<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission file number:
33-27312
LAKELAND BANCORP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2953275
- -------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
250 Oak Ridge Road, Oak Ridge, New Jersey 07438
- ------------------------------------------ -------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973)697-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, $2.50 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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The aggregate market value of the voting stock of the registrant held by non-
affiliates (for this purpose, persons and entities other than executive
officers, directors, and 5% or more shareholders) of the registrant, as of
February 1, 1999, is estimated to have been approximately $129,000,000.
The number of shares outstanding of the registrant's Common Stock, as of
February 1, 1999, was 8,511,588.
DOCUMENTS INCORPORATED BY REFERENCE:
Lakeland Bancorp, Inc., Proxy Statement for 1999 Annual Meeting of Shareholders
(Part III).
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LAKELAND BANCORP, INC.
Form 10-K Index
PART I
PAGE
Item 1. Business............................................ 4
Item 2. Properties.......................................... 13
Item 3. Legal Proceedings................................... 13
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 4A. Executive Officers of the Registrant................ 13
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.......................... 15
Item 6. Selected Financial Data.............................. 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 18
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.................................... 35
Item 8. Financial Statements and Supplementary Data.......... 36
Item 9. Changes in and disagreements with Accountants
on Accounting and Financial Disclosure............... 52
PART III
Item 10. Directors of the Registrant......................... 53
Item 11. Executive Compensation.............................. 53
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................... 53
Item 13. Certain Relationships and Related Transactions...... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 53
Signatures.................................................... 55
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PART I
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ITEM 1 - Business
GENERAL
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Lakeland Bancorp, Inc. (the "Company"), a New Jersey corporation, is a bank
holding company, registered with and supervised by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). The Company was organized
in March of 1989 and commenced operations on May 19, 1989, upon consummation of
the acquisition of all of the outstanding stock of Lakeland Bank, formerly named
Lakeland State Bank ("LB" or the "Bank"). The Company's primary business
consists of managing and supervising LB and its other subsidiary bank,
Metropolitan State Bank ("MSB"). The principal source of the Company's income is
dividends paid by LB. At December 31, 1998, the Company had consolidated total
assets, deposits, and stockholder's equity of approximately $548.6 million,
$488.9 million, and $53.3 million, respectively.
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
("Forward-Looking Statements"). Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such Forward-Looking Statements. Certain factors which could
materially affect such results and the future performance of the Company are
described in Exhibit 99.1 to this Annual Report on Form 10-K.
LB was organized as Lakeland State Bank on May 19, 1969 and LB and MSB are state
banking associations, the deposits of which are insured by the Federal Deposit
Insurance Corporation ("FDIC"). Neither LB nor MSB is a member of the Federal
Reserve System. LB and MSB are full-service commercial banks, offering a
complete range of consumer, commercial, and trust services. LB's 16 branch
offices are located in the following four New Jersey counties: Morris, Passaic,
Sussex, and Bergen. MSB was organized in 1987 and acquired by Lakeland in
February 1998. MSB conducts business through its main office and one branch
office located in Morris and Essex counties, respectively.
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Commercial Bank Services
Through its bank subsidiaries, the Company 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, the Company offers
collection, wire transfer, and night depository services.
Consumer Banking
The Company 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. LB also
provides discount brokerage services to its customers through a third party.
Trust Services
A variety of fiduciary services are available through a third party. These
include investment management, advisory services, and custodial functions for
individuals. The trust function also administers, in a fiduciary capacity,
pensions, personal trusts, and estates.
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SUPERVISION AND REGULATION
----------------------------
Lakeland Bancorp, Inc.
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The Company is a registered bank holding company under the Federal Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"), and is required to
file with the Federal Reserve Board an annual report and such additional
information as the Federal Reserve Board may require pursuant to the Holding
Company Act. The Company is subject to examination by the Federal Reserve
Board.
The Holding Company Act limits the activities which may be engaged in by the
Company and its subsidiaries to those of banking, the ownership and acquisition
of assets and securities of banking organizations, and the management of banking
organizations, and to certain non-banking activities which the Federal Reserve
Board finds, by order or regulation, 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.
With respect to the acquisition of banking organizations, the Company is
required to obtain the prior approval of the Federal Reserve Board before it
may, by merger, purchase or otherwise, directly or indirectly 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
such bank or bank holding company.
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 has the opportunity either to "opt out" of this provision, thereby
prohibiting interstate branching in such 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.
With respect to non-banking activities, the Federal Reserve Board has by
regulation determined that several non-banking activities are closely related to
banking within the meaning of the Holding Company Act and thus may be performed
by bank holding companies. Although the Company's management periodically
reviews other avenues of business opportunities that are included in that
regulation, the Company has no present plans to engage in any of these
activities other than providing discount brokerage services through a third
party.
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Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Board on any extension of credit to the bank
holding company or any of its subsidiaries, on investments in the stock or other
securities of such holding company or its subsidiaries, and on 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 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.
Lakeland Bank and Metropolitan State Bank
- -----------------------------------------
LB and MSB are state chartered banking associations subject to supervision and
examination by the Department of Banking of the State of New Jersey 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.
LB and MSB are subject to certain restrictions imposed by law on, among other
things, (i) the maximum amount of obligations of any one person or entity which
may be outstanding at any one time, (ii) investments in stock or other
securities of the Company or any subsidiary of the Company, and (iii) the taking
of such stock or securities as collateral for loans to any borrower.
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC
regulations, 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 CRA 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
CRA 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 CRA evaluation system, the FDIC focuses on three
tests: (i) a lending test, to evaluate the institution's record of making loans
in its service areas; (ii) 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 (iii)
a service test, to evaluate the institution's delivery of services through its
branches, ATMs and other offices.
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Securities and Exchange Commission
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The common stock of the Company is registered with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 (the "1934 Act").
As a result, the Company and its officers, directors, and major stockholders are
obligated to file certain reports with the SEC. Furthermore, the Company is
subject to proxy and tender offer rules promulgated pursuant to the 1934 Act.
Effect of Government Monetary Policies
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The earnings of the Company are and will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States 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 Board's power to implement national monetary policy in order
to, among other things, curb inflation or combat a recession. The Federal
Reserve Board has a major effect upon the levels of bank loans, investments and
deposits through its open market operations in United States 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.
FIRREA
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The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") 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 ("BIF"), was established for banks.
FIRREA 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 FIRREA, 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 FIRREA, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC in connection with (i) the default of a commonly controlled FDIC-
insured depository institution or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository
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institution in danger of default. FIRREA 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
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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 1 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, the
Company's Tier 1 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 the Company. 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. The Company is subject
to similar minimum leverage criteria. The Company's leverage ratio was 9.33% at
December 31, 1998.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), federal banking agencies have established certain additional minimum
levels of capital which accord with guidelines established under that act. See
"FDICIA".
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Dividend Restrictions
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The Company is a legal entity separate and distinct from LB or MSB. Virtually
all of the revenue of the Company available for payment of dividends on its
capital stock will result from amounts paid to the Company by LB or MSB. All
such 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 State law, a bank may not pay dividends unless, following the
dividend payment, the capital stock of the bank would be unimpaired and either
(a) the bank will have a surplus of not less than 50% of its capital stock, or,
if not, (b) the payment of the dividend will not reduce the surplus of the bank.
If, in the opinion of the FDIC, a bank under its jurisdiction 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, after notice and hearing, that such
bank cease and desist from such practice or, as a result of an unrelated
practice, 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 the
Company and its subsidiary banks may pay. Under FDICIA, banking institutions
which are deemed to be "undercapitalized" will, in most instances, be prohibited
from paying dividends. See "FDICIA". See also the "Dividend Limitation" Note
of the Notes to Consolidated Financial Statements for further information
regarding dividends.
FDICIA
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Enacted in December 1991, FDICIA substantially revised the bank regulatory
provisions of the Federal Deposit Insurance Act and several other federal
banking statutes. Among other things, FDICIA 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 FDICIA, 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".
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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, FDICIA 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, LB and MSB 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 concern that the bank
generates among regulators.
Although LB and MSB were not liable for FDIC premiums in 1998, LB and MSB and
all other members of the Bank Insurance Fund are required to help fund interest
payment obligations that the Financing Corporation ("FICO") has assumed to
recapitalize the Federal Savings and Loan Insurance Corporation. The FICO
premium is $0.0128 per $100 of deposits.
Proposed Legislation
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From time to time proposals are made in the United States Congress, the New
Jersey 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 the Company and its subsidiaries.
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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
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The Company 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 the Company's market area. These larger institutions
have substantially larger lending capacities and typically offer services which
the Company does not offer.
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 deliver financial services.
Concentration
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The Company 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 the
Company.
Employees
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At December 31, 1998, there were 267 persons employed by the Company.
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ITEM 2 - Properties
The Company's principal office is located at 250 Oak Ridge Road, Oak Ridge, New
Jersey.
The Company operates 18 banking locations located in Passaic, Morris, Sussex,
Bergen, and Essex Counties, New Jersey. LB's Wantage office is leased under a
lease expiring October 31, 2006. LB's Rockaway office is under a lease expiring
May 15, 2009. LB's Newton office is under a lease expiring October 1, 2000.
LB's Wharton Office is under a lease, expiring August 22, 2005. LB's Ringwood
office is under a lease, expiring March 1, 2003. LB's Wyckoff office is under a
lease, expiring May 31, 1999. MSB's Fairfield office is under a lease, expiring
March 1, 2001. For information regarding all of the Company's rental
obligations, see Notes to Consolidated Financial Statements.
All other offices of the Company are owned and are unencumbered.
ITEM 3 - Legal Proceedings
There are no significant pending legal proceedings involving the Company other
than those arising out of routine operations. Lakeland's management does not
anticipate that the ultimate outcome of the Company's litigation will have a
material effect on the financial condition or results of operations of the
Company on a consolidated basis.
ITEM 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of the Company
during the fourth quarter of 1998.
ITEM 4A - Executive Officers of the Registrant
The following table sets forth the name and age of each executive officer of the
Company. Each officer is appointed by the Company's Board of Directors. Unless
otherwise indicated, the persons named below have held the position indicated
for more than the past five years.
Officer of
The Company Position with the Company,
Name and Age since LB, and Business Experience
- ------------------------------------------------------------------
Robert B. Nicholson 1969 Chairman of The Board of the
Age 70 Company and LB; Chairman
Lakeland Bank of the Board, Eastern
Propane Corp. (a fuel
distribution company)
John W. Fredericks 1969 President of the Company and
Age 63 LB; President, Fredericks
Lakeland Bank Fuel and Heating Service
(a fuel distribution
company)
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Arthur L. Zande 1971 Executive Vice President and
Age 64 CEO of the Company and LB
Lakeland Bank
William J. Eckhardt 1975 Vice President and Treasurer
Age 48 of the Company since 1994;
Lakeland Bank Vice President and
Treasurer of LB
Paul P. Lubertazzi 1988 Chairman of the Board,
Age 64 President and Chief
Metropolitan State Bank Executive Officer of
MSB
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PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $2.50 par value, is traded in the over the counter
market, although the Company does not regard that market to be an established
public trading market with respect to the Company's Common Stock. As of
December 31, 1998, there were 2,531 shareholders of record of Common Stock.
The market maker for the Common Stock is:
Ryan, Beck & Company
220 South Orange Avenue
Livingston, New Jersey 07039
The following table indicates, for the quarterly periods indicated, the high and
low daily closing prices of the Common Stock as provided by Ryan, Beck and
Company and the cash dividends declared per share of Common Stock (adjusted for
subsequent stock dividends).
Closing Dividends
Prices Declared
Year ended December 31, 1997 High Low
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First Quarter $12.619 $11.667 $.057
Second Quarter 13.333 11.667 .057
Third Quarter 13.512 12.381 .060
Fourth Quarter 15.000 13.500 .060
Year ended December 31, 1998
First Quarter $16.000 $13.750 $.063
Second Quarter 15.750 14.250 .075
Third Quarter 16.000 14.500 .075
Fourth Quarter 17.250 14.250 .075
The prices listed above reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual transactions.
Dividends on the Company's Common Stock are within the discretion of the Board
of Directors of the Company and are dependent upon various factors, including
the future earnings and financial condition of the Company, LB and MSB and bank
regulatory policies. Federal and State laws and regulations contain
restrictions on the ability of the Company and the Bank to pay dividends.
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State of New Jersey Banking laws specify that no dividend shall be paid by a New
Jersey 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
by LB and MSB to the Company as of December 31, 1998. Capital guideline and
other regulatory requirements may further limit the Company's and its bank
subsidiaries' ability to pay dividends. See "Item 1 Business Supervision and
Regulation Dividend Restrictions."
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ITEM 6
LAKELAND BANCORP. INC., and Subsidiaries
Selected Consolidated
Financial And Other Data
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<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected balance sheet data:
Investment securities (1) $184,150 $159,343 $140,882 $143,507 $147,205
Short-term investments (2) 11,079 12,827 9,900 27,175 2,825
Loans, net 307,596 278,003 264,961 228,594 215,973
Total assets 548,557 507,725 457,717 437,079 401,768
Deposits 488,881 453,471 409,710 391,996 364,121
Stockholders' equity 53,314 48,662 43,579 38,600 32,215
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In Thousands Except for Per Share and Ratio Information)
<S> <C> <C> <C> <C> <C>
Selected operating data:
Interest income $ 34,935 $ 33,405 $ 30,731 $ 28,956 $ 26,697
Interest expense 13,009 12,925 11,787 11,244 9,296
-------- -------- -------- -------- --------
Net interest income 21,926 20,480 18,944 17,712 17,401
Provision for loan losses 698 1,026 908 357 571
-------- -------- -------- -------- --------
Net interest income
after provision for loan losses 21,228 19,454 18,036 17,355 16,830
Other income 3,165 3,023 2,671 2,434 2,225
Other expenses 15,752 14,508 12,692 12,201 11,565
-------- -------- -------- -------- --------
Income before income taxes 8,641 7,969 8,015 7,588 7,490
Income taxes 2,916 2,648 2,665 2,351 2,232
-------- -------- -------- -------- --------
Net income $ 5,725 $ 5,321 $ 5,350 $ 5,237 $ 5,258
======== ======== ======== ======== ========
Weighted average
common shares outstanding (3)
Basic 8,493 8,405 8,304 8,187 8,010
Diluted 8,493 8,435 8,337 8,220 8,014
Net income per common share (3)
Basic $ 0.67 $ 0.63 $ 0.64 $ 0.64 $ 0.66
Diluted $ 0.67 $ 0.63 $ 0.64 $ 0.64 $ 0.66
Other selected data:
Return on average assets 1.11% 1.10% 1.22% 1.28% 1.33%
Return on average stockholders' equity 11.28 11.46 13.15 14.91 17.27
Average stockholders' equity
to average assets 9.86 9.63 9.29 8.60 7.69
Cash dividend per share (3) $ 0.29 $ 0.24 $ 0.21 $ 0.19 $ 0.15
Dividend payout ratio 42.72% 37.36% 31.85% 30.04% 23.16%
</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 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 100% stock dividend
distributed on October 25, 1995, and a 5% stock dividend distributed on
June 30, 1995.
-17-
<PAGE>
ITEM 7
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
Lakeland Bancorp, Inc., (the "Company") 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 $0.67 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 income in 1997 decreased by $29,619 or .55%
as compared to $5.35 million in 1996. As of December 31, 1998, the Company 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.
The Company'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 Company
common stock sold to existing shareholders pursuant to the Company's dividend
reinvestment program.
The Company'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 common stock of High
Point Financial Corp., with which the Company has a pending merger agreement.
Should the merger be consummated, the unrealized gain on 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.
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
-18-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 the Company'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 the Company'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.
-19-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
The following table reflects the components of the Company's net interest
income, setting forth for the years presented herein, (1) average assets,
liabilities and stockholders' equity, (2) interest income earned on
interest-earning assets and interest expense paid on interest-bearing
liabilities, (3) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, (4) the Company's net interest
spread (i.e., the average yield on interest-earning assets less the average cost
of interest-bearing liabilities,) and (5) the Company's net yield on
interest-earning assets.
<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 (taxable
equivalent basis) $ 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>
Code
(A) Includes non-accrual loans, the effect of which is to reduce the yield
earned on loans. Includes deferred loan fees.
(B) Includes certificates of deposit and interest-bearing cash accounts.
(C) Net interest income divided by average interest-earning assets.
-20-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 the
Company'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 change in Total Due to 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 $1.54 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 Lakeland Board of Directors after con-sidering 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
classifcation 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
"high-est" quality loans to percentages such as 50% for "doubtful" or 100% for
"loss". Once each loan is reviewed and assigned this reserve percentage, the
percentage is multiplied by the outstanding loan balance, and then the total for
all the loans over $300,000 is totaled.
-21-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 Board
of Directors. The Board of Directors 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 Board of Directors reviews actual experience as compared to the estimates
arrived at by the process described above. From time to time, the Board of
Directors 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 the Company provided $698,000 to the allowance and
had net charge-offs of $943,000. Of the $698,000 provision for loan losses,
$534,000 was provided for in the fourth quarter of 1998 as the Company
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 the Company 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 the Company. Based on its ongoing loan review process, its
collateral positions, and its loss and recovery experience, the Company 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 judgement, actual results could differ from management's
determination, as a result of a variety of factors, such as economic distress
within the Company's primary marketing area and unanticipated financial problems
for the Company'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 expansion and normal salary increases.
Occupancy expense increased $101,000 or 6.94%. The increase in this category
resulted from expansion in the Company'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 the
Company's branch network. Legal expense increased $219,000 or 92.40%. This was
due principally to legal costs incurred in connection with the Company'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 the Company'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
-22-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
the Company'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 and accounting 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 the Company'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 the Company's banking business.
INCOME TAXES
The components of income taxes are summarized as follows (in thousands):
Year Ended December 31,
------------------------
1998 1997 1996
------ ------ ------
Current $2,751 $2,854 $2,753
Deferred 165 <206> <88>
------ ------ ------
$2,916 $2,648 $2,665
====== ====== ======
The Company'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 the Company'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>
The Company 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 the
Company'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:
Within 1 to 5 After 5
------- ------- ------- --------
1 Year Years Years Total
(In Thousands)
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
======= ======= ======= ========
-23-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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:
1 to 5 After 5
Years Years Total
------- ------- -------
(In Thousands)
Loans with
fixed rates $31,781 $17,558 $49,339
Loans with
adjustable rates 968 8 976
------- ------- -------
Total $32,749 $17,566 $50,315
======= ======= =======
- --------------------------------------------------------------------------------
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.
The following schedule sets forth certain information regarding the Company's
nonaccrual, past due and renegotiated loans and other real estate owned as of
December 31, for each of the last five years:
December 31
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(In Thousands)
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
====== ====== ====== ====== ======
(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 the Company 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.
-24-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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. The Company 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.
The Company 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 the Company 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 the
Company, will not cause a loan to be classified as impaired. A loan is not
impaired during a period of delay in payment if the Company 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 the Company 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. The
Company does not aggregate such loans for evaluation purposes.
The Company'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 deter-mined 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, the Company
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, the Company 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.
-25-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at
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.
The Company regards the majority of the allowance as a general allowance which
is available to absorb losses from all loans. How-ever, for the purpose of
complying with disclosure requirements of the Securities and Exchange
Commission, the table below presents an allocation of the allowance among
various loan categories and sets forth the percentage of loans in each category
to total loans. The allocation of the allowance as shown in the table should
neither be interpreted as an indication of future charge-offs, nor as an
indication that charge-offs in future periods will necessarily occur in these
amounts or in the indicated proportions.
- --------------------------------------------------------------------------------
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.
-26-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
The Company has classified its investment securities into the available for sale
and held to maturity categories pursuant to Statement No. 115 of the Financial
Accounting Standards Board "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement No. 115"). For information, see notes to the
Company's consolidated financial statements.
The following table sets forth the carrying value of the Company'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 to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts.
December 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
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
======== ======== ========
Included in equity securities is the Company's investment in High Point
Financial stock, 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
December 31, 1998
-------------------------------------------
Gross Unrealized
Amortized ----------------- Carrying
Cost Gains Losses Value
---------- ------- ------- ----------
(In Thousands)
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
========== ======= ======= ==========
Included in equity securities is the Company's investment in High Point
Financial stock, 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.
SECURITIES HELD TO MATURITY
December 31, 1998
-------------------------------------------
Gross Unrealized
Amortized ----------------- Carrying
Cost Gains Losses Value
---------- ------- ------- ----------
(In Thousands)
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
========== ======= ======= ==========
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.
-27-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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 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 $ 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%
======== ======== ======== ======== ========
</TABLE>
-28-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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.
<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 $ 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>
For further information, regarding the Company's investment securities, see
Notes to the Company's Consolidated Financial Statements.
- --------------------------------------------------------------------------------
DEPOSITS
The following table sets forth the average amounts of various types of deposits
for each of the three years ended December 31:
1998 1997 1996
-------- -------- --------
(In Thousands)
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
======== ======== ========
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):
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
=======
LIQUIDITY
The Company'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 Consolidated Financial Statements.
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 the Company's accounting for
its 100% stock dividend distributed on October 1, 1998. The offsetting
bookkeeping entry increased the Company's capital account by the same
$10,619,797. The Company's Board of Directors decided to reverse this accounting
treatment of the stock dividend starting with the Company's financial statements
-29-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
for the first quarter of 1999 thereby moving the $10,619,797 from the capital
stock account to the undivided profits account so that the financial statements
will more accurately reflect the Company's financial condition.
The Company'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:
Year Ended
--------------------
December 31,
-------- --------
1998 1997
(In Thousands)
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
======== ========
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.
The Company anticipates that it will have sufficient funds available to meet its
current loan commitments and deposit maturities. At December 31, 1998, the
Company 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 the Company. 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 the
Company'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 the Company 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.
DISCUSSION OF MARKET RISK
As a financial institution, the Company'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 the Company'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 the
Company's nature of operations, the Company is not subject to foreign currency
exchange or commodity price risk. The Company does not own any trading assets
and does not have any hedging transactions in place, such as interest rate swaps
and caps.
The Company'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. The Company's performance as compared to the Asset/Liability
Policy is monitored by the Board of Directors. In addition, to effectively
administer the Asset/Liability Policy and to monitor exposure to fluctuations in
interest rates, the Company maintains an
-30-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Asset/Liability Committee, consisting of the Chief Executive Officer, Treasurer,
Controller and certain other senior officers. This committee meets monthly to
review the Company'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
The Company's largest asset component is the loan portfolio. This portfolio
consists of residential and commercial mortgage loans, commercial loans, and
consumer loans. The Company's borrowers are concentrated in the Company'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.
The Company'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 totalled
$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
The Company'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. The Company 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
The Company 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,
the Company has established federal funds lines of credit with several of its
correspondent banks. However, the Company has rarely utilized these borrowing
arrangements.
Depending on the existing interest rate environment, the Company has various
alternatives to mitigate interest rate exposure. If the Company 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 certificates of deposit. If the Company 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 deposit.
-31-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
The following table sets forth the estimated maturity/repricing structure of the
Company'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. The Company 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 the Company'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 the Company'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 Three More Than
Three Months One Year
Months Through Through More Than
or Less One Year Five Years Five 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.
-32-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 disburse-ment 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 the Company 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 the Company's capital ratios as of December 31,
1998:
Risk-Based Capital Ratios:
Amount Ratio
------- -------
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 $27,943 8.67%
======= =======
Leverage Ratio:
Actual Tier I Capital to average
fourth quarter assets $50,216 9.33%
Minimum leverage target * * *
------- -------
Excess $ * *%
======= =======
* No formal minimum leverage target (other than the three percent floor
described above) has been established for the Company 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). 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 the
Company.
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131). 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 the Company.
In April 1998, the FASB issued SFAS 132, "Employers Disclosures About Pensions
and Other Post Retirement Benefits" (Statement 132). 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 the Company's financial condition or results
of operations.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities" (Statement 133), 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 the Company does not
have any derivative instruments or similar contracts, the implementation of
Statement 133 will
-33-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
have no impact on the Company'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. The Company 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 the Company's
business will handle date related data in a manner which will provide accurate
results.
The Company has formed a committee of representatives from its various areas to
monitor this project. This committee has prepared a schedule of vendors that
supply the company 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 the Company'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 the Company considers to be critical
to daily operations, 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 the Company's information
technology systems. Other less mission critical vendors will be completed in the
first quarter of 1999. As part of this project, the Company 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.
The Company recognizes that any Year 2000 failure on the part of its customers
could result in additional expense or loss. In this regard, the Company has sent
a letter to its significant commercial borrowers to determine their readiness
for the Year 2000 and will monitor their responses. Additionally, a brochure was
sent to all demand deposit customers to make them aware of the Year 2000 issue
and the Company's concern regarding the same. The Company will also prepare
contingency plans in the event there are any system interruptions. The Company
believes that its costs related to Year 2000 will be approximately $75,000. At
December 31, 1998, the Company 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 the Company's vendors will be effective to remedy
all potential problems. To the extent the Company'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 the Company'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. The Company 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.
-34-
<PAGE>
ITEM 7A - Quantitative and Qualitative Disclosures About Market Risks
"Management's Discusssion and Analysis of Financial Condition and Results of
Operations"
-35-
<PAGE>
Item 8 - Financial Statements and Supplementary Data
LAKELAND BANCORP. INC., and Subsidiaries
Independent Auditor's Report
- --------------------------------------------------------------------------------
[LETTERHEAD OF RADICS & CO., LLC]
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.
January 11, 1999
/s/ Radics & Co., LLC
-36-
<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 under $100,000 125,144,292 122,252,678
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.
-37-
<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.
-38-
<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.
-39-
<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)
- ---------------------------------------------------------------------------------------------------------------------------
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.
-40-
<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 High Point 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 totalled $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
cancelled and stockholders' equity reduced accordingly.
In the event the Merger Agreement 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.
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.
-41-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 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:
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
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 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.
-42-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 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.
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 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
December 31, 1998
------------------------------------------------
Gross Unrealized
Amortized --------------------- Carrying
Cost Gains Losses Value
---------- -------- -------- ----------
(In Thousands)
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
========== ======== ======== ==========
December 31, 1997
------------------------------------------------
Gross Unrealized
Amortized --------------------- Carrying
Cost Gains Losses Value
---------- -------- -------- ----------
(In Thousands)
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
========== ======== ======== ==========
December 31,
------------------------------------------------
1998 1997
---------------------- -----------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
---------- -------- --------- ----------
(In Thousands)
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
========== ======== ======== ==========
-43-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following presents details of sales of securities available for sale:
Year Ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
Sales proceeds $20,182 $15,830 $ 8,999
Gross gains 143 63 26
Gross losses -- 8 2
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 insti-tution with which
the Corporation is involved in a proposed merger. See "Pending Acquisition" for
further discussion.
SECURITIES HELD TO MATURITY
December 31, 1998
------------------------------------------------
Gross Unrealized
Amortized --------------------- Estimated
Cost Gains Losses Fair Value
---------- -------- -------- ----------
(In Thousands)
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
========== ======== ======== ==========
December 31, 1997
------------------------------------------------
Gross Unrealized
Amortized --------------------- Estimated
Cost Gains Losses Fair Value
---------- -------- -------- ----------
(In Thousands)
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
========== ======== ======== ==========
December 31,
------------------------------------------------
1998 1997
---------------------- -----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---------- ---------- --------- ----------
(In Thousands)
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
========== ======== ========= ==========
There were no sales of securities held to maturity during the years ended
December 31, 1998, 1997 and 1996.
LOANS
December 31,
--------------------
1998 1997
-------- --------
(In Thousands)
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
======== ========
At December 31, 1998, 1997 and 1996, loans serviced by the Bank for the benefit
of others totalled 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
-44-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
difficulties. Interest on these loans is either accrued or credited directly to
interest income. Non-performing loans were as follows:
December 31,
--------------------------
1998 1997 1996
------ ------ ------
(In Thousands)
Nonaccrual $1,257 $2,007 $1,845
Renegotiated 1,468 1,529 2,567
------ ------ ------
$2,725 $3,536 $4,412
====== ====== ======
The impact of the above non-performing loans on interest income is as follows:
Year Ended December 31,
--------------------------
1998 1997 1996
------ ------ ------
(In Thousands)
Interest income if
performing in
accordance with
original terms $ 239 $ 329 $ 414
Interest income
actually recorded 127 154 232
------ ------ ------
$ 112 $ 175 $ 182
====== ====== ======
The Bank and Metropolitan have entered into lending trans-actions 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:
Year Ended December 31,
-----------------------
1998 1997
-------- --------
(In Thousands)
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
======== ========
ALLOWANCE FOR LOAN LOSSES
Year Ended December 31,
-------------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
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
======= ======= =======
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:
December 31,
----------------
1998 1997
------ ------
(In Thousands)
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
====== ======
For the years ended December 31, 1998, 1997 and 1996, the average recorded
investment in impaired loans totalled $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 totalled $153,000, $179,000 and
$211,000, respectively.
PREMISES AND EQUIPMENT
December 31,
------------------
1998 1997
------- -------
(In Thousands)
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
======= =======
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.
-45-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
DEPOSITS
At December 31, 1998, the schedule of maturities of certificates of deposit is
as follows (in thousands):
Year Amount
---- --------
1999 $130,472
2000 12,578
2001 9,579
2002 1,298
2003 288
Thereafter 12
--------
$154,227
========
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.
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:
December 31,
---------------
1998 1997
----- -----
(In Thousands)
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
===== =====
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:
December 31,
-------------------
1998 1997
------- -------
(In Thousands)
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
======= =======
The components of income taxes are summarized as follows:
Year Ended December 31,
------------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
Current $ 2,751 $ 2,854 $ 2,753
Deferred 165 (206) (88)
------- ------- -------
$ 2,916 $ 2,648 $ 2,665
======= ======= =======
- --------------------------------------------------------------------------------
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>
-46-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 noncontributory 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 $0, 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.
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:
December 31,
-----------------------
1998 1997
--------- ---------
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
Unrecognizd 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
========= =========
Year Ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
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 sevice
cost 15,636 15,636 15,636
------- ------- -------
$35,825 $36,170 $34,325
======= ======= =======
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.
-47-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 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:
December 31,
------------------
1998 1997
------- -------
(In Thousands)
Commitments to extend credit $59,192 $54,064
Standby letters of credit and
financial guarantees 2,668 3,539
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:
December 31, Amount
------------ --------------
(In Thousands)
1999 $ 376
2000 282
2001 256
2002 219
2003 159
Thereafter 537
--------------
$ 1,829
==============
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.
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.
-48-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
LAKELAND BANCORP, INC. (PARENT COMPANY ONLY)
Condensed financial statements of the Corporation (Parent Company only) follow:
STATEMENTS OF CONDITION
December 31,
--------------------------
1998 1997
----------- -----------
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
=========== ===========
STATEMENTS OF INCOME
Year Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
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
earnings 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
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
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
=========== =========== ===========
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
-49-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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.
The carrying values and estimated fair values of the Corporation's financial
instruments are as follows:
December 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Financial assets (In Thousands)
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
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
-50-
<PAGE>
LAKELAND BANCORP. INC., and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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.
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.
-51-
<PAGE>
ITEM 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Changes in Registrant's Certifying Accountants
(a) Previous Independent Accountants
On December 14, 1998, the Registrant's Board of Directors decided to change
the Registrant's independent public accountants. Radics & Co., LLC will be
replaced as the independent public accountant of the Registrant upon completion
of their audit of the Registrant's 1998 financial statements and preparation of
the Registrant's 1998 tax returns.
Radics' reports on the financial statements of the Registrant 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 the Registrant's
two most recent fiscal years ended December 31, 1998, and through February 18,
1999, there have been no disagreements between the Registrant 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 the
Registrant's two most recent fiscal years ended December 31, 1998, and through
February 18, 1999, the Registrant 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.
Attached hereto as an exhibit is a letter from Radics addressed to the
Securities and Exchange Commission stating their agreement with the foregoing
statements.
(b) New Independent Accountants
On December 14, 1998, the registrant engaged Grant Thornton LLP as its
independent public accountants to audit the Registrant's financial statements
beginning with the financial statements for the quarter ending March 31, 1999.
During the Registrant's two most recent fiscal years ended December 31, 1998,
and through February 18, 1999, neither the Registrant nor someone on its behalf
consulted with Grant Thornton LLP regarding any of the matters listed in Item
304(a)(2)(i) and (ii) of Regulation S-K. Grant Thornton LLP is currently the
independent public accountants for Metropolitan State Bank, a wholly-owned
subsidiary of the Registrant which was acquired by the Registrant in February
1998.
- 52 -
<PAGE>
PART III
---------
ITEM 10 - Directors and Executive Officers of the Registrant
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 1999
Annual Meeting of Shareholders.
ITEM 11 - Executive Compensation
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 1999
Annual Meeting of Shareholders.
ITEM 12 - Security Ownership of Certain Beneficial Owners and
Management
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 1999
Annual Meeting of Shareholders.
ITEM 13 - Certain Relationships and Related Transactions
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 1999
Annual Meeting of Shareholders.
PART IV
--------
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1. The following portions of the Company's consolidated financial
statements are set forth in Item 8 of this Annual Report.
(i) Consolidated Statements of Condition as of December 31, 1998 and
1997.
(ii) Consolidated Statements of Income for each of the three years ended
December 31, 1998, 1997 and 1996.
(iii) Consolidated Statements of Changes in Stockholders' Equity for each of
the three years ended December 31, 1998, 1997, and 1996.
(iv) Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1998, 1997 and 1996.
(v) Notes to Consolidated Financial Statements
(vi) Report of Radics & Co., LLC
- 53 -
<PAGE>
(a) 2. Financial Statement Schedules
All financial statement schedules are omitted as the information, if applicable,
is presented in the consolidated financial statements or notes thereto.
(a) 3. Exhibits
3.1 Certificate of Incorporation of the Registrant.
3.2 By Laws of the Registrant are incorporated herein by reference to
Exhibit 4.2 to the Registration Statement on Form S-3 filed by the
Registrant with the Commission on March 30, 1990.
10.1 Amended and Restated Agreement and Plan of Reorganization, dated as
of January 14, 1998, by and between the Registrant and Metropolitan
State Bank is incorporated by reference to Appendix A to the Proxy
Statement -- Prospectus, dated January 15, 1998, contained in the
Registant's Registration Statement on Form S-4 (No. 333-42851).
10.2 Lakeland State Bank Directors' Deferred Compensation Plan is
incorporated by reference to Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997, filed with
the Commission on March 26, 1998.
10.3 Agreement and Plan of Merger, dated as of December 7, 1998, by and
between the Registrant and High Point Financial Corp.
10.4 Stock Option Agreement, dated as of December 7, 1998, by and between
the Registrant and High Point Financial Corp.
16.1 Letter re: Change in Accountant is incorporated by reference to
Exhibit 16 to the Registrant's Current Report on Form 8-K, filed with
the Commission on February 18, 1999.
22.1 Subsidiaries of Registrant.
23.1 Consent of Radics & Co., LLC Independent Certified Public
Accountants.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
99.1 Forward-looking Statement Information.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
months ended December 31, 1998.
- 54 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LAKELAND BANCORP, INC.
Dated: March 24, 1999 By /s/ Arthur L. Zande
--------------- ---------------------------
Arthur L. Zande
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Robert B. Nicholson* Director March 24, 1999
- -------------------------- --------------
(Robert B. Nicholson)
/s/ John W. Fredericks* Director March 24, 1999
- -------------------------- --------------
(John W. Fredericks)
/s/ Bruce G. Bohuny* Director March 24, 1999
- -------------------------- --------------
(Bruce G. Bohuny)
/s/ Mary Ann Deacon* Director March 24, 1999
- -------------------------- --------------
(Mary Ann Deacon)
/s/ Mark J. Fredericks* Director March 24, 1999
- -------------------------- --------------
(Mark J. Fredericks)
/s/ John Pier, Jr.* Director March 24, 1999
- -------------------------- --------------
(John Pier, Jr.)
/s/ Paul P. Lubertazzi* Director March 24, 1999
- -------------------------- --------------
(Paul P. Lubertazzi)
/s/ Joseph P. O'Dowd* Director March 24, 1999
- -------------------------- --------------
(Joseph P. O'Dowd)
/s/ Arthur L. Zande Executive Vice President March 24, 1999
- -------------------------- --------------
(Arthur L. Zande) and Director (Chief
Executive Officer)
/s/ William J. Eckhardt Vice President and March 24, 1999
- -------------------------- ------------------------ --------------
(William J. Eckhardt) Treasurer (Chief Financial
and Accounting Officer)
* By: /s/ Arthur L. Zande
--------------------
Arthur L. Zande
Attorney-in-Fact
- 55 -
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
The undersigned, being over the age of 18 years old, for the purpose
of forming a corporation under the New Jersey Business Corporation Act, does
hereby execute the following Certificate of Incorporation:
1. Name. The name of the corporation is Lakeland Bancorp, Inc.
----
2. Purpose. The principal purpose for which the corporation is
-------
organized is to exercise all powers of a banking holding company, which is
registered with the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended, and to engage in banking and non-
banking activities allowed for such a bank holding company under New Jersey and
federal law.
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,000,000 shares of common
stock, which shall have a par value of $2.50 each.
4. Issuance of Stock. The capital stock of the corporation may be
-----------------
issued for valid corporate purposes upon authorization by the Board of Directors
of the corporation without prior stockholder approval. Such authorization by the
Board of Directors may be made by a majority or other vote of the Board as may
be provided in the Bylaws of the corporation. The provisions of this Article may
only be amended or repealed by the affirmative vote of the holders of not less
than eighty percent (80%) of the outstanding voting stock of the Corporation.
5. Office and Registered Agent. The address of the registered office
---------------------------
of the corporation in the State of New Jersey shall be One Lakeland Plaza,
Newfoundland, New Jersey 07534, and the name of its New Jersey registered agent
at such address shall be Arthur L. Zande.
6. Number and Terms of Directors. The corporation shall have not less
-----------------------------
than five (5) or more than twenty-five (25) Directors. The Board of Directors of
the corporation shall, at a regular meeting prior thereto, fix by resolution the
number of Directors for the succeeding year to be elected at the next annual
meeting of the shareholders. One-third of the Directors shall be elected by a
majority of the votes cast at each annual meeting of the shareholders or by
similar vote at any special meeting called for the purpose, to serve three-year
terms. Each Director shall hold office until the expiration of the term for
which he is elected, except as otherwise stated in the Bylaws, and thereafter
until his successor has been elected and qualified. Election of Directors need
not be by written ballot. The affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding voting stock of the corporation is
required to amend or repeal the provisions of this Article.
<PAGE>
7. First Board. The first Board of Directors shall be six (6) in
-----------
number, and the names and addresses are:
Name Address
- ---- -------
Bruce G. Bohuny 913 Cherokee Lane
Franklin Lakes, NJ 07417
John W. Fredericks 382 Osprey Lane
Mantoloking, NJ 08739
Robert B. Nicholson 309 East Mountain Road
Sparta, NJ 07871
John Pier, Jr. P. O. Box 38
Vernon, NJ 07462
Albert S. Riggs Milton Road
Oak Ridge, NJ 07438
Arthur L. Zande 55 Fox Trail Road
Sparta, NJ 07871.
The terms of the first Board of Directors shall be set so as to
implement staggered terms of 3 years each. The initial terms of Messrs.
Nicholson and Zande shall expire in 1990, those of Messrs. Bohuny and Riggs in
1991 and those of Messrs. Fredericks and Pier in 1992.
8. Vacancies on Board of Directors. Any and all vacancies on the
-------------------------------
Board of Directors, including those resulting from an increase in the number of
Directors or the removal, resignation, or death of a Director, shall be filled
by the Board of Directors.
9. Removal of a Director. A Director of the corporation may only be
---------------------
removed during his or her term of office for cause, as defined as final
conviction of a felony, unsound mind, adjudication of bankruptcy, non-acceptance
of office or conduct prejudicial to the interests of the corporation, by the
affirmative vote of a majority of the entire Board of Directors of the
corporation or by the requisite shareholder vote. Shareholders shall not have
the right to remove Directors without such cause. Shareholders may only attempt
to remove a director for cause after service of specific charges, adequate
notice, and full opportunity to refute the charges.
10. Indemnification of Directors. Directors of the Corporation, to
----------------------------
the fullest extent permitted by the New Jersey Business Corporation Act, as now
or hereafter in effect, and any successor statute, shall not be personally
liable to the Corporation or its shareholders for damages for breach of any duty
owed to the Corporation or its shareholders. Also, any expenses incurred by a
Director in connection with a proceeding involving the Director may be paid by
the
-2-
<PAGE>
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.
11. By-Laws. The Board of Directors shall have the right to enact,
-------
alter, amend or repeal the Bylaws of the Corporation. Also, the By-Laws may be
amended, altered or repealed by the affirmative vote of the holders of not less
than eighty percent (80%) of the outstanding voting stock of the corporation.
12. Considerations in Evaluating Acquisition Offer. The Directors of
----------------------------------------------
the Corporation shall consider all factors they deem relevant in evaluating any
proposed tender offer or exchange offer for the corporation or any subsidiary's
stock, any proposed merger or consolidation of the corporation or subsidiary
with or into another entity and any proposal to purchase or otherwise acquire
all or substantially all the assets of the corporation or any subsidiary. The
Directors shall evaluate whether the proposal is in the best interests of the
corporation and its subsidiaries by considering the best interests of the
shareholders and other factors the Directors determine to be relevant, including
the social, legal and economic effects on employees, customers, depositors, and
communities served by the corporation and any subsidiary. The Directors shall
evaluate the consideration being offered to the shareholders in relating to the
then current market value of the corporation or any subsidiary, the then current
market value of the stock of the corporation or any subsidiary in a freely
negotiated transaction, and the Directors' estimate of the future value of stock
of the corporation or any subsidiary as an independent entity. The affirmative
vote of the holders of not less than eighty percent (80%) of the outstanding
voting stock of the corporation is required to amend or repeal the provisions of
this Article.
13. Votes Required to Approve Acquisition.
-------------------------------------
(a) Unapproved by Board. The affirmative vote of the holders of not
-------------------
less than eighty percent (80%) of the outstanding voting stock of the
corporation is required to approve of either (1) a merger or consolidation of
the corporation with, or (2) a sale, exchange or lease of all or substantially
all of the assets of the corporation to, any person or entity provided that the
Board of Directors of the corporation, by a majority vote of the entire Board,
does not recommend to the stockholders of the corporation a vote in favor of the
same. For purposes of this provision, substantially all of the assets shall mean
assets having a fair market value or book value, whichever is greater, of 25 per
cent or more of the total assets as reflected on a balance sheet of the
corporation as of a date no earlier than 45 days prior to any acquisition of
such assets.
(b) Acquisition by Controlling Party. The affirmative vote of the
--------------------------------
holders of not less than eighty percent (80%) of the outstanding shares of all
voting stock of the corporation and the affirmative vote of the holders of not
less than sixty-seven percent (67%) of the outstanding shares of voting stock
held by stockholders other than the Controlling Party (as defined below) shall
be required for the approval or authorization of any merger, consolidation,
sale, exchange or lease of all of substantially all the assets of the
corporation (as defined above).
-3-
<PAGE>
Controlling Party is any stockholder owning or controlling twenty per cent (20%)
or more of the corporation's voting stock at the time of the proposed
transaction. However, these voting requirements shall not be applicable in such
transactions in which: (a) the cash or fair market value of the property,
securities or other consideration to be received (which includes common stock of
this corporation retained by its existing stockholders in such a transaction in
which the corporation is the surviving entity) per share by holders of common
stock of the corporation in such transaction is not less than the highest per
share price (with appropriate adjustments for recapitalizations, stock splits,
stock dividends and distributions), paid by the Controlling Party in the
acquisition of any of its holdings of the corporation's common stock in the
three years preceding the announcement of the proposed transaction; or (b) the
transaction is recommended by a majority of the entire Board of Directors. The
requirements of this paragraph are in addition to and separate from any consent
or approval that may be required by this Certificate to authorize any merger,
consolidation or sale, exchange or lease of all or substantially all of the
assets of the corporation as in paragraph (a) of this Article.
(c) Meetings of Shareholders. Any meeting of shareholders, whether
------------------------
annual or special, called to consider a vote in favor of a merger or
consolidation of the corporation with, or a sale, exchange or lease of
substantially all of the assets of the corporation to, any person or entity, as
defined in paragraphs (a) and (b) of this Article, which is not recommended by
the Board of Directors of the corporation by the required vote, shall require
attendance in person or by proxy of eighty percent (80%) of the shareholders of
the corporation in order for a quorum for the conduct of business to exist. Such
a meeting may not be adjourned absent notice if a quorum is not present.
(d) Amendment or Repeal of this Article. The affirmative vote of not
-----------------------------------
less than eighty percent (80%) of the outstanding voting stock of the
corporation is required to amend or repeal any part of paragraphs (a) or (b) of
this Article.
14. Incorporator. The name of the sole incorporator is Walter J.
------------
Hunziker, Jr. and the address of the incorporator is 125 Ellison Street,
Paterson, New Jersey 07505.
Dated: February 3, 1989
/s/ Walter J. Hunziker, Jr.
---------------------------
Walter J. Hunziker, Jr.,
Sole Incorporator
-4-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of January 10, 1990
The undersigned corporation, having adopted an amendment to its
certificate of incorporation in connection with a stock dividend, hereby
certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 3% stock dividend was January 10, 1990.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,017,855. The number of shares issued in connection the 3%
stock dividend was 30,535.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,000,000 to 3,030,535. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-5-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,030,535 shares of common
stock, which shall have a par value of $2.50 each.
-6-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of February 12, 1992
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 3% stock dividend was February 12, 1992.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,048,390. The number of shares issued in connection the 3%
stock dividend was 31,452.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,030,535 to 3,061,987. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-7-
<PAGE>
Exhibit A
---------
3. Shares Authorized, The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,061,987 shares of common
stock, which shall have a par value of $2.50 each.
-8-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of November 12, 1992
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 10% stock dividend was November 12, 1992.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,079,842. The number of shares issued in connection the 10%
stock dividend was 107,984.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,061,987 to 3,169,971. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-9-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,169,971 shares of common
stock, which shall have a par value of $2.50 each.
-10-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of May 26, 1993
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 6% stock dividend was May 26, 1993.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,187,826. The number of shares issued in connection the 6%
stock dividend was 71,269.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,169,971 to 3,241,240. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-11-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,241,240 shares of common
stock, which shall have a par value of $2.50 each.
-12-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of May 11, 1994
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 10% stock dividend was May 11, 1994.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,382,483. The number of shares issued in connection with the
10% stock dividend was 138,248.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,241,240 to 3,379,488. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-13-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,379,488 shares of common
stock, which shall have a par value of $2.50 each.
-14-
<PAGE>
LAKELAND BANCORP, INC.
Certificate of Amendment
------------------------
to
--
Certificate of Incorporation
----------------------------
In accordance with the provisions of Section 14A:9-4(3) of the New
Jersey Statutes, LAKELAND BANCORP, INC., a corporation organized under the laws
of the State of New Jersey, does hereby certify the following facts in amendment
of its Certificate of Incorporation as filed on February 7, 1989:
FIRST: The name of the corporation is
LAKELAND BANCORP, INC.
SECOND: The Certificate of Incorporation is hereby amended by
inserting a revised Article 6 in place of the original text, to read as follows:
6. Number and Terms of Directors. The corporation shall have not less
-------------------------------
than five (5) or more than twenty-five (25) Directors. The Board of
Directors of the corporation shall, at a regular meeting prior thereto, fix
by resolution the number of Directors for the succeeding year to be elected
at the annual meeting of the shareholders. The Board shall be divided into
three (3) classes of Directors, each of equal number, or in the event the
total number of Directors is not divisible by three (3) then of nearly
equal number as is possible. Unless they are elected to fill vacancies,
the Directors in each class shall be elected to hold office until the third
successive annual meeting of shareholders after their election and until
their successors shall have been elected and shall have qualified, such
that at each annual meeting of shareholders, only one class of Directors
shall be elected. In the event that a Director is elected to fill a
vacancy, the term of such Director shall expire at the next annual meeting
of shareholders. Any vacancy, however caused, occurring in the Board, and
newly created Directorships resulting from an increase in the authorized
number of Directors, may be filled by the affirmative vote of a majority of
the remaining Directors, even though less than a quorum of the Board, or by
a sole remaining Director. The Board of Directors shall specify the class
in which a Director so elected shall serve. Any Director so elected by the
Board of Directors shall hold office only until the next annual meeting of
the shareholders and until his successor shall have been elected and
qualified, notwithstanding that the term of office of the other Directors
in the class of which he is a member does not expire at the time of such
meeting. His successor shall be elected by the shareholders to a term of
office which shall expire at the same time as the term of office of the
other Directors in the class to which he is elected.
-15-
<PAGE>
Election of Directors need not be by written ballot. The affirmative vote
of the holders of not less than eighty per cent (80%) of the outstanding
voting stock of the corporation is required to amend or repeal the
provisions of this Article.
THIRD: The date of adoption of the foregoing amendment by the
Shareholders of this corporation was April 28, 1995, after its prior adoption by
the Board of Directors and due notice, on which date 1,277,175 shares were voted
in favor of the amendment, representing over 83% of the 1,531,531 total shares
outstanding and entitled to vote. Such vote complied with the minimum 80%
majority required for such amendment as contained in the original Article 6 of
the Certificate of Incorporation. No shares were voted against the amendment.
FOURTH: This amendment is to be effective immediately upon its filing
with the Secretary of State of New Jersey.
IN WITNESS WHEREOF, we have executed this Certificate on behalf of
LAKELAND BANCORP, INC. this 18th day of May, 1995.
/s/ Arthur L. Zande
-----------------------------------------
Arthur L. Zande, Executive Vice President
-16-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of May 24, 1995
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
l. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 5% stock dividend was May 24, 1995.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,535,931. The number of shares issued in connection with
the 5% stock dividend was 76,796.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,379,488 to 3,456,284.
In connection therewith, Section 3 of the certificate of incorporation is
deleted in its entirety and new Section 3, annexed hereto as Exhibit A, is
substituted for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-17-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 3,456,284 shares of common
stock, which shall have a par value of $2.50 each.
-18-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of October 25, 1995
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 100% stock dividend was September 13, 1995.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 1,619,727. The number of shares issued in connection with the
100% stock dividend was 1,619,727.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 3,456,284 to 6,912,568. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-19-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 6,912,568 shares of common
stock, which shall have a par value of $2.50 each.
-20-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of November 13, 1996
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 2% stock dividend was November 13, 1996.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the stock dividend exceeding the percentage
of authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 3,309,259. The number of shares issued in connection with
the 2% stock dividend was 66,185.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 6,912,568 to 7,050,819. In
connection therewith, Section 3 of the certificate of incorporation is deleted
in its entirety and new Section 3, annexed hereto as Exhibit A, is substituted
for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-21-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 7,050,819 shares of common
stock, which shall have a par value of $2.50 each.
-22-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of August 27, 1997
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 5% stock dividend was August 27, 1997.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remain unissued after the stock dividend exceeding the percentage of
authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 3,392,090. The number of shares issued in connection with
the 5% stock dividend was 169,604.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 7,050,819 to 7,403,359.
In connection therewith, Section 3 of the certificate of incorporation is
deleted in its entirety and new Section 3, annexed hereto as Exhibit A, in
substituted for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-23-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 7,403,359 shares of common
stock, which shall have a par value of $2.50 each.
-24-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LAKELAND BANCORP, INC.
Pursuant to N.J.S. 14A:7-15.1(3)
Dated: As of August 26, 1998
The undersigned corporation, having adopted an amendment to its
certificate of incorporation, as amended, in connection with a stock dividend,
hereby certifies as follows:
1. The name of the corporation is Lakeland Bancorp, Inc.
2. The date of adoption by the board of directors of the corporation
of the resolution approving the 100% stock dividend was August 26, 1998.
3. The amendment to the certificate of incorporation will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remain unissued after the stock dividend exceeding the percentage of
authorized shares that was unissued before the stock dividend.
4. The only class of shares subject to the stock dividend was the
corporation's Common Stock. The number of shares of Common Stock subject to the
stock dividend was 4,245,719. The number of shares issued in connection with
the 100% stock dividend was 4,245,719.
5. The certificate of incorporation is amended to increase the
corporation's number of authorized common shares from 7,403,359 to 14,806,718.
In connection therewith, Section 3 of the certificate of incorporation is
deleted in its entirety and new Section 3, annexed hereto as Exhibit A, in
substituted for it.
IN WITNESS WHEREOF, the undersigned corporation has caused this
certificate to be executed on its behalf by its duly authorized officer as of
the date first above written.
LAKELAND BANCORP, INC.
By:/s/ Arthur L. Zande
-------------------
Arthur L. Zande
Executive Vice President
-25-
<PAGE>
Exhibit A
---------
3. Shares Authorized. The maximum number of shares which the
-----------------
corporation shall have the authority to issue is 14,806,718 shares of common
stock, which shall have a par value of $2.50 each.
-26-
<PAGE>
Exhibit 10.3
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
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
-i-
<PAGE>
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
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
-ii-
<PAGE>
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
-iii-
<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").
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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.
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 By-laws. 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 by-laws 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.
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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.
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 then-outstanding 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
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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 then-outstanding 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 Common
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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
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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 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
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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, 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.
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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 third-
parties, 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
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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 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
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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, 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.
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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;
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
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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
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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 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
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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.
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
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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 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
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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.
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"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.
"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
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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.
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.
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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;
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(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"),
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:
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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
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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 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 By-laws, 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
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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 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
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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
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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.
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.
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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 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
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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.
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.
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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
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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 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
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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, 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
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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.
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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
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
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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-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,
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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 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
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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
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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 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;
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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 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
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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"), with respect to the Merger and the other transactions contemplated by
this Agreement, (b) promptly file all applications and reports required to be
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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
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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 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-
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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 non-actions, 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 al 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.
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
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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
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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
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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 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
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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.
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:
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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.
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
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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
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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.
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
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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
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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.
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;
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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
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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").
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
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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.
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.
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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 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
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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
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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 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.
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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:
-------------------------------
Name: John W. Fredericks
Title: President
HIGH POINT FINANCIAL CORP.
By:
-------------------------------
Name: Michael A. Dickerson
Title: President
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Exhibit 10.4
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").
W I T N E S S E T H :
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;
<PAGE>
(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 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
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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.
(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
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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.
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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
(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.
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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, multiplied
by the number of shares so purchased, but only if such Market/Tender Offer
Price is greater than such Purchase Price.
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(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
-7-
<PAGE>
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
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.
-8-
<PAGE>
(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 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
-9-
<PAGE>
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.
-10-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Option Agreement as of the date first written above.
LAKELAND BANCORP, INC.
By:
------------------------------------
Name: John W. Fredericks
Title: President
HIGH POINT FINANCIAL CORP.
By:
------------------------------------
Name: Michael A. Dickerson
Title: President
-11-
<PAGE>
EXHIBIT 22.1
LAKELAND BANCORP, INC.
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
---- -----------------------------
Lakeland Bank New Jersey chartered bank
Lakeland Investment Corporation Delaware
Metropolitan State Bank New Jersey chartered bank
M.S.B. Investment, Inc. New Jersey
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the previously
filed Registration Statement on Form S-3 (No. 33-34099) of Lakeland Bancorp,
Inc. (the "Company") of our report dated January 11, 1999, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
/s/ Radics & Company, LLC
Radics & Company, LLC
March 17, 1999
Pine Brook, New Jersey
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of Lakeland Bancorp, Inc.
desire to authorize Arthur L. Zande and William J. Eckhardt to act as their
attorneys-in-fact and agents, for the purpose of executing and filing the
registrant's Annual Report on Form 10-K for the year ended December 31, 1998,
including all amendments thereto,
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arthur L. Zande and William J. Eckhardt, 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 Annual Report on
Form 10-K for the year ended December 31, 1998, including any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney in
the following capacities as of the 15th day of March, 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
/s/ John Pier, Jr.
______________________________ Director
John Pier, Jr.
<PAGE>
/s/ Paul P. Lubertazzi
______________________________ Director
Paul P. Lubertazzi
/s/ Joseph P. O'Dowd
______________________________ Director
Joseph P. O'Dowd
/s/ William J. Eckhardt
______________________________ Vice President and Treasurer
William J. Eckhardt (Chief Financial and Accounting
Officer)
/s/ Arthur L. Zande
______________________________ Executive Vice President and
Arthur L. Zande Director (Chief Executive
Officer)
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 24,194
<INT-BEARING-DEPOSITS> 204
<FED-FUNDS-SOLD> 10,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,848
<INVESTMENTS-CARRYING> 67,302
<INVESTMENTS-MARKET> 68,271
<LOANS> 311,493
<ALLOWANCE> 3,897
<TOTAL-ASSETS> 548,557
<DEPOSITS> 488,881
<SHORT-TERM> 3,795
<LIABILITIES-OTHER> 2,568
<LONG-TERM> 0
0
0
<COMMON> 21,279
<OTHER-SE> 32,035
<TOTAL-LIABILITIES-AND-EQUITY> 548,557
<INTEREST-LOAN> 25,071
<INTEREST-INVEST> 8,841
<INTEREST-OTHER> 1,022
<INTEREST-TOTAL> 34,934
<INTEREST-DEPOSIT> 12,813
<INTEREST-EXPENSE> 13,009
<INTEREST-INCOME-NET> 21,926
<LOAN-LOSSES> 698
<SECURITIES-GAINS> 143
<EXPENSE-OTHER> 15,751
<INCOME-PRETAX> 8,641
<INCOME-PRE-EXTRAORDINARY> 5,725
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,725
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<YIELD-ACTUAL> 7.36
<LOANS-NON> 1,257
<LOANS-PAST> 4,248
<LOANS-TROUBLED> 1,468
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,142
<CHARGE-OFFS> 1,260
<RECOVERIES> 317
<ALLOWANCE-CLOSE> 3,897
<ALLOWANCE-DOMESTIC> 3,897
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1 LAKELAND BANCORP, INC. (the "Company")
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for "forward-looking statements" (as defined in the Act). The
Annual Report on Form 10-K to which this Exhibit is attached, the Company's
Annual Report to Shareholders, any Quarterly Report on Form 10-Q prepared by the
Company, any Current Report on Form 8-K prepared by the Company and any other
written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current view (as of the
date of such forward-looking statement is made) with respect to future events,
prospects, projections, financial performance or other matters. These forward-
looking statements are subject to certain uncertainties and other factors that
could cause actual results to differ materially from those made, implied or
projected in such statements. These uncertainties and other factors include,
but are not limited to, the following: uncertainties relating to general
economic conditions; uncertainties relating to the determination of the
Company's provision for loan losses and allowance for loan losses (as described
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Provision for Loan Losses" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Loans -- Risk Elements" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998); uncertainties relating to the analysis of the
Company'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 the Company should match such assets and liabilities (as
described under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Provision for Loan Losses" and
"Discussion of Market Risk" -- "Liquidity" in the Company's Annual Report on
From 10-K for the year ended December 31, 1998); the impact of competition among
financial institutions and between financial institutions and other sources of
credit; the ability of the Company to integrate Metropolitan State Bank, which
was acquired by the Company on February 20, 1998; the impact of off-balance
sheet obligations (as described in the Notes to the Company's consolidated
Financial Statements included within the Company's Annual Report on Form 10-K
for the year ended December 31, 1998); changes to the presentation of financial
results and condition resulting from adoption of new accounting principles or
upon the advice of the Company's independent auditors or the staff of various
regulatory agencies; unanticipated demands upon the Company's liquidity; and
unanticipated failure on malfunction of the Company'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 the Company's borrowers; the continued financial viability of the
issuers of securities within the Company's investment portfolio; labor and
employment benefit costs; and other factors referenced in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, or other filings or
written or
<PAGE>
oral statements made by or on behalf of the Company. The words "believe",
"expect", "anticipate", "project" and similar expressions identify "forward-
looking statements", which speak only as of the date that the statement is made.
The Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
