction, and (ii) at least three full business days after the
Company has provided the notice referred to in clause (i) above (provided
that the advice and opinion referred to in clauses (x) and (y) above shall
continue in effect without revocation, revision or modification), the
Company delivers to the Acquiror (A) a written notice of termination of
this Agreement pursuant to this Section 5.1.1, (B) a check in the amount of
the Acquiror's Costs (as defined in Section 7.2) as the same may have been
estimated by the Acquiror in good faith prior to the date of such delivery
(subject to an adjustment payment between the parties upon the Acquiror's
definitive determination of such Costs), (C) a written acknowledgment from
the Company that (x) the termination of this Agreement and the entry into
the Acquisition Agreement for the Competing Transaction will be a "Purchase
Event" as defined in the Stock Option Agreement and (y) the Stock Option
Agreement shall be honored in accordance with its terms and (D) a written
acknowledgment from each other party to such Competing Transaction that it
is aware of the substance of the Company's acknowledgment under clause (C)
above and waives any right it may have to contest the matters thus
acknowledged by the Company.
5.2. Interim Operations of the Company. The Company shall terminate its
dividend reinvestment plan effective upon the execution of this Agreement and
shall notify its stockholders of such termination within ten days after the
execution of this Agreement. The Company shall (and shall cause each of the
Company Subsidiaries to) conduct its operations in the ordinary course except
as expressly contemplated by this Agreement and the transactions contemplated
hereby and use all reasonable efforts to maintain and preserve its business
organization and its material rights and franchises and to retain the services
of its officers and key employees and maintain relationships with customers,
suppliers, lessees, licensees and other third parties, and to maintain all of
its operating assets in their current condition (normal wear and tear
excepted), to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, the Company shall not (and the Company shall cause each of the Company
Subsidiaries not to), except as otherwise expressly contemplated by this
Agreement and the transactions contemplated hereby, without the prior written
consent of the Acquiror:
5.2.1. Do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock, (B)
make, declare, set aside or pay any dividend (other than regular quarterly
dividends on the Common Stock of $.02 per share with record and payment
dates consistent with past practice provided that the Company's
stockholders shall not be entitled to receive a cash dividend from the
Company (prior to the Closing) and a cash dividend from the Acquiror (after
the Closing) within the same three month period and provided further that
no such dividend shall constitute an "extraordinary
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distribution" as defined in Treasury Regulation (S)1.368-1T(e)(1)(ii)) or
other distribution or payment (whether in cash, stock or property) with
respect to, or on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock, (C)
grant any person any right or option to acquire any shares of its capital
stock, (D) issue, deliver or sell or agree to issue, deliver or sell any
additional shares of its capital stock or any securities or obligations
convertible into or exchangeable or exercisable for any shares of its
capital stock or such securities (except pursuant to the exercise of stock
options which are both outstanding on the date hereof and disclosed on one
or more exhibits annexed hereto), or (E) enter into any agreement,
understanding or arrangement with respect to the sale, voting, registration
or repurchase of its capital stock;
5.2.2. Directly or indirectly sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any of its property or assets other than
in the ordinary course of business;
5.2.3. Make or propose any changes in its certificate of incorporation or
by-laws;
5.2.4. Merge or consolidate with any other person;
5.2.5. Acquire a material amount of assets or capital stock of any other
person:
5.2.6. Except pursuant to existing credit arrangements, incur, create,
assume or otherwise become liable for any indebtedness for borrowed money
or assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual,
corporation or other entity, other than in the ordinary course of business,
consistent with past practice;
5.2.7. Create any subsidiaries;
5.2.8. Enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant or employee other than in the ordinary course of business
consistent with past practice, or otherwise increase the compensation or
benefits provided to any officer, director, consultant or employee except
as may be required by applicable law or in the ordinary course of business
consistent with past practice;
5.2.9. Enter into, adopt or amend any employee benefit or similar plan
except as may be required by applicable law;
5.2.10. Change any method or principle of accounting in a manner that is
inconsistent with past practice except to the extent required by generally
accepted accounting principles as advised by the Company's regular
independent accountants;
5.2.11. Modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any material agreement or any
confidentiality agreement to which the Company is a party;
5.2.12. Enter into any confidentiality agreements or arrangements with
respect to any transaction other than a transaction in the ordinary course
of business consistent with past practice;
5.2.13. Incur or commit to any capital expenditures, individually or in
the aggregate, in excess of 120% of the amount set forth in the capital
expenditure budget set forth in the Company's Disclosure Schedule;
5.2.14. Make any payments in respect of policies of directors' and
officers' liability insurance (premiums or otherwise) other than amounts
paid pursuant to current policies;
5.2.15. Take any action to exempt or make not subject to (x) the
provisions of the New Jersey Shareholder Protection Act (N.J.S.A. 14A:10A
et seq.) or (y) any other state takeover law or state law that purports to
limit or restrict business combinations or the ability to acquire or vote
shares, any person or entity (other than the Acquiror or its subsidiaries)
or any action taken thereby, which person, entity or action would have
otherwise been subject to the restrictive provisions thereof and not exempt
therefrom;
5.2.16. Take any action, or knowingly omit to take any action, that
would, or that would reasonably be expected to, result in (A) any of the
representations and warranties of the Company set forth in Article III
becoming untrue in any material respect (or, with respect to
representations and warranties that are qualified
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as to materiality, in any respect) or (B) any of the conditions to Closing
set forth in Sections 6.1 or 6.2 not being satisfied;
5.2.17. Enter into or carry out any other transaction other than in the
ordinary and usual course of business;
5.2.18. Convene any meeting of (other than the meeting convened to vote
upon the Merger) or determine to submit any matter for stockholder action
(other than the Merger) unless the Acquiror has been given at least 45 days
prior written notice of such meeting or determination;
5.2.19. Take any action that would, in any such case, (i) materially
delay or adversely affect the ability of the Company to obtain any
approvals of governmental entities required to permit consummation of the
Merger or (ii) materially adversely affect its ability to perform its
obligations under this Agreement;
5.2.20. Change any of its existing policies and practices with respect to
taking any action that results or would be likely to result in it being
deemed to exercise dominion, management or control over collateral securing
any extension of credit; provided however that such practices comply with
all Environmental Laws and provided further however that the Company shall
not take any such action with respect to any outstanding extension of
credit with a contractual amount due of $200,000 or more or in connection
with which there is reasonably anticipated to be an environmental exposure
of $50,000 or more without prior consultation with the Acquiror; or
5.2.21. Agree in writing or otherwise to take any of the foregoing
actions.
5.3. Acquiror Representations and Covenants. The Acquiror shall not take any
action, or knowingly omit to take any action, that would, or that would
reasonably be expected to, result in (A) any of the representations and
warranties of the Acquiror (other than representations and warranties made as
of a particular date) set forth in Article IV becoming untrue in any material
respect (or, with respect to representations and warranties that are qualified
as to materiality, in any respect) or (B) any of the conditions to closing set
forth in Sections 6.1 or 6.3 not being satisfied.
5.4. Access and Information. Upon reasonable notice, each of the Company and
the Acquiror shall (and shall cause each of its subsidiaries to) afford to the
other and their representatives (including, without limitation, directors,
officers and employees of the other party hereto and its affiliates and
counsel, accountants and other professionals retained by it) such access
during normal business hours throughout the period prior to the Effective Time
to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as the Acquiror or the Company reasonably requests; provided,
however, that neither the Company nor the Acquiror shall be required to
provide access to any such information if the providing of such access (i)
would violate a binding contractual obligation, (ii) would, as advised by
outside counsel, be reasonably likely to result in the loss or impairment of
any privilege with respect to such information or (iii) would be precluded by
any law, ordinance, regulation, judgment, order, decree, license or permit of
any governmental entity. Any access granted to the Company and the Acquiror
pursuant to this Section 5.4 shall not in any way limit any representation or
warranty set forth in this Agreement. The rights and obligations of each of
the Acquiror and the Company pursuant to the Confidentiality Letter Agreement,
dated October 22, 1998 ("Confidentiality Agreement"), between the Acquiror and
the Company, shall survive the execution and delivery of this Agreement, and
all information heretofore and hereafter obtained by the Acquiror, the Company
or any of their advisors pursuant to this Section 5.5 or otherwise shall be
deemed to be covered by the Confidentiality Agreement (subject to the
exceptions provided for therein), and in the case of the Acquiror, shall
remain subject to the provisions of such Confidentiality Agreement until the
Effective Time and, in the case of the Company shall remain subject to the
provisions of such Confidentiality Agreement in accordance with the terms
thereof.
5.5. Certain Filings, Consents and Arrangements. The Acquiror and the
Company shall (a) promptly make their respective filings, and shall thereafter
use their best efforts promptly to make any required submissions, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"),
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with respect to the Merger and the other transactions contemplated by this
Agreement, (b) promptly file all applications and reports required to be filed
with all applicable governmental entities between the date of this Agreement
and the Effective Time and promptly cause each Acquiror Subsidiary or Company
Subsidiary that is a bank to make all filings required to be made with all
applicable governmental entities, with respect to the Merger and the other
transactions contemplated by this Agreement, (c) cooperate with one another
(i) in promptly determining whether any other filings are required to be made
or consents, approvals, permits or authorizations are required to be obtained
under any other applicable federal, state or foreign law or regulation and
(ii) in promptly making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such consents,
approvals, permits or authorizations and (d) subject to the qualifications set
forth in the proviso in Section 5.4, deliver to the other parties to this
Agreement copies of all such reports and filings promptly after they are
filed. Notwithstanding anything to the contrary contained in this Agreement,
the Acquiror shall not be required to take any action that would subject it to
any obligations under ISRA unless the Effective Time shall have occurred.
5.6. Indemnification and Insurance.
5.6.1. For a period of six years after the Effective Time, the Acquiror
shall indemnify, defend and hold harmless each person who is now, or has
been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director, officer (whether elected or appointed),
employee or agent of the Company or any subsidiary of the Company or serves
or has served at the request of the Company in any capacity with any other
person (collectively, the "Indemnitees") against any and all claims,
damages, liabilities, losses, costs, charges, expenses (including, without
limitation, reasonable costs of investigation, and the reasonable fees and
disbursements of legal counsel and other advisors and experts as incurred),
judgments, fines, penalties and amounts paid in settlement, asserted
against, incurred by or imposed upon any Indemnitee, (i) in connection
with, arising out of or relating to any threatened, pending or completed
claim, action, suit or proceeding (whether civil, criminal, administrative
or investigative), including, without limitation, any and all claims,
actions, suits proceedings or investigations by or on behalf of or in the
right of or against the Company or any Company Subsidiary or their
affiliates, or by any present or former stockholder of the Company
(collectively, "Claims"), including, without limitation, any Claim which is
based upon, arises out of or in any way relates to the Merger, the Joint
Proxy Statement/Prospectus (as defined in Section 5.9), this Agreement, any
of the transactions contemplated by this Agreement, the Indemnitee's
service as a member of the Company's Board of Directors or any committee of
the Company's Board of Directors, the events leading up to the execution of
this Agreement, any statement, recommendation or solicitation made in
connection therewith or related thereto and any breach of any duty in
connection with any of the foregoing, and (ii) in connection with, arising
out of or relating to the enforcement of the obligations of Acquiror set
forth in this Section 5.6, in each case to the fullest extent permitted
under any applicable law, but in no event beyond the extent to which such
indemnification would have been available from the Company had the Claim
been advanced on the date hereof.
5.6.2. In the event that the Acquiror or any of its successors or assigns
(i) reorganizes or consolidates with or merges into or enters into another
business combination transaction with any other person or entity and is not
the resulting, continuing or surviving corporation or entity of such
consolidation, merger or transaction, or (ii) liquidates, dissolves or
transfers all or substantially all of its properties and assets to any
person or entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of the Acquiror assume the
obligations set forth in this Section 5.6.
5.6.3. The Acquiror shall use its best efforts to maintain the Company's
current officers' and directors' liability insurance ("D&O Insurance") in
full force and effect without reduction of coverage for a period of three
years after the Effective Time (provided that the Acquiror may substitute
therefor policies of at least the same coverage and amounts containing
terms and conditions which are not substantially less advantageous);
provided, however, that Acquiror shall not be required to pay an annual
premium therefor in excess of one hundred percent (100%) of the last annual
premium paid by the Company prior to the date hereof (the "Current
Premium"); and provided further, however, that if such D&O Insurance
expires, is terminated or canceled during such three-year period, the
Acquiror shall use its best efforts to obtain as
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much D&O Insurance covering the Company's officers and directors as can be
obtained for the remainder of such period for a premium on an annualized
basis not in excess of one hundred percent (100%) of the Current Premium.
5.6.4. This Section 5.6 shall be construed as an agreement, as to which
the Indemnitees are intended to be third-party beneficiaries, between the
Acquiror and the Indemnitees, as unaffiliated third parties.
5.6.5. Any Indemnitee wishing to claim indemnification under this Section
5.6, upon learning of any such claim, action, suit or proceeding, shall
promptly notify the Acquiror thereof, but the failure to so notify shall
not relieve Acquiror of any liability it may have to such Indemnitee if
such failure does not prejudice the Acquiror. In the event of any such
claim, action, suit or proceeding (whether arising before or after the
Effective Time) as to which the Acquiror agrees that indemnification under
this Section 5.6 is applicable, (a) the Acquiror shall have the right to
assume the defense thereof and neither the Acquiror nor the Surviving
Corporation shall be liable to such Indemnitees for any legal expenses of
other counsel or any other expenses subsequently incurred by such
Indemnitees in connection with the defense thereof, except that if the
Acquiror elects not to assume such defense or counsel for the Indemnitees
advises that there are issues which raise conflicts of interest between the
Acquiror or the Surviving Corporation and the Indemnitees, the Indemnitees
may retain counsel satisfactory to them, and the Acquiror or the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel for
the Indemnitees as statements therefor are received; provided, however,
that the Acquiror and the Surviving Corporation shall be obligated pursuant
to this Section 5.6.5 (a) to pay for only one firm of counsel for all
Indemnitees in any jurisdiction with respect to a matter unless the use of
one counsel for such Indemnitees would present such counsel with a conflict
of interest and (b) the Indemnitees will cooperate in the defense of any
such matter. Neither the Acquiror nor the Surviving Corporation shall be
liable for settlement of any claim, action or proceeding hereunder unless
such settlement is effected with its prior written consent; and provided
further, however, that neither the Acquiror nor the Surviving Corporation
shall have any obligation hereunder to any Indemnitee when and if a court
of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that the
indemnification of such Indemnitee in the manner contemplated hereby is
prohibited by applicable law.
5.7. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its best efforts to obtain all necessary
actions or nonactions, extensions, waivers, consents and approvals from all
applicable governmental entities, effecting all necessary registrations and
filings (including, without limitation, making all filings under the HSR Act
and any applicable banking and securities laws) and obtaining any required
contractual consents. If, at any time after the Effective Time, the Surviving
Corporation considers or is advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Constituent Corporations acquired or to
be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out the purposes of this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the Constituent
Corporations or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
5.8. Publicity. The initial press release announcing this Agreement shall be
a joint press release, and thereafter the Company and the Acquiror shall
consult with each other regarding any statements about the financial effects
of the transaction to analysts and before (i) issuing any press releases or
otherwise making public statements with respect to the transactions
contemplated hereby; or (ii) making any filings with any governmental entity
with respect thereto.
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5.9. Joint Proxy Statement/Prospectus; Registration Statement. The Acquiror
and the Company shall cooperate in preparing a joint proxy
statement/prospectus (the "Joint Proxy Statement/Prospectus") which shall be
utilized to solicit proxies in connection with the meeting at which the
Company's stockholders will vote upon the Merger and the meeting at which the
Acquiror's stockholders will vote upon the Merger. Such document shall also
constitute a prospectus for the offer, sale and registration of the Acquiror's
capital stock pursuant to the Merger. Promptly after both the Acquiror and the
Company confirm that the Joint Proxy Statement/ Prospectus is satisfactory for
filing in preliminary form, the Acquiror shall file such preliminary Joint
Proxy Statement/Prospectus with the SEC, such filing to be on a confidential
basis to the extent permitted by the rules of the SEC. Each party shall
provide the other with a copy of any written comments that it may receive from
the Staff of the SEC with respect to the Joint Proxy Statement/Prospectus and
shall afford the other party's representatives the opportunity to participate
in any telephonic conversation or meeting with the Staff of the SEC regarding
the Joint Proxy Statement/Prospectus. Each party will afford the other party
and its counsel a full and complete opportunity to comment on any response to
any comments from the Staff of the SEC with respect to such Joint Proxy
Statement/Prospectus and will not file any amendment to such preliminary Joint
Proxy Statement/Prospectus unless such amendment is approved by the other
party, such approval not to be unreasonably withheld. The Acquiror shall
prepare and file with the SEC a registration statement on Form S-4 including
such Joint Proxy Statement/Prospectus (the "Registration Statement") as soon
as is reasonably practicable following receipt of final comments from the
Staff of the SEC on the Joint Proxy Statement/Prospectus (or advice that such
Staff shall not review such filing), and shall use all reasonable efforts to
have the Registration Statement declared effective by the SEC as promptly as
practicable and to maintain the effectiveness of such Registration Statement.
Each party will promptly advise the other party in writing if at any time
prior to the Company Meeting (as hereinafter defined) or the Acquiror Meeting
(as hereinafter defined) it shall obtain knowledge of any facts that might
make it necessary or appropriate to amend or supplement the Joint Proxy
Statement/Prospectus or Registration Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply
with applicable law. The Acquiror shall also take any action required to be
taken under state blue sky or securities laws in connection with the issuance
of the Acquiror Common Stock pursuant to the Merger, and the Company shall
furnish the Acquiror all information concerning the Company and the holders of
its capital stock and shall take any action as the Acquiror may reasonably
request in connection with any such action. The Acquiror will afford the
Company and its counsel a reasonable opportunity to comment on (i) the
Registration Statement in preliminary form prior to its being filed with the
SEC, (ii) any response to any comments from the Staff of the SEC with respect
to such Registration Statement in preliminary form and (iii) any proposed
amendments to the Registration Statement. Each party will promptly advise the
other in writing if at any time prior to the Company Meeting or the Acquiror
Meeting it shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Registration Statement in order to make
the statements contained or incorporated by reference therein not misleading
or to comply with applicable law.
5.10. Compliance with the 1933 Act and the 1934 Act; Pooling of Interests.
5.10.1. At least 45 days prior to the Effective Time, the Company shall
identify to the Acquiror all persons who were, at the time of the execution
of this Agreement, possible "affiliates" of the Company as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act and as
that term is used for purposes of determining whether the Merger qualifies
for "pooling of interests" accounting treatment (the "Company Affiliates").
5.10.2. The Company shall use its best efforts, which shall not, however,
require the Company to make any payment whatsoever for such purpose, to
obtain a written agreement (in the form and substance of the letter annexed
hereto as Appendix A) from each person who is identified as a possible
Company Affiliate pursuant to Section 5.10.1, providing that (a) such
person shall not offer, sell, pledge, transfer or otherwise dispose of any
shares of Common Stock held by such Company Affiliate and any shares of
Acquiror Common Stock to be received by such Company Affiliate as Common
Stock Consideration, except in compliance with the applicable provisions of
the 1933 Act and the rules and regulations (including Rule 145) thereunder
and (b) such person shall not sell or otherwise reduce such person's risk
relative to any
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shares of Common Stock during the period commencing 30 days prior to the
consummation of the Merger and will not sell or otherwise reduce such
person's risk relative to any shares of Acquiror Common Stock until
publication of financial results covering at least 30 days of combined
operations of the Acquiror and the Company.
5.10.3. Prior to the Closing, the Company shall deliver to the Acquiror
such consolidated financial statements of the Company as the Acquiror shall
reasonably request in order to enable the Acquiror to comply with its
reporting obligations under the 1934 Act, together with an executed report
of the Company's outside auditors with respect to all such financial
statements that have been audited. Such report shall be in form and
substance satisfactory to the Acquiror. The financial statements delivered
pursuant to this Section 5.10.3 shall be prepared in accordance with GAAP
and shall conform to all provisions of the SEC's Regulation S-X, such that
such financial statements are suitable for filing by the Acquiror with the
SEC in response to Items 2 and 7 of the SEC's Current Report on Form 8-K.
Immediately prior to the Closing, the Company shall cause its outside
auditors to deliver to the Acquiror an executed consent, in form and
substance satisfactory to the Acquiror and suitable for filing by the
Acquiror with the SEC, which consent shall authorize the Acquiror to file
with the SEC the report referred to in this Section 5.10.3 and all other
reports delivered by the Company hereunder.
5.11. Stockholders' Meetings. The Company shall take all action necessary,
in accordance with applicable law and its Certificate of Incorporation and By-
laws, to convene a special meeting or annual meeting of stockholders (in
either case, the "Company Meeting") as promptly as practicable for the purpose
of considering and taking action upon this Agreement. The Board of Directors
of the Company shall recommend that the holders of shares of capital stock
entitled to vote on the Merger vote in favor of and approve the Merger and
adopt this Agreement at the Company Meeting; provided, however, that such
recommendation may be withdrawn, modified or amended to the extent that the
Board of Directors of the Company determines, upon the advice of outside
counsel, that any such action is necessary, in the exercise of its fiduciary
obligations under applicable law. The Acquiror shall take all action
necessary, in accordance with applicable law and its Certificate of
Incorporation and By-laws, to convene a special meeting or annual meeting of
stockholders (in either case, the "Acquiror Meeting") as promptly as
practicable for the purpose of considering and taking action upon this
Agreement. The Board of Directors of the Acquiror shall recommend that the
holders of shares of capital stock entitled to vote on the Merger vote in
favor of and approve the Merger and adopt this Agreement at the Acquiror
Meeting; provided, however, that such recommendation may be withdrawn,
modified or amended to the extent that the Board of Directors of the Acquiror
determines, upon the advice of outside counsel, that any such action is
necessary, in the exercise of its fiduciary obligations under applicable law.
5.12. Pooling and Tax-Free Reorganization Treatment. Neither the Acquiror
nor the Company shall intentionally take, fail to take or cause to be taken or
not taken any action within its control, which would disqualify the Merger
from being treated as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.
5.13. ISRA Approval. The Company, at its sole cost and expense, shall
obtain, prior to the Effective Time, either (i) a written determination (based
upon an affidavit from the Company that is approved by the Acquiror prior to
its submission to the NJDEP) from the NJDEP that the transactions contemplated
by, or the properties subject to, this Agreement are not subject to the
requirements of ISRA, or (ii) a Remediation Agreement (in form and substance
satisfactory to the Acquiror) issued by the NJDEP pursuant to ISRA authorizing
the consummation of the transactions contemplated by this Agreement prior to
the issuance of any "Negative Declaration," "No Further Action Letter" or
approval of any "Remedial Action Workplan," as such terms are defined under
ISRA, or (iii) "Negative Declaration" or approvals of any "Remedial Action
Workplan" (in either case in form and substance satisfactory to the Acquiror)
with respect to each property in New Jersey which the Company or any Company
Subsidiary owns or operates, in each case to the extent that such property
renders the provisions of ISRA applicable to the transactions contemplated by
this Agreement. The Company will obtain and maintain a "Remediation Funding
Source" in form and amount approvable by the NJDEP as required in furtherance
of the Company's obligations under this covenant.
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5.14. Due Diligence. Each party shall, by the close of business on December
31, 1998 (the "Delivery Period"), deliver to the other party all lists and
other materials called for in Article III and Article IV, respectively, which
have not been provided on or before the date this Agreement is executed. Based
upon its review of such materials and any other information that it may
consider (including without limitation information received pursuant to
Section 5.4 hereof), each party shall have the right, in its sole discretion,
to terminate this Agreement by written notice to the other party given by the
close of business on January 19, 1999. In the event that either party shall
terminate this Agreement in accordance with this Section 5.14, neither party
shall have any further liability to the other.
5.15. Intentionally omitted.
5.16. Post-Effective Time Operations. From and after the Effective Time and
through the end of the Transition Period, NBSC shall not take any of the
actions described in Section 5.2 hereof (the "Actions") without the prior
written consent of the Acquiror. During the Transition Period, the Acquiror
shall have the right to expand the list of Actions at any time and to obtain
injunctive relief to enforce the provisions of this Section 5.16.
VI. CONDITIONS
6.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment, at or prior to the Effective Time, of the following
conditions:
6.1.1. The Merger shall have been approved and adopted by the requisite
vote of the holders of the Common Stock and by the requisite vote of the
holders of the Acquiror Common Stock.
6.1.1A. At the record date for the Company Meeting, the Company shall
have had at least 1,000 stockholders of record. At the record date for the
Acquiror Meeting, the Acquiror shall have had at least 1,000 stockholders
of record.
6.1.2. All authorizations, consents, orders or approvals of, and all
expirations of waiting periods imposed by, any Governmental Authority
(collectively, "Governmental Consents") which are necessary for the
consummation of the Merger (other than immaterial Governmental Consents,
the failure to obtain which would not have a material adverse effect on the
Acquiror, the Company, and their subsidiaries taken as a whole) shall have
been obtained or shall have occurred and shall be in full force and effect
at the Effective Time; provided, however, that the entry by a court, in any
suit brought by a private party or governmental entity challenging the
Merger as violative of the antitrust laws, of an order or decree permitting
the Merger, but requiring that any of the businesses, product lines or
assets of the Acquiror or the Company be held separate thereafter, shall
not be deemed to satisfy the conditions specified in this Section 6.1.2
unless the Acquiror consents to such requirements.
6.1.3. The Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act. No stop order suspending
the effectiveness of the Registration Statement shall have been issued by
the SEC and remain in effect.
6.1.4. The Acquiror shall have received (i) a letter, dated the date of
the Closing, from Arthur Andersen LLP, the Company's independent
accountants, to the effect that, for financial reporting purposes, such
firm is unaware of any reason why the Merger should not be accounted for as
a pooling of interests under GAAP if consummated in accordance with this
Agreement and (ii) a letter, dated the date of the Closing, from Radics &
Co., LLC, the Acquiror's independent accountants, to the effect that, for
financial reporting purposes, the Merger qualifies for pooling-of-interests
accounting treatment under GAAP if consummated in accordance with this
Agreement.
6.1.5. No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court in the United
States which prevents the consummation of the Merger shall have been issued
and remain in effect.
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6.1.6. The Company and the Acquiror shall have obtained an opinion of
Lowenstein Sandler reasonably satisfactory in form and substance to the
Company and the Acquiror, to the effect that (i) the Merger will constitute
a tax-free reorganization within the meaning of Section 368(a) of the Code,
(ii) no gain or loss shall be recognized by the stockholders of the Company
upon the conversion of their Shares into shares of the Acquiror Common
Stock pursuant to the terms of the Merger (except for cash received in lieu
of fractional shares) and (iii) no gain or loss shall be recognized by the
Company or Acquiror on account of the Merger or the issuance of shares of
capital stock pursuant to this Agreement. In rendering its opinion, such
firm may require and rely upon representations, standard for transactions
comparable to the Merger, contained in certificates of officers of the
Company and the Acquiror, or upon assumptions standard for transactions
comparable to the Merger.
6.1.7 At the Closing, the Acquiror shall have placed in "rabbi" trusts
(or other vehicles mutually agreed to by the parties) for the benefit of
Michael A. Dickerson and Robert A. Vandenbergh an amount (the "Amount")
equal to the present value of the aggregate amounts that would be owed to
Messrs. Dickerson and Vandenbergh, respectively, upon their estimated
retirement dates pursuant to their respective Salary Continuation
Agreements ("SERPs") with the Company and NBSC. Such Amount shall be
calculated using December 3, 1999 as Mr. Dickerson's retirement date and
March 22, 2017 as Mr. Vandenbergh's retirement date. In determining the
Amount, the present value shall be calculated using an interest rate equal
to the "long-term applicable federal rate" as of the date of Closing, as
such rate is defined in Section 1274(d) of the Code. In addition, at the
Closing, the Company, the Acquiror, Michael A. Dickerson and Robert A.
Vandenbergh shall have executed a letter (the "Side Letter") in form
satisfactory to the Company and the Acquiror pursuant to which the parties
acknowledge and agree that after the Closing, the Acquiror and its
subsidiaries will have no obligation to pay any additional amounts pursuant
to such SERPs.
6.2. Conditions to Obligations of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the additional
following conditions:
6.2.1. The Acquiror shall have performed in all material respects its
covenants contained in this Agreement required to be performed at or prior
to the Effective Time.
6.2.2. The representations and warranties of the Acquiror contained in
this Agreement shall be true in all material respects (other than
representations and warranties of the Acquiror contained in this Agreement
which are qualified as to materiality, which shall be true in all respects)
when made and as of the Effective Time as if made at and as of such time,
except as expressly contemplated or permitted by this Agreement and except
for representations and warranties relating to a time or times other than
the Effective Time which were or shall be true in all material respects
(other than representations and warranties which are qualified as to
materiality, which shall be true in all respects) at such time or times.
6.2.3. During the period from October 1, 1998 through the Closing Date,
there shall not have been any event, act or omission (individually or in
the aggregate) which shall have had a Material Adverse Effect upon the
Acquiror and the Acquiror Subsidiaries, taken as a whole, nor any loss or
damage to the assets of the Acquiror and the Acquiror Subsidiaries, whether
or not insured, which materially affects the ability of the Acquiror and
the Acquiror Subsidiaries to conduct their business.
6.2.4. The Acquiror shall have delivered to the Company a certificate,
dated the date of the Closing, signed by the President or Vice President
and by the Chief Financial Officer of the Acquiror that, to the best of
their knowledge and belief after due inquiry, the conditions set forth in
Sections 6.2.1, 6.2.2 and 6.2.3 have been satisfied.
6.2.5. Prior to or at the Closing, the Acquiror shall have delivered such
other closing documents as shall be reasonably requested by the Company in
form and substance acceptable to the Company's counsel (which acceptance
shall not be unreasonably withheld), including a certificate of the
Secretary or Assistant Secretary of the Acquiror, dated the Closing Date,
as to the incumbency of any officer of the Acquiror executing this
Agreement or any document related hereto and covering such other matters as
the Company may reasonably request.
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6.2.6. The Board of Directors of the Company shall have received an
opinion of Capital Consultants of Princeton, Inc., in form and substance
reasonably satisfactory to such Board, dated as of the date of the Joint
Proxy Statement/Prospectus, that the Merger is fair to the stockholders of
the Company from a financial point of view.
6.3. Conditions to Obligation of the Acquiror to Effect the Merger. The
obligation of the Acquiror to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the additional
following conditions:
6.3.1. The Company shall have performed in all material respects its
covenants contained in this Agreement required to be performed at or prior
to the Effective Time.
6.3.2. The representations and warranties of the Company contained in
this Agreement shall be true in all material respects (other than
representations and warranties of the Company contained in this Agreement
which are qualified as to materiality, which shall be true in all respects)
when made and as of the Effective Time as if made at and as of such time,
except as expressly contemplated or permitted by this Agreement and except
for representations and warranties relating to a time or times other than
the Effective Time which were or shall be true in all material respects
(other than representations and warranties which are qualified as to
materiality, which shall be true in all respects) at such time or times.
6.3.3. During the period from October 1, 1998 through the Closing Date,
there shall not have been any event, act or omission (individually or in
the aggregate) which shall have had a Material Adverse Effect upon the
Company and the Company Subsidiaries, taken as a whole, nor any loss or
damage to the assets of the Company and the Company Subsidiaries, whether
or not insured, which materially affects the ability of the Company and the
Company Subsidiaries to conduct their business.
6.3.4. The Company shall have delivered to the Acquiror a certificate,
dated the date of the Closing, signed by the President or Vice President
and by the Chief Financial Officer of the Company that, to the best of
their knowledge and belief after due inquiry, the conditions set forth in
Sections 6.3.1, 6.3.2 and 6.3.3 have been satisfied.
6.3.5. If requested by the Acquiror, the Acquiror and its directors and
officers who sign the Registration Statement shall have received from
Arthur Andersen LLP, the Company's independent certified public
accountants, an "agreed upon procedures" letter, dated the date of the
mailing of the Joint Proxy Statement/Prospectus to the Company's
stockholders, with respect to certain financial information regarding the
Company in the form customarily issued by such accountants at such time in
transactions of this type.
6.3.6. All consents of third parties (collectively, "Third Party
Consents") which are necessary for the consummation of the Merger (other
than immaterial Third Party Consents, the failure to obtain which would not
have a material adverse effect on the Acquiror, the Company, and their
subsidiaries taken as a whole) shall have been obtained and shall be in
full force and effect at the Effective Time.
6.3.7 The Acquiror shall have received letters, in the form of Appendix A
annexed hereto, from each person whom the Acquiror reasonably determines to
be an affiliate of the Company for purposes of (a) the SEC's Rule 145 and
(b) assuring that the Merger will be accounted for as a "pooling of
interests."
6.3.8. Prior to or at the Closing, the Company shall have delivered such
other closing documents as shall be reasonably requested by the Acquiror in
form and substance acceptable to the Acquiror's counsel (which acceptance
shall not be unreasonably withheld), including a certificate of the
Secretary or Assistant Secretary of the Company, dated the Closing Date, as
to the incumbency of any officer of the Company executing this Agreement or
any document related hereto and covering such other matters as the Acquiror
may reasonably request.
6.3.9. The Board of Directors of the Acquiror shall have received an
opinion of Ryan, Beck & Co., Inc., in form and substance reasonably
satisfactory to such Board, dated as of the date of the Joint Proxy
Statement/Prospectus, that the Merger is fair to the stockholders of the
Acquiror from a financial point of view.
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VII. TERMINATION
7.1. Events of Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company and the Acquiror:
7.1.1. By mutual consent of the Boards of Directors (or committees
thereof) of the Acquiror and the Company;
7.1.2. By either the Acquiror or the Company if the Merger shall not have
been consummated on or before September 30, 1999 (the "Outside Date"),
provided the terminating party is not otherwise in material breach of its
obligations under this Agreement;
7.1.3. By either the Acquiror or the Company if this Agreement is not
approved at the Company Meeting;
7.1.4. By either the Acquiror or the Company if this Agreement is not
approved at the Acquiror Meeting;
7.1.5. By the Acquiror or the Company, in the event of (i) a breach by
the other party of any representation or warranty contained herein, which
breach has not been cured within thirty (30) days after the giving of
written notice to the breaching party of such breach and which breach,
individually or in the aggregate when combined with other such breaches,
would cause the conditions set forth in Sections 6.2.2 or 6.3.2, as the
case may be, not to be met if the date of the action described above were
the date of the Closing or (ii) a material breach by the other party of any
of the covenants or agreements contained herein, which breach has not been
cured within thirty (30) days after the giving of written notice to the
breaching party of such breach;
7.1.6. By the Company if any of the conditions specified in Sections 6.1
and 6.2 have not been met or waived by the Company at such time as such
conditions can no longer be satisfied;
7.1.7. By the Acquiror if any of the conditions specified in Sections 6.1
and 6.3 have not been met or waived by the Acquiror at such time as such
conditions can no longer be satisfied;
7.1.8. By the Acquiror if the Board of Directors of the Company shall
withdraw, modify or change the Company Board Recommendation in a manner
adverse to the Acquiror, or if the Board of Directors of the Company shall
have refused to affirm the Company Board Recommendation as promptly as
practicable (but in any case within 10 business days) after receipt of any
written request from the Acquiror which request was made on a reasonable
basis;
7.1.9. By either the Acquiror or the Company pursuant to Section 5.14;
7.1.10. Intentionally omitted.
7.1.11. By the Company pursuant to Section 5.1.2; or
7.1.12. By the Acquiror if the Company shall have breached in any
material respect any of its obligations under the Stock Option Agreement.
7.2. Effect of Termination.
7.2.1. In the event of the termination of this Agreement pursuant to
Section 7.1, this Agreement, except for the provisions of Sections 5.4,
5.8, 7.2, 8.1 and 8.4, shall become void and have no effect, without any
liability on the part of any party or its directors, officers or
stockholders. Notwithstanding the foregoing, nothing in this Section 7.2
shall relieve any party to this Agreement of liability for a material
breach of any provision of this Agreement and provided, further, however,
that if it shall be judicially determined that termination of this
Agreement was caused by an intentional breach of this Agreement, then, in
addition to other remedies at law or equity for breach of this Agreement,
the party so found to have intentionally breached this Agreement shall
indemnify and hold harmless the other parties for their respective out-of-
pocket costs, fees and expenses of their counsel, accountants, financial
advisors and other experts and advisors as well as fees and expenses
incident to negotiation, preparation and execution of this Agreement and
related documentation and stockholders' meetings and consents ("Costs").
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7.2.2. The Company agrees that, if:
7.2.2.1 the Company terminates this Agreement pursuant to Sections
5.1.2 and 7.1.11;
7.2.2.2 the Acquiror terminates this Agreement pursuant to Section
7.1.8 (provided that such withdrawal, modification or change in the
Company Board Recommendation is not made in connection with a
termination pursuant to Section 7.1.5 or Section 7.1.9) or 7.1.12; or
7.2.2.3 (A) the Company or the Acquiror terminates this Agreement
pursuant to Section 7.1.3, (B) at the time of the failure by the
stockholders of the Company to so approve this Agreement (x) there is a
publicly announced or disclosed Competing Transaction with respect to
the Company involving a third party or (y) a third party shall have
filed an application or notice with the FRB or other Governmental
Authority for approval to engage in a Competing Transaction (a
"Competing Transaction Filing"), and (C) in the event that the
circumstance described in either clause (B)(x) or clause (B)(y) occurs,
within 12 months after such termination, the Company shall enter into
an Acquisition Agreement for a Business Combination (as defined below)
or shall consummate a Business Combination;
7.2.2.4 (A) at the time of the termination of this Agreement by the
Company pursuant to Section 7.1.9, a third party has contacted the
Company concerning a possible Business Combination (as defined herein)
and (B) in the event that the circumstance described in clause (A)
occurs, within 12 months after such termination, the Company shall
enter into an Acquisition Agreement for a Business Combination or shall
consummate a Business Combination;
then, with respect to Sections 7.2.2.3 and 7.2.2.4, (X) in the case of a
termination by the Acquiror pursuant to Section 7.1.8, within three business
days following any such termination, (Y) in the case of a termination by the
Company pursuant to Section 7.1.11 or a termination by the Acquiror pursuant
to Section 7.1.12, concurrently with such termination, or (Z) in the case of
(i) a termination by the Company or the Acquiror pursuant to Section 7.1.3
where a Competing Transaction has been publicly announced or publicly
disclosed or a Competing Transaction Filing has been made prior to the Company
Meeting (including any adjournment or postponement thereof), or (ii) a
termination by the Company pursuant to Section 7.1.9 where a third party has
contacted the Company concerning a possible Business Combination, upon the
earlier of the consummation of a Business Combination or execution of a
definitive agreement with respect thereto, the Company will pay to the
Acquiror in cash by wire transfer in immediately available funds to an account
designated by the Acquiror in reimbursement for the Acquiror's expenses an
amount in cash equal to the aggregate amount of the Acquiror's Costs incurred
in connection with pursuing the transactions contemplated by this Agreement,
including, without limitation, legal, accounting and investment banking fees.
For the purposes of this Section 7.2, "Business Combination" means (i) a
merger, consolidation, share exchange, business combination or similar
transaction involving the Company as a result of which the stockholders of the
Company prior to such transaction in the aggregate cease to own at least 85%
of the voting securities of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof), (ii) a sale, lease,
exchange, transfer or other disposition of more than 15% of the assets of the
Company and its subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or (iii) the acquisition, by a person (other
than the Acquiror or any affiliate thereof) or group (as such term is defined
under Section 13(d) of the 1934 Act and the rules and regulations thereunder)
of beneficial ownership (as defined in Rule 13d-3 under the 1934 Act) of more
than 15% of the Common Stock whether by tender or exchange offer or otherwise.
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VIII. MISCELLANEOUS
8.1. Non-Survival of Representations, Warranties, and Agreements. The
representations, warranties and covenants in this Agreement shall terminate at
the Effective Time or the earlier termination of this Agreement pursuant to
Section 7.1, as the case may be; provided, however, that if the Merger is
consummated, Sections 2.1 through 2.4, 5.4, 5.6, and this Section 8.1 shall
survive the Effective Time to the extent contemplated by such Sections; and
provided, further, however that the last sentence of Section 5.4, all of
Section 7.2, this Section 8.1, all of Section 8.9 and the Stock Option
Agreement shall in all events survive any termination of this Agreement.
8.2. Interpretation. For purposes of this Agreement, (i) unless the contest
of this Agreement expressly indicates otherwise, any singular term in this
Agreement shall include the plural and any plural term shall include the
singular, (ii) unless the contest of this Agreement expressly indicates
otherwise, the term section, schedule or appendix shall mean a section,
schedule or appendix of or to this Agreement and (iii) this Agreement shall
not be construed against the party that drafted all or a portion of this
Agreement merely by virtue of the fact that such party drafted all or a
portion of this Agreement.
8.3. Parties in Interest; Assignment. Except for Section 5.6 (which is
intended to be for the benefit of directors, officers and others to the extent
contemplated thereby and their beneficiaries, and which may be enforced by
such persons), this Agreement is not intended to nor shall it confer upon any
person (other than the parties hereto) any rights or remedies.
8.4. Expenses.
8.4.1. If the Merger is consummated, all unpaid costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by either the Acquiror or the Surviving
Corporation.
8.4.2. If this Agreement is terminated, except as otherwise provided in
Section 7.2 and in the Stock Option Agreement, all fees, costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses; provided, however, in such instance, all costs and expenses
incurred by the Company and the Acquiror in printing the Joint Proxy
Statement/Prospectus shall be shared equally by the Company and the
Acquiror. Final settlement with respect to payment of fees, costs and
expenses by the parties to this Agreement pursuant to this Section 8.4.2
shall be made within thirty (30) days of the termination of this Agreement.
8.5. Enforcement of the Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.6. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the
end that the transactions contemplated by this Agreement are consummated to
the maximum extent possible.
8.7. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be delivered personally, by facsimile
or by direct or overnight courier or sent by certified, registered or
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express air mail, postage prepaid, and shall be deemed given when delivered if
delivered personally, or by facsimile or courier, or if mailed, five days
after the date of mailing, as follows:
If to the Acquiror:
250 Oak Ridge Road
Oak Ridge, NJ 07438
Telephone: (973) 697-2000
Facsimile: (973) 697-8385
Attention: John W. Fredericks, President
With a copy to: Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (973) 597-2350
Facsimile: (973) 597-2351
Attention: Peter H. Ehrenberg, Esq.
If to the Company:
Branchville Square
P.O. Box 460
Branchville, NJ 07826
Telephone: (973) 948-3300
Facsimile: (973) 948-3695
Attention: Michael A. Dickerson, President
With a copy to: McCarter & English
Four Gateway Center
100 Mulberry Street
P.O. Box 652
Newark, NJ 07101
Telephone: (973) 622-4444
Facsimile: (973) 624-7070
Attention: Michael Horn, Esq.
8.8. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without reference
to choice of law principles thereof.
8.9. Assignment; Successors and Assigns. This Agreement may not be assigned,
and any attempted assignment shall be null and void. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, permitted assigns and legal representatives.
8.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original agreement, but all of
which together shall constitute one and the same instrument.
8.11. Titles and Headings. The titles, headings and list of definitions in
this Agreement are for reference purposes only, and shall not in any way
affect the meaning or interpretation of this Agreement.
8.12. Entire Agreement. This Agreement, including the Schedules and
Appendices attached thereto, the Stock Option Agreement and the
Confidentiality Agreement shall constitute the entire agreement among the
parties with respect to the matters covered hereby and shall supersede all
previous written, oral or implied understandings among them with respect to
such matters.
8.13. Amendment and Modification. This Agreement may only be amended or
modified in a written instrument signed by the party against whom enforcement
of such amendment or modification is sought. Subsequent to the approval of
this Agreement by the stockholders of the Company, no such amendment shall be
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made with respect to the Exchange Ratio without the approval of the Company's
stockholders. Subsequent to the approval of this Agreement by the stockholders
of the Acquirer, no such amendment shall be made with respect to the Exchange
Ratio without the approval of the Acquiror's stockholders.
8.13. Waiver. Except as otherwise required by law, any of the terms and
conditions of this Agreement may be waived at any time by the party or parties
entitled to the benefit thereof, but only by a writing signed by the party or
parties waiving such terms or conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
LAKELAND BANCORP, INC.
By: /s/ John W. Fredericks
Name:John W. Fredericks
Title:President
HIGH POINT FINANCIAL CORP.
By: /s/ Michael A. Dickerson
Name:Michael A. Dickerson
Title:President
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ANNEX B
June , 1999
PRIVATE AND CONFIDENTIAL
Board of Directors
High Point Financial Corp.
3 Broad Street
Branchville, NJ 07826
Members of the Board:
High Point Financial Corp. ("HIGH POINT") has entered into an Agreement and
Plan of Merger dated December 7, 1998 ("MERGER AGREEMENT") with Lakeland
Bancorp, Inc. ("LAKELAND") which provides for the acquisition of HIGH POINT by
means of a transaction ("MERGER") pursuant to which HIGH POINT would be merged
into LAKELAND, and The National Bank of Sussex County would become a wholly-
owned subsidiary of LAKELAND.
If the MERGER is approved and consummated, subject to the provisions of the
MERGER AGREEMENT, each share of HIGH POINT Common Stock issued and outstanding
would be converted at the Effective Time into the right to receive 1.2 shares
of common stock of LAKELAND.
In lieu of the issuance of applicable fractional shares, LAKELAND will make
a cash payment therefor in an amount equal to the fraction of such shares of
LAKELAND common stock multiplied by the average of the closing bid prices as
defined in the MERGER AGREEMENT.
You have requested our opinion as to whether the consideration offered in
the MERGER is fair, from a financial point of view, to the stockholders of
HIGH POINT.
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 its opinion, CAPITAL CONSULTANTS reviewed and analyzed, among
other things: (i) the MERGER AGREEMENT; (ii) the LAKELAND Registration
Statement on Form S-4 of which this Prospectus/Joint Proxy Statement is a
part; (iii) publicly available information relating to LAKELAND and HIGH POINT
including annual reports to stockholders and Annual Reports on Form 10-K filed
with the SEC for the years ended December 31, 1995 through 1998, the
Consolidated Statement of Financial Condition as of December 31, 1998, 1997,
1996 and 1995, and the related Consolidated Statements of Income, Changes in
Stockholders Equity and Cash Flows for the four year period ended December 31,
1998 included therein, and the quarterly reports to stockholders and Quarterly
Reports on Form 10-Q filed with the SEC for the periods ended March 31, 1999
and March 31, June 30, and September 30, 1998; (iv) certain historical
operating and financial information provided to CAPITAL CONSULTANTS by the
managements of HIGH POINT and LAKELAND; (v) historical and current market data
for the HIGH POINT 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 HIGH POINT 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 HIGH POINT 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 HIGH POINT and
LAKELAND for purposes of reviewing the future
<PAGE>
prospects of HIGH POINT and LAKELAND. CAPITAL CONSULTANTS evaluated the pro
forma ownership of the LAKELAND Common Stock by HIGH POINT's stockholders,
relative to the pro forma contribution of HIGH POINT'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.
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 HIGH POINT 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 the 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 stockholders of HIGH POINT.
Very truly yours,
CAPITAL CONSULTANTS OF PRINCETON, INC.
B-2
<PAGE>
ANNEX C
June , 1999
The Board of Directors
Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, NJ 07438
Members of the Board:
Lakeland Bancorp, Inc. ("Lakeland") and High Point Financial Corp. ("High
Point") have entered into an Agreement and Plan of Merger dated December 7,
1998 (the "Agreement"). Pursuant to the Agreement, High Point shall merge with
and into Lakeland (the "Merger"), and each share of High Point's issued and
outstanding common stock will be converted into and become the right to
receive 1.2 shares of Lakeland common stock subject to certain adjustments as
set forth in the Agreement. You have requested our opinion as to whether the
Exchange Ratio in the merger is fair, from a financial point of view, to the
holders of Lakeland common stock. We have assumed that the Merger will be a
tax free exchange and will be accounted for as a pooling of interests by
Lakeland.
Ryan, Beck & Co., as a customary part of its investment banking business, is
engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of this transaction, we have met separately with
members of senior management of Lakeland and High Point to discuss their
respective operations, historical financial statements, strategic plans and
future prospects. We have reviewed and analyzed material prepared in
connection with the Merger, including but not limited to the following: (i)
the Merger Agreement and related documents; (ii) the Joint Proxy
Statement/Prospectus regarding the Merger (iii) High Point's Annual Report on
Form 10-K for the years ended December 31, 1998, 1997, 1996, and 1995, and
High Point's Quarterly Reports on Form 10-Q for the periods ended March 31,
1999, September 30, 1998, June 30, 1998 and March 31, 1998; (iv) Lakeland's
Annual Report on Form 10-K for the years ended December 31, 1998, 1997, 1996,
and 1995, and (v) Lakeland's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999, September 30, 1998, June 30, 1998, March 31, 1998; (vi)
certain operating and financial information provided to us by the managements
of Lakeland and High Point relating to their respective business and
prospects; (vii) the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to High Point;
(viii) the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to Lakeland; and
(ix) the terms of recent acquisitions of commercial banks which Ryan, Beck
deemed generally comparable to High Point. We also conducted or reviewed such
other studies, analyses, inquiries and examinations as we deemed appropriate
for purposes of rendering this opinion.
While we have taken care in our investigation and analyses, we have relied
upon and assumed the accuracy, completeness and fairness of the financial and
other information provided to us by the respective institutions or which was
publicly available and have not assumed any responsibility for independently
verifying such information. We have also relied upon the managements of
Lakeland and High Point as to the reasonableness and achievability of the
financial and operating forecasts and projections (and the assumptions and
bases therefor) provided to us, although in certain instances we have made
certain adjustments to such financial and operating forecasts which in our
judgment were appropriate under the circumstances. In addition, we have
assumed with your consent that such forecasts and projections reflect the best
currently available estimates and judgments of the respective managements. We
are not experts in the evaluation of allowances for loan losses. Therefore, we
have not assumed any responsibility for making an independent valuation of the
adequacy of the allowances for loan losses set forth in the balance sheets of
Lakeland and High Point at March 31, 1999, and we assumed such allowances were
adequate and comply fully with applicable law, regulatory policy, sound
banking practice and policies of the Securities and Exchange Commission as of
the date of such financial statements. We also assumed
<PAGE>
that the Merger in all respects is, and will be consummated in compliance with
all laws and regulations applicable to Lakeland and High Point. We have not
made or obtained any independent evaluations or appraisals of the assets and
liabilities of either Lakeland and High Point or their respective
subsidiaries, nor have we reviewed any individual loan files of Lakeland and
High Point or their respective subsidiary banks.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate in the circumstances. We have assumed that in the course of
obtaining the necessary regulatory approvals for the Merger and the
transactions contemplated thereby, no restrictions will be imposed that will
have a material adverse effect on the contemplated benefits of the Merger or
the transactions contemplated thereby to Lakeland.
Our opinion is necessarily based on economic, market and other conditions
and projections as they exist and can be evaluated on the date hereof. Ryan,
Beck does not express any opinion as to the price or range of prices at which
Lakeland common stock might trade subsequent to the Merger.
We have been retained by the Board of Directors of Lakeland as an
independent contractor to act as financial advisor to Lakeland with respect to
the Merger and will receive a fee for our services. Ryan, Beck is a market
maker for both Lakeland's and High Point's common stock. Ryan, Beck has not
had an investment banking relationship with High Point in the past three (3)
years. Ryan, Beck's research department does not cover either Lakeland or High
Point. Ryan, Beck acted as financial advisor to Lakeland with respect to
Lakeland's acquisition of Metropolitan State Bank.
Our opinion is directed to the Board of Directors of Lakeland and does not
constitute a recommendation to any shareholder of Lakeland as to how such
shareholder should vote at any shareholder meeting held in connection with the
Merger.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the Exchange Ratio in the Merger as provided and described in the
Agreement is fair to the holders of Lakeland common stock from a financial
point of view.
Very truly yours,
RYAN, BECK & CO., INC.
C-2
<PAGE>
ANNEX D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Option Agreement") dated December 7, 1998, between
Lakeland Bancorp, Inc., a New Jersey corporation ("Acquiror"), and High Point
Financial Corp., a New Jersey corporation (the "Company").
WITNESSETH:
WHEREAS, the Board of Directors of Acquiror and the Board of Directors of
the Company have approved an Agreement and Plan of Merger dated as of the date
of this Agreement (the "Merger Agreement") providing for the merger of the
Company with and into the Acquiror;
WHEREAS, as a condition to the Acquiror's entering into the Merger
Agreement, the Acquiror has required that the Company agree, and the Company
has agreed, to grant to the Acquiror the option set forth herein to purchase
authorized but unissued shares of the Company's Common Stock;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions.
Capitalized terms used but not defined herein shall have the same meanings
as in the Merger Agreement.
2. Grant of Option.
Subject to the terms and conditions set forth herein, the Company hereby
grants to the Acquiror an option (the "Option") to purchase up to 772,243
authorized and unissued shares of the Company's Common Stock (the "Option
Shares") at a price per share equal to $13.25 (the "Purchase Price") payable
in cash as provided in Section 4 hereof.
3. Exercise of Option.
(a) The Acquiror may exercise the Option, in whole or in part, at any time
or from time to time if a Purchase Event (as defined below) shall have
occurred and the Merger Agreement shall have been terminated; provided,
however, that to the extent the Option shall not have been exercised, it shall
terminate and be of no further force and effect upon the earliest to occur of:
(i) the Effective Time of the Merger;
(ii) 5:00 p.m. New York City time on the date which is 270 days following
the occurrence of a Purchase Event; and
(iii) (x) the termination of the Merger Agreement in accordance with its
terms (other than (A) pursuant to Section 7.1.11 thereof or (B) pursuant to
Section 7.1.3 thereof if at the Company Meeting (including any adjournment
or postponement thereof) the requisite vote of the Company's stockholders
to approve the Merger and the transactions contemplated hereby shall not
have been obtained, and at the time of such failure by the Company's
stockholders to so approve the Merger there is a publicly announced or
disclosed Competing Transaction with respect to the Company or there has
been a Competing Transaction Filing or (C) by the Company pursuant to
Section 7.1.9 thereof if at the time of such termination a third party has
contacted the Company concerning a possible Competing Transaction) prior to
the occurrence of a Purchase Event, or (y) 5:00 p.m. New York City time on
the date which is one year following the termination of the Merger
Agreement pursuant to Section 7.1.3 thereof or Section 7.1.9 thereof if no
Purchase Event has occurred pursuant to clause (b)(ii) below;
and provided, further, that if the Option cannot be exercised before its date
of termination as a result of any injunction, order or similar restraint
issued by a court of competent jurisdiction or failure to receive the approval
of any Governmental Authority, the Option shall expire on the 10th business
day after such injunction, order or
<PAGE>
restraint shall have been dissolved or such approval shall have been obtained
or when such injunction, order or restraint shall have become permanent and no
longer subject to appeal, as the case may be but in no event later than 18
months after the occurrence of a Purchase Event.
(b) As used herein, a "Purchase Event" shall mean any of the following
events:
(i) The Board of Directors of the Company shall have withdrawn, modified
or changed the Company Board Recommendation in a manner adverse to the
Acquiror, or if the Board of Directors of the Company shall have refused to
affirm the Company Board Recommendation as promptly as practicable (but in
any case within 10 business days) after receipt of any written request from
the Acquiror which request was made on a reasonable basis (other than any
withdrawal of, or change in, or failure to reaffirm such Company Board
Recommendation in connection with the Company's termination of the Merger
Agreement pursuant to Section 7.1.5 or Section 7.1.9 of such Merger
Agreement);
(ii) (A) if at the Company Meeting (including any adjournment or
postponement thereof) the requisite vote of the Company's stockholders to
approve the Merger and the transactions contemplated hereby shall not have
been obtained, and at the time of such failure by the Company's
stockholders to so approve the Merger (x) there is a publicly announced or
disclosed Competing Transaction with respect to the Company involving a
third party or (y) a third party shall have filed an application or notice
with the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") or other governmental authority or regulatory or
administrative agency or commission, domestic or foreign (each a
"Governmental Authority"), for approval to engage in a Competing or (B) if
at the time the Company terminates the Merger Agreement pursuant to Section
7.1.9 of such Merger Agreement, a third party has contacted the Company
concerning a possible Competing Transaction and (in the event either A(x)
or A(y) or B occurs) within twelve months after termination of the Merger
Agreement, the Company shall enter into a letter of intent, agreement-in-
principle, business combination or merger agreement or other similar
agreement for a Competing Transaction or a Competing Transaction is
consummated in each case with such third party or a bank, bank holding
company or other financial institution or any of their respective
affiliates;
(iii) if the Company shall have breached in any material respect any of
its representations, warranties or obligations under this Agreement; or
(iv) if the Merger Agreement shall have been terminated by the Company
pursuant to Sections 5.1.2 and 7.1.11 of the Merger Agreement.
(c) As used herein, the terms "Beneficial Ownership", "Beneficial Owner" and
"Beneficially Own" shall have the meanings ascribed to them in Rule 13d-3
under the 1934 Act. As used herein, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the 1934 Act.
(d) In the event the Acquiror wishes to exercise the Option, it shall deliver
to the Company a written notice (the date of receipt of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than two business days nor later than 60 calendar days from the Notice
Date for the closing of such purchase (the "Closing Date"); provided that if the
closing of the purchase and sale pursuant to the Option (the "Closing") cannot
be consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and, provided further that, without
limiting the foregoing, if prior notification to or approval of the Federal
Reserve Board or any other Governmental Authority is required in connection with
such purchase, the Acquiror and, if applicable, the Company shall promptly file
the required notice or application for approval and shall expeditiously process
the same (and the Company shall cooperate with the Acquiror in the filing of any
such notice or application and the obtaining of any such approval), and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be, (i) any required
notification period has expired or been terminated or (ii) such approval has
been obtained, and in either event, any requisite waiting period has passed.
D-2
<PAGE>
(e) In the event (i) the Acquiror receives official notice that an approval
of any Governmental Authority required for the purchase of Option Shares would
not be issued or granted or (ii) a Closing Date shall not have occurred within
18 months after the related Notice Date due to the failure to obtain any such
required approval, the Acquiror shall be entitled to exercise its right as set
forth in Section 7 or, to the extent legally permitted, to exercise the Option
in connection with the resale of the Company's Common Stock or other
securities pursuant to a registration statement as provided in Section 9. The
provisions of this Section 3 and Section 6 shall apply with appropriate
adjustments to any such exercise.
4. Payment and Delivery of Certificates.
(a) At the Closing, the Acquiror shall pay to the Company the aggregate
Purchase Price for the shares of the Company's Common Stock purchased pursuant
to the exercise of the Option in immediately available funds by wire transfer
to a bank account designated not later than one business day prior to the
Closing Date by the Company.
(b) At such Closing, simultaneously with the delivery of cash as provided in
Section 4(a), the Company shall deliver to the Acquiror a certificate or
certificates representing the number of shares of the Company's Common Stock
purchased by the Acquiror, registered in the name of the Acquiror or a nominee
designated in writing by the Acquiror, which shares shall be fully paid and
non-assessable and free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever.
(c) If at the time of issuance of any shares of the Company's Common Stock
pursuant to any exercise of the Option, the Company shall have issued any
share purchase rights or similar securities to holders of the Company's Common
Stock, then each such share of the Company's Common Stock shall also represent
rights with terms substantially the same as and at least as favorable to the
Acquiror as those issued to other holders of the Company's Common Stock.
(d) Certificates for the Company's Common Stock delivered at any Closing
hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
"The shares represented by this certificate are subject to certain
provisions of an agreement between the registered holder hereof and High
Point Financial Corp., a copy of which is on file at the principal office
of High Point Financial Corp., and to resale restrictions arising under the
Securities Act of 1933, as amended, and any applicable state securities
laws. A copy of such agreement will be provided to the holder hereof
without charge upon receipt by High Point Financial Corp. of a written
request therefor."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend in connection with a transfer
or sale if (i) the Company has been furnished with an opinion of counsel,
reasonably satisfactory to counsel for the Company, that such transfer or sale
will not violate the 1933 Act or applicable securities laws of any state or
(ii) such transfer or sale shall have been registered and qualified pursuant
to the 1933 Act and any applicable state securities laws.
5. Authorization, etc.
(a) The Company hereby represents and warrants to the Acquiror that:
(i) the Company has full corporate authority to execute and deliver this
Option Agreement and to consummate the transactions contemplated hereby;
(ii) such execution, delivery and consummation have been authorized by
the Board of Directors of the Company, and no other corporate proceedings
are necessary therefor;
(iii) this Option Agreement has been duly and validly executed and
delivered by the Company and represents a valid and legally binding
obligation of the Company, enforceable against the Company in accordance
with its terms; and
D-3
<PAGE>
(iv) the Company has taken all necessary corporate action to authorize
and reserve and permit it to issue and, at all times from the date hereof
through the date of the exercise in full or the expiration or termination
of the Option, shall have reserved for issuance upon exercise of the
Option, 772,243 shares of the Company's Common Stock (subject to adjustment
as provided herein), all of which, upon issuance in accordance with the
terms of this Option Agreement, shall be duly authorized, validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
claims, liens, encumbrances and security interests and not subject to any
preemptive rights of any shareholder of the Company.
(b) The Acquiror hereby represents and warrants to the Company that:
(i) the Acquiror has full corporate authority to execute and deliver this
Option Agreement and to consummate the transactions contemplated hereby;
(ii) such execution, delivery and consummation have been authorized by
all requisite corporate action by the Acquiror, and no other corporate
proceedings are necessary therefor;
(iii) this Option Agreement has been duly and validly executed and
delivered by the Acquiror and represents a valid and legally binding
obligation of the Acquiror, enforceable against the Acquiror in accordance
with its terms; and
(iv) any shares of the Company's Common Stock acquired by the Acquiror
upon exercise of the Option will be acquired for its own account and will
not be taken with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in compliance with the 1933
Act.
6. Adjustment upon Changes in Capitalization.
In the event of any change in the Company's Common Stock by reason of stock
dividends, split-ups, recapitalizations or the like, the type and number of
shares subject to the Option, and the purchase price per share, as the case
may be, shall be adjusted appropriately. In the event that any additional
shares of the Company's Common Stock are issued after the date of this Option
Agreement (other than pursuant to an event described in the preceding sentence
or pursuant to this Option Agreement or options granted under employee benefit
plans), the number of shares of the Company's Common Stock subject to the
Option shall be adjusted so that, after such issuance, when aggregated with
other shares of the Company's Common Stock owned by the Acquiror and its
affiliates, it equals 24.9% of the number of shares of the Company's Common
Stock then issued and outstanding (assuming all shares subject to the Option
have been issued).
7. Repurchase.
(a) At the request of the Acquiror, at any time from and after the
occurrence of a Purchase Event and ending 180 days immediately thereafter (the
"Acquiror Repurchase Period"), the Company (or any successor entity thereof)
shall repurchase the Option from the Acquiror together with all (but not less
than all) shares of the Company's Common Stock purchased by the Acquiror
pursuant to the Option with respect to which the Acquiror then has Beneficial
Ownership, at a price (when calculated on a per share basis, the "Per Share
Repurchase Price") equal to the sum of:
(i) the difference between (A) the "Market/Tender Offer Price" for shares
of the Company's Common Stock (defined as the higher of (x) the highest
price per share at which a tender or exchange offer has been made for
shares of the Company's Common Stock or (y) the highest closing price per
share of the Company's Common Stock as reported by Nasdaq for any day
within that portion of the Acquiror Repurchase Period which precedes the
date the Acquiror gives notice of the required repurchase under this
Section 7) and (B) the Purchase Price (subject to adjustment as provided in
Section 6), multiplied by the number of shares of the Company's Common
Stock with respect to which the Option has not been exercised, but only if
such Market/Tender Offer Price is greater than such Purchase Price;
(ii) the Purchase Price paid by the Acquiror for any shares of the
Company's Common Stock acquired pursuant to the Option; and
(iii) the difference between the Market/Tender Offer Price and the
Purchase Price paid by the Acquiror for any shares of the Company's Common
Stock purchased pursuant to the exercise of the Option,
D-4
<PAGE>
multiplied by the number of shares so purchased, but only if such
Market/Tender Offer Price is greater than such Purchase Price.
(b) In the event the Acquiror exercises its rights under this Section 7, the
Company shall, within 10 business days thereafter, pay the required amount to
the Acquiror by wire transfer of immediately available funds to an account
designated by the Acquiror and the Acquiror shall surrender to the Company the
Option and the certificates evidencing the shares of the Company's Common
Stock purchased pursuant to the Option with respect to which the Acquiror then
has Beneficial Ownership.
(c) In determining the Market/Tender Offer Price, the value of any
consideration other than cash shall be determined by an independent nationally
recognized investment banking firm selected by the Acquiror.
8. Repurchase at Option of the Company.
Except to the extent that the Acquiror shall have previously exercised its
rights under Section 7, at the request of the Company during the six-month
period commencing 180 days following the first occurrence of a Purchase Event,
the Company may repurchase from the Acquiror, and the Acquiror shall sell to
the Company, all (but not less than all) of the Company's Common Stock
acquired by the Acquiror pursuant to the Option (to the extent that the
Acquiror has Beneficial Ownership of such shares at the time of such
repurchase) at a price per share equal to the greatest of (i) 110% of the
Market/Tender Offer Price per share (calculated in the manner set forth in
Section 7(a)(i) hereof but utilizing the period beginning on the occurrence of
a Purchase Event and ending on the date the Company exercises its repurchase
right pursuant to this Section 8), (ii) the Per Share Repurchase Price or
(iii) the sum of (A) the aggregate Purchase Price of the shares so repurchased
plus (B) interest on the aggregate Purchase Price paid for the shares so
repurchased from the date of purchase by the Acquiror to the date of
repurchase at the highest rate of interest announced by Citibank, N.A. as its
prime or base lending or reference rate during such period, less any dividends
received on the shares so repurchased, which sum shall be divided by the
number of shares of the Company's Common Stock to be repurchased by the
Company. Any repurchase under this Section 8 shall be consummated in
accordance with Section 7(b).
9. Registration Rights.
At any time after a Closing, the Company shall, if requested by any holder
or Beneficial Owner of shares of the Company's Common Stock issued upon
exercise of the Option (each a "Holder"), as expeditiously as possible file a
registration statement on a form for general use under the 1933 Act if
necessary in order to permit the sale or other disposition of the shares of
the Company's Common Stock that have been acquired upon exercise of the Option
in accordance with the intended method of sale or other disposition requested
by any such Holder. Each such Holder shall provide all information reasonably
requested by the Company for inclusion in any registration statement to be
filed hereunder. The Company shall use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective as may be reasonably necessary to effect
such sales or other dispositions. The registration effected under this Section
9 shall be at the Company's expense except for underwriting commissions and
the fees and disbursements of such Holders' counsel attributable to the
registration of shares of the Company's Common Stock. In no event shall the
Company be required to effect more than one registration hereunder. The filing
of any registration statement required hereunder may be delayed for such
period of time (not to exceed 90 days) as may reasonably be required to
facilitate any public distribution by the Company of the Company's Common
Stock, if a special audit of the Company would otherwise be required in
connection therewith or for such period of time during which the Company is in
possession of material information concerning it, its business affairs or a
material transaction in each case the public disclosure of which could have a
material adverse effect on the Company or significantly disrupt such material
transaction. If requested by any such Holder in connection with such
registration, the Company shall become a party to any underwriting agreement
relating to the sale of such shares on terms and including obligations and
indemnities which are customary for parties similarly situated. Upon receiving
any request for registration under this Section 9 from any Holder, the Company
agrees to send a copy thereof to any other person known to the Company to be
D-5
<PAGE>
entitled to registration rights under this Section 9, in each case by promptly
mailing the same, postage prepaid, to the address of record of the persons
entitled to receive such copies.
10. Listing.
If the Company's Common Stock or any other securities to be acquired upon
exercise of the Option are then quoted on Nasdaq or listed on any national
securities exchange, the Company, upon the request of the Acquiror, will
promptly file an application to have the shares of the Company's Common Stock
or other securities to be acquired upon exercise of the Option quoted on
Nasdaq or listed on such exchange and will use its best efforts to obtain
approval of such applications as soon as practicable.
11. Severability.
Any term, provision, covenant or restriction contained in this Option
Agreement held by a court or other Governmental Authority of competent
jurisdiction to be invalid, void or unenforceable, shall be ineffective to the
extent of such invalidity, voidness or unenforceability, but neither the
remaining terms, provisions, covenants or restrictions contained in this
Option Agreement nor the validity or enforceability thereof in any other
jurisdiction shall be affected or impaired thereby. Any term, provision,
covenant or restriction contained in this Option Agreement that is so found to
be so broad as to be unenforceable shall be interpreted to be as broad as is
enforceable.
12. Miscellaneous.
(a) Expenses. Each of the parties hereto shall pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel, except as otherwise
provided herein.
(b) Entire Agreement. This Option Agreement, the Merger Agreement (including
the Schedules and Appendices attached thereto) and the Confidentiality
Agreement constitute the entire agreement among the parties and supersede all
prior agreements and understandings by or among the parties, written and oral,
with respect to the subject matter hereof and thereof.
(c) Successors; No Third Party Beneficiaries. The terms and conditions of
this Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Nothing
in this Option Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations, or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered in
accordance with Section 8.7 of the Merger Agreement (which is incorporated
herein by reference).
(e) Counterparts. This Option Agreement may be executed in counterparts, and
each such counterpart shall be deemed to be an original instrument, but both
such counterparts together shall constitute but one agreement.
(f) Further Assurances. In the event of any exercise of the Option by the
Acquiror, the Company and the Acquiror shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
(g) Specific Performance. The parties hereto agree that if for any reason
the Acquiror or the Company shall have failed to perform its obligations under
this Option Agreement, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the
D-6
<PAGE>
securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief. This provision is without prejudice to
any other rights that either party hereto may have against the other party
hereto for any failure to perform its obligations under this Option Agreement.
(h) Governing Law. This Option Agreement shall be governed by the laws of
the State of New Jersey. All actions and proceedings arising out of or
relating to this Option Agreement shall be heard and determined in any New
Jersey state court or in any federal court sitting in New Jersey.
(i) Consent to Jurisdiction; Venue.
(x) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the state courts of New Jersey and to the jurisdiction of
the United States District Court for the District of New Jersey, for the
purpose of any action or proceeding arising out of or relating to this
Option Agreement and each of the parties hereto irrevocably agrees that all
claims in respect to such action or proceeding may be heard and determined
exclusively in any New Jersey state court or in any federal court sitting
in New Jersey. Each of the parties hereto agrees that a final judgment in
any action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.
(y) Each of the parties hereto irrevocably consents to the service of any
summons and complaint and any other process in any other action or
proceeding relating hereto, on behalf of itself or its property, by the
personal delivery of copies of such process to such party. Nothing in this
Section 11(i) shall affect the right of any party hereto to serve legal
process in any other manner permitted by law.
(j) Regulatory Approvals; Section 16(b). If, in connection with the exercise
of the Option under Section 3, prior notification to or approval of the
Federal Reserve Board or any other Governmental Authority is required, then
each of the parties will use its reasonable efforts to make all filings with,
and to obtain the consent of, all third parties and Governmental Authorities
necessary to the consummation of the transactions contemplated by this Option
Agreement, including, without limitation, applying to the Federal Reserve
Board under the Bank Holding Company Act and to state banking authorities for
approval to acquire the shares issuable hereunder. Periods of time that
otherwise would run pursuant hereto (if any) shall run instead from the date
on which any such required notification period has expired or been terminated
or such approval has been obtained, and in either event, any requisite waiting
period shall have passed. Periods of time that otherwise would run pursuant to
Sections 3, 7 or 8 shall also be extended to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act.
(k) Waiver and Amendment. Any provision of this Option Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Option Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
D-7
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date first written above.
Lakeland Bancorp, Inc.
/s/ John W. Fredericks
By___________________________________
Name: John W. Fredericks
Title: President
High Point Financial Corp.
/s/ Michael A. Dickerson
By___________________________________
Name: Michael A. Dickerson
Title: President
D-8
<PAGE>
ANNEX E
Form of Amendment to the
Certificate of Incorporation of Lakeland Bancorp, Inc.
RESOLVED, that Section 3 of the Certificate of Incorporation of Lakeland
Bancorp, Inc. be, and the same hereby is, amended by deleting the entire
section thereof, and replacing it with the following language:
"3. Shares Authorized. The maximum number of shares which the corporation
shall have the authority to issue is 40,000,000 shares of common stock, no par
value."
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE 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 the 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 the 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 the 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.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 7, 1998, by and
between Lakeland Bancorp, Inc. and High Point Financial Corp. See Annex A
of the joint proxy statement/prospectus included in this registration
statement.
2.2 Stock Option Agreement, dated as of December 7, 1998, by High Point
Financial Corp. in favor of Lakeland Bancorp Inc. See Annex D of the
joint proxy statement/prospectus included in this registration statement.
4.1 Certificate of Incorporation of Lakeland Bancorp, Inc., as amended, is
incorporated by reference to Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998 filed with the
SEC on March 24, 1999.
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 SEC on March 30, 1990.
5.1 Opinion of Lowenstein Sandler PC.
8.1 Opinion of Lowenstein Sandler PC, concerning tax matters.
23.1 Consent of Radics & Co., LLC.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Lowenstein Sandler PC (contained in Exhibit 5.1 and Exhibit
8.1).
23.4 Consent of Capital Consultants of Princeton, Inc.
23.5 Consent of Ryan, Beck & Co., Inc.
23.6 Consent of Grant Thornton LLP.
24.1 Power of Attorney.
99.1 Form of High Point Financial Corp. Proxy Card.
99.2 Form of Lakeland Bancorp, Inc. Proxy Card.
</TABLE>
(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.
(c) Report, Opinion or Appraisal.
Not applicable.
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section l0(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 a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4, 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 the
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(g) The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and 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; and
(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 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Registration Statement on Form S-4 and 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 the 3rd day of June, 1999.
Lakeland Bancorp, Inc.
By: /s/ John W. Fredericks
----------------------------------
John W. Fredericks
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-4 has been signed by the following persons in the
capacities indicated on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ John W. Fredericks Chairman & Director June 3, 1999
______________________________________
John W. Fredericks
/s/ Robert B. Nicholson* Director June 3, 1999
______________________________________
Robert B. Nicholson
/s/ Bruce G. Bohuny* Director June 3, 1999
______________________________________
Bruce G. Bohuny
/s/ Mary Ann Deacon* Director June 3, 1999
______________________________________
Mary Ann Deacon
/s/ Mark J. Fredericks* Director June 3, 1999
______________________________________
Mark J. Fredericks
/s/ Paul P. Lubertazzi* Director June 3, 1999
______________________________________
Paul P. Lubertazzi
/s/ Joseph P. O'Dowd* Director June 3, 1999
______________________________________
Joseph P. O'Dowd
/s/ John Pier* Director June 3, 1999
______________________________________
John Pier
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Arthur L. Zande* Director, Vice President June 3, 1999
______________________________________ and Treasurer (Principal
Arthur L. Zande Financial & Accounting
Officer)
/s/ Roger Bosma* President and Chief June 3, 1999
______________________________________ Executive Officer
Roger Bosma (Principal Executive
Officer) and Director
* /s/ John W. Fredericks
______________________________________
John W. Fredericks
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT 5.1
June 3, 1999
Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, NJ 07438
Re: Lakeland Bancorp, Inc. - Registration Statement on Form S-4
Ladies & Gentlemen:
We are acting as special counsel to Lakeland Bancorp, Inc., a New Jersey
corporation ("Lakeland"), in connection with the Registration Statement on Form
S-4 being filed by Lakeland with the Securities and Exchange Commission (the
"Registration Statement") with respect to up to 4,325,073 shares of Lakeland
Common Stock, par value $2.50 per share ("Lakeland Common Stock"), proposed to
be issued in connection with the merger of High Point Financial Corp., a New
Jersey corporation ("High Point"), with and into Lakeland, as described in the
joint proxy statement/prospectus that is a part of the Registration Statement.
In connection with this opinion, we have reviewed the Registration Statement and
the exhibits thereto, and we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
certificates of public officials and of officers of Lakeland, and other
instruments, and such matters of law and fact as we have deemed necessary to
render the opinion contained herein.
Based upon and subject to the foregoing, we are of the opinion that the shares
of Lakeland Common Stock being registered under the Registration Statement, when
issued pursuant to the merger following approval of the Agreement and Plan of
Merger, dated as of December 7, 1998, by and among Lakeland and High Point, by
the requisite votes of the stockholders of High Point and Lakeland, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement and to the reference to
our firm under the caption "LEGAL MATTERS" in the joint proxy
statement/prospectus contained therein. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
LOWENSTEIN SANDLER PC
<PAGE>
EXHIBIT 8.1
June 3, 1999
Lakeland Bancorp, Inc. High Point Financial Corp.
250 Oak Ridge Road Branchville Square
Oak Ridge, NJ 07438 P.O. Box 460
Branchville, NJ 07826
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the "Code"),
of the merger of High Point Financial Corp., a New Jersey corporation (the
"Company"), with and into Lakeland Bancorp, Inc., a New Jersey corporation (the
"Acquiror") (such merger hereinafter is referred to as the "Merger").
Our opinion is based upon (i) the consummation of Merger as set forth in the
Agreement and Plan of Merger made and entered into as of December 7, 1998, by
and among the Acquiror and the Company, including but not limited to the
appendices thereto (the "Merger Agreement") /1/ (ii) the facts set forth in the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission with respect to the Merger (the "Registration Statement"), (iii) the
assumption that representations with respect to the Merger made by management of
the Acquiror and the Company, respectively, in letters dated today addressed to
this firm, shall be true and correct as of the Effective Time, /2/ and (iv)
current provisions of the Code, the regulations thereunder, administrative
rulings of the Internal Revenue Service and court decisions. Based thereupon,
and conditioned upon our understanding that the transactions contemplated by the
Merger Agreement will be carried out strictly in accordance with the terms of
the Merger Agreement, it is our opinion that:
(i) the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code, (ii) no gain or loss shall be
recognized by the stockholders of the Company upon the conversion of
their Shares into shares of the Acquiror Common Stock pursuant to the
terms of the Merger (except for cash received in lieu of fractional
shares) and (iii) no gain or loss shall be recognized by the Company or
Acquiror on account of the Merger or the issuance of shares of capital
stock pursuant to this Agreement.
Please note that we express no opinion as to any tax consequences of the Merger
other than those set forth above, including but not limited to any state, local
or foreign tax consequences, and any estate or gift tax consequences. Please
note further that our opinion relating to the federal income tax consequences of
the Merger to stockholders of the Company are limited to those
- --------
/1/ Capitalized terms used but not defined herein have the meanings ascribed to
them in the Merger Agreement.
/2/ We have not independently verified the factual matters set forth in the
representations made by management of the Acquiror and the Company.
<PAGE>
Page 2
holders of Shares who are citizens or residents of the United States of America
("U.S. Holders"). For purposes hereof, U.S. Holders do not include certain
classes of taxpayers, including but not limited to foreign persons, insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities and persons who hold Shares in a hedging transaction or as part of a
straddle, conversion transaction, or similar transaction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "United
States Federal Income Tax Consequences" and "Legal Matters" in the Joint Proxy
Statement/Prospectus. The issuance of such consent does not concede that we are
an "expert" for the purposes of the Securities Act of 1933.
Very truly yours,
LOWENSTEIN SANDLER PC
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 11, 1999, on the
consolidated financial statements of Lakeland Bancorp, Inc. (the "Company") and
Subsidiaries as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, in the Registration Statement on Form
S-4 filed by the Company. Additionally, we hereby consent to the references to
our firm under the heading "Experts" in such Registration Statement.
Radics & Co., LLC
Pine Brook, New Jersey
June 2, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference into this Registration Statement on Form S-4 of our report dated
January 19, 1999, with respect to High Point Financial Corp.'s (High Point's)
1998 financial statements which were previously included in Form 10-K for the
year ended December 31, 1998 and to all references to our Firm in this
Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
June 2, 1999
<PAGE>
Exhibit 23.4
CONSENT OF CAPITAL CONSULTANTS OF PRINCETON, INC.
June 2, 1999
To Whom It May Concern:
We hereby consent to the use of our fairness opinion letter attached as Annex B
and to the reference to our firm under the heading "Opinion of High Point'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 High Point Financial Corp. by Lakeland Bancorp, Inc.
Very truly yours,
CAPITAL CONSULTANTS OF PRINCETON, INC.
<PAGE>
Exhibit 23.5
CONSENT OF RYAN, BECK & CO.
We hereby consent to the references in the Proxy Statement/Prospectus to our
opinion, dated June __, 1999 with respect to the merger of Lakeland Bancorp,
Inc. and High Point Financial Corp. and to our firm, respectively, and to the
inclusion of such opinion as an annex to such Proxy Statement/Prospectus. By
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission
thereunder.
RYAN, BECK & CO., INC.
By: /s/ David P. Downs
---------------------
David P. Downs
Senior Vice President
Livingston, NJ
June 2, 1999
<PAGE>
Exhibit 23.6
Consent of Independent Certified Public Accountants
We have issued our report dated January 8, 1999 accompanying the consolidated
financial statements (not presented separately herein) of Metropolitan State
Bank and Subsidiary (a wholly owned subsidiary of Lakeland Bancorp, Inc.)
included in the 1998 Annual Report of Lakeland Bancorp, Inc. on Form 10-K for
the year ended December 31, 1998 which is included in this Registration
Statement. We consent to the inclusion in the Registration Statement of the
aforementioned report and to the use of our name as it appears under the caption
"Experts."
Grant Thornton LLP
Philadelphia, Pennsylvania
June 2, 1999
<PAGE>
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 the
registrant's registration statement described below, including all amendments
and supplements 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 or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, to sign the registrant's Registration
Statement on Form S-4 pertaining to the issuance of all shares of the Common
Stock of Lakeland Bancorp, Inc. (the "Company") in connection with that certain
Agreement and Plan of Merger between the Company and High Point Financial Corp.,
dated as of December 7, 1998, including any and all amendments and supplements
to such Registration Statement, 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 as of the 26th day of May, 1999 (except for Mr. Bosma
who signed as of June 1, 1999).
Signatures Title
/s/ Robert B. Nicholson
______________________________ Director
Robert B. Nicholson
/s/ John W. Fredericks
______________________________ Director
John W. Fredericks
/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/ Paul Lubertazzi
______________________________ Director
Paul P. Lubertazzi
/s/ Joseph P. O'Dowd
______________________________ Director
Joseph P. O'Dowd
/s/ Arthur L. Zande
______________________________ Director, Vice President and
Arthur L. Zande Treasurer (Chief Financial and
Accounting Officer)
/s/ Roger Bosma
______________________________ Director, Chief Executive Officer
Roger Bosma and President
-2-
<PAGE>
EXHIBIT 99.1
HIGH POINT FINANCIAL CORP.
Proxy for Special Meeting -- July 14, 1999
The undersigned hereby constitutes and appoints Bruce L. Earlin and Joseph
P. Quinn and each of them, the true and lawful agents and proxies with full
power of substitution in each, to represent the undersigned at the Special
Meeting of Stockholders of High Point Financial Corp., to be held at Perona
Farms, 350 Andover-Sparta Road (Route 517), Andover, New Jersey on July 14,
1999 at 3:00 p.m., and at any adjournments thereof, on all matters
coming before said meeting.
(change of address)
_________________________________
_________________________________
_________________________________
_________________________________
(if you have written in the above space, please
mark the address change box on the reverse side of
this card)
_____________________________
SEE REVERSE SIDE
<PAGE>
This proxy when properly executed will be voted in the manner directed and,
if no instructions are indicated, will be voted (1) FOR approval of the proposed
merger agreement which provides for the merger of High Point Financial Corp.
into Lakeland Bancorp, Inc., (2) FOR the adjournment of the special meeting, if
necessary, to permit further solicitation of proxies if there are not sufficient
votes at the time of the special meeting to approve the merger agreement, and
(3) on transactions of such other business as may properly come before the
meeting and any adjournment thereof.
1. Approval of the proposed merger agreement which provides for the merger of
High Point Financial Corp. into Lakeland Bancorp, Inc.
FOR AGAINST ABSTAIN
[___] [___] [___]
2. To adjourn the special meeting, if necessary, to permit further solicitation
of proxies if there are not sufficient votes at the time of the special meeting
to approve the merger agreement.
FOR AGAINST ABSTAIN
[___] [___] [___]
Please mark, sign, date and return the proxy
card promptly using the enclosed envelope.
Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full title
as such
_______________________________, 1999
_______________________________, 1999
Signature(s) Date
Will Attend
Special Meeting Address Change
__________________________
<PAGE>
EXHIBIT 99.2
PROXY
OF
LAKELAND BANCORP, INC.
The undersigned hereby appoints John W. Fredericks and Robert B. Nicholson,
and each of them, with full power of substitution, to vote for and on behalf of
the undersigned at the annual meeting of stockholders of Lakeland Bancorp, Inc.
to be held on July 14, 1999, and any adjournment thereof, upon matters properly
coming before the meeting, as set forth in the related Notice of Meeting and
Joint Proxy Statement/Prospectus, both of which have been received by the
undersigned. Without otherwise limiting the general authorization given hereby,
said attorneys and proxies are instructed to vote on the following issues as
follows:
1. Proposed merger agreement which provides for the merger of High Point
Financial Corp. into Lakeland.
2. Election of directors:
Nominees:
For 3 Years: Mark J. Fredericks
Robert B. Nicholson
Arthur L. Zande
Roger Bosma
3. Amendment to certificate of incorporation to increase authorized shares to
40,000,000.
4. Transactions of such other business as may properly come before the meeting
and any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO EXECUTE AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF THIS PROXY IS EXECUTED BUT NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE MERGER, EACH OF THE BOARD'S NOMINEES AND THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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<S> <C>
1. Election of Directors: FOR WITHHELD AGAINST
ALL NOMINEES ALL NOMINEES ABSTAIN
(The Board recommends a vote "For")
[ ] [ ] [ ]
Instruction: to withhold authority to vote,
for any individual nominee, write that name Nominees: Mark J. Fredericks
in the space provided below: Robert B. Nicholson
________________________________ Arthur L. Zande
Roger Bosma
2. Merger Agreement which provides for the merger FOR AGAINST
of High Point Financial Corp. into Lakeland: MERGER MERGER ABSTAIN
AGREEMENT AGREEMENT
(The Board recommends a vote "For")
[ ] [ ] [ ]
3. Amendment to Certificate of Incorporation: FOR AGAINST
AMENDMENT AMENDMENT ABSTAIN
(The Board recommends a vote "For")
[ ] [ ] [ ]
IMPORTANT
PLEASE SIGN AND DATE AND RETURN PROMPTLY
Note: Please sign exactly as your name appears hereon. Give full title
if Attorney, Executor, Administrator, Trustee, Guardian, etc.
_________________________________________________________
_________________________________________________________
SIGNATURE(S) DATE
[ ] Please stop mailing an Annual Report. I have more than one account.
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