-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TDoHmpevHgVWE67jBNrigyA4vLSAZhBOTgcW1c18bXWyit46oTSQ0gPgyLq1IZMy S2UaLH8bGj7XGmL2I4WAEA== 0000950110-96-001113.txt : 19960925 0000950110-96-001113.hdr.sgml : 19960925 ACCESSION NUMBER: 0000950110-96-001113 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19960924 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITY BANCORP INC /DE/ CENTRAL INDEX KEY: 0000920427 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 223282551 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-12565 FILM NUMBER: 96633798 BUSINESS ADDRESS: STREET 1: 64 OLD HIGHWAY 22 CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087307630 MAIL ADDRESS: STREET 1: 64 OLD HIGHWAY 22 CITY: CLINTON STATE: NJ ZIP: 08809 SB-2 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on September __, 1996 Registration Statement No. 33-______ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- UNITY BANCORP, INC. (Exact Name of Small Business Issuer in Its Charter) Delaware 6712 22-3282551 - -------- ---- ---------- (State or Other (Primary Standard (IRS Employer Jurisdiction of Industrial Identification Incorporation or Classification No.) Organization) Code Number) 64 Old Highway 22, Clinton, New Jersey 08809 (908) 730-7630 - -------------------------------------------------------------------------------- (Address and Telephone Number of Principal Executive Offices) 64 Old Highway 22, Clinton, New Jersey 08809 - -------------------------------------------------------------------------------- (Address of Principal Place of Business or Intended Principal Place of Business) Unity Bancorp, Inc. 64 Old Highway 22 Clinton, New Jersey 08809 Attn: James Hyman President and Chief Operating Officer (908) 730-7630 - -------------------------------------------------------------------------------- (Name, Address, Telephone Number of Agent for Service) ---------- With copies of communication to: McCarter & English Four Gateway Center Newark, New Jersey 07102 Attn: Robert A. Schwartz, Esq. (201) 639-2093 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ================================================================================================================================
Title of Each Amount to Proposed Proposed Amount of Class of be Maximum Maximum Registration Securities to Registered Offering Aggregate Fee be Registered Price(1) Offering Price ------------- ---------- -------- --------- ------------ Units, each 335,500 $16.50 $5,535,750 $1,909 consisting of Per Unit one share of Common Stock, no par value, and one Warrant to purchase one share of Common Stock Common Stock, 335,500(2) $17.00 $5,703,500 $1,967 no par Per value(2) Share Total ............................................................ $3,876 ================================================================================================================================
- ---------- (1) Estimated solely for the purpose of calculating the registration fee. (2) Issuable upon exercise of the Warrants. ---------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. UNITY BANCORP, INC. Cross Reference Sheet Form SB-2
Prospectus Caption or Items of Form SB-2 Location - ------------------ --------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus ............................................... Facing Page of Registration Statement; Front cover page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus.................................. Inside Front Cover Page; AVAILABLE INFORMATION; TABLE OF CONTENTS 3. Summary Information and Risk Factors ................................................... PROSPECTUS SUMMARY; SPECIAL CONSIDERATIONS AND RISK FACTORS 4. Use of Proceeds............................................ USE OF PROCEEDS 5. Determination of Offering Price............................ THE OFFERING -- PLAN OF DISTRIBUTION 6. Dilution................................................... Not Applicable 7. Selling Security-Holders................................... Not Applicable 8. Plan of Distribution....................................... THE OFFERING; PLAN OF DISTRIBUTION 9. Legal Proceedings.......................................... BUSINESS 10. Directors, Executive Officers, Promoters and Control Persons.............................. MANAGEMENT -- Certain Transactions with Management 11. Security Ownership of Certain Beneficial Owners and Management................................................. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12. Description of Securities.................................. DESCRIPTION OF SECURITIES 13. Interest of Named Experts and Counsel.................................................... Not Applicable -i- 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities ................................ Not Applicable 15. Organization within last five years...................................................... MANAGEMENT -- Certain Transactions with Management 16. Description of Business.................................... BUSINESS 17. Management's Discussion and Analysis of Plan of Operation.............................. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18. Description of Property.................................... BUSINESS -- Properties 19. Certain Relationships and Related Transactions....................................... MANAGEMENT -- Certain Transactions with Management 20. Market for Common Equity and Related Stockholder Matters................................ MARKET AND PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY 21. Executive Compensation..................................... MANAGEMENT -- Executive Compensation 22. Financial Statements....................................... CONSOLIDATED FINANCIAL STATEMENTS 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. Not Applicable
-ii- PROSPECTUS Subject to completion, dated _________ __, 1996 UNITY BANCORP, INC. 305,000 UNITS ---------- Unity Bancorp, Inc. (the "Company"), a Delaware corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA") is offering for sale (the "Offering") 305,000 Units (the "Units") at a per Unit price of $16.50. Each Unit consists of one Share of Common Stock, no par value (the "Common Stock"), and one warrant (a "Warrant") to purchase one share of Common Stock at an exercise price of $17.00 for a period of two years from the date of issuance. The Offering will commence on ________ ___, 1996 and will terminate on _________ ___, ________ (subject to extension by the Board of Directors of the Company as provided for herein, the "Offering Termination Date"). Prior to the date of the Offering, there has been only a limited trading market in the Common Stock and no trading market in the Units or Warrants. On August 31, 1996, the last reported sale price of the Common Stock on the NASDAQ Bulletin Board was $16.75. The Company has received conditional approval to have the Common Stock and the Warrants listed on the American Stock Exchange under the symbols "________" and "________" respectively although no assurances can be given that the Company will satisfy all of the conditions contained in the conditional approval. If such conditions can not be met, the Common Stock and the Warrants will be traded on the NASDAQ Bulletin Board. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE INFORMATION CONTAINED HEREIN UNDER THE HEADING "SPECIAL CONSIDERATIONS AND RISK FACTORS." ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Underwriting Proceeds to Price to Public Discount(1) Company (2) --------------- ------------ ----------- Per Unit................. $16.50 $ None $5,032,500 Total(3) ................ $16.50 None $5,032,500 - ---------- (1) The Company has not engaged any underwriter in connection with the Offering. Offers and sales of the Units will be effected by certain officers of the Company, who will not be separately paid for such activities. No discounts or commissions will be paid to such officers. See "The Offering - PLAN OF DISTRIBUTION." (2) Before deducting offering expenses payable by the Company estimated to be $150,000. (3) The Company has retained an option to sell up to an additional 30,500 Units, on the same terms and conditions set forth herein, solely to cover over-subscriptions, if any. If such option is exercised in full, the Price to the Public and Proceeds to the Company will be $16.50 and $5,535,750 respectively. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. ---------- The Units are offered, subject to prior sale, and subject to the right of the Company to withdraw, cancel or modify such offer and to reject any order in whole or in part. The Offering covered by this Prospectus will expire on the Offering Termination Date, unless the Company, in its sole discretion, shall extend the offer. It is expected that delivery of the certificates representing the Common Stock and the Warrants purchased as part of the Units during the Offering will be made against payment therefor on or about _____ __, 1996 at the offices of the Company, Clinton, New Jersey. The date of this Prospectus is ______ __, 1996. THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOR WILL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. AVAILABLE INFORMATION Unity Bancorp, Inc. has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C., a Registration Statement on Form SB-2 (herein, together with all amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Units offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement and the exhibits thereto and reference is made to the Registration Statement and exhibits thereto for further information with respect to Unity Bancorp, Inc. and the Units offered hereby. Statements herein concerning the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, together with exhibits, may be inspected without charge, and copied at prescribed rates at the principal or regional offices of the Commission at the addresses indicated above. Copies also may be obtained at prescribed rates from the public reference facilities maintained by the Commission, at 450 Fifth Street, N.W., Washington, D.C. In connection with the Offering, the Company will become subject to the informational requirements of Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith, will file reports and other information with the Securities and Exchange Commission (the "Commission" or the "SEC"). Such reports and other information can be inspected without charge and copied at prescribed rates at the public reference facilities maintained by the SEC at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at its regional offices located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center, 15th Floor, New York, NY 10048. Copies of such material can also be obtained at prescribed rates from the SEC's Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549 and its public reference facilities in Chicago, Illinois and New York, New York. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements (including the notes thereto) appearing elsewhere in this Prospectus. The term Company as used herein refers to Unity Bancorp, Inc. and its wholly owned subsidiary, First Community Bank (the "Bank"). THE COMPANY Unity Bancorp, Inc. is a one-bank holding company incorporated under the laws of the State of Delaware to serve as a holding company for the Bank. The Bank opened for business on September 16, 1991. The Bank is a full-service commercial bank, providing a wide range of business and consumer financial services through its main office and four branches located in Clinton, North Plainfield, Flemington, Springfield, and Scotch Plains, New Jersey. The Bank's primary trade area encompasses the Route 22/Route 78 corridor between the Bank's Clinton, New Jersey main office and its Springfield, New Jersey branch. This trade area includes communities in Hunterdon, Middlesex, Morris, Somerset and Union Counties, New Jersey. The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the "FRB"). The Bank is a New Jersey chartered commercial bank whose deposits are insured by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). See "SPECIAL CONSIDERATIONS AND RISK FACTORS - Disparity in Insurance Premiums and Special Assessment." The operations of Unity Bancorp, Inc. and the Bank are subject to the supervision and regulation of FRB, FDIC and the New Jersey Department of Banking. Subsequent to June 30, 1996, the Company redeemed $2.0 million in its outstanding subordinated debt in exchange for 160,800 shares of its Common Stock. This subordinated debt was held by affiliates of the Company, including members of the Board of Directors of the Company and the Bank and their affiliates. The shares issued in exchange for the subordinated debt may not be transferred by these affiliates until September, 1998, two years after consummation of the exchange offer. The principal executive offices of Unity Bancorp, Inc. are located at 64 Old Highway 22, Clinton, NJ 08809, and the telephone number is (908) 730-7630. 3 THE OFFERING Securities Offered............ 305,000 Units, each Unit consisting of one share of Common Stock and one Warrant. Shares of Common Stock outstanding prior to the Offering(1) .......... 1,250,192 shares Shares of Common Stock outstanding after the Offering(1) .................. 1,555,192 shares Warrants...................... Each Warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $17.00, subject to adjustment upon the occurrence of certain events. The Warrants, which are immediately exercisable, will expire two years from their date of issuance. The Offering and Plan of Distribution.......... The Company is offering 305,000 Units, each Unit consisting of one share of Common Stock and one Warrant to purchase one share of Common Stock. Units will be offered by certain officers of the Company to the general public. All subscriptions for the Units may be made by completing the Subscription Agreement accompanying this Prospectus and mailing the Subscription Agreement and the aggregate purchase price for the Units to the Company. See "THE OFFERING--PLAN OF DISTRIBUTION." Dividends..................... The Company has paid regular quarterly cash dividends since the first quarter of 1995. - -------- (1) Does not include 305,000 shares of Common Stock reserved for issuance upon exercise of the Warrants. 4 The current quarterly dividend is $.06 per share. The Company has also issued a 10% stock dividend in 1993 and 1994 and a 5% stock dividend in 1996. The future payment of dividends, if any, by the Company will be determined from time to time based upon, among other things, the Company's performance and capital needs. Use of Proceeds............... The proceeds of the Offering will be used to fund the Company's continued expansion. Among the possibilities the Company is considering is chartering a new commercial bank subsidiary (the "Subsidiary") or establishing additional branches. The Company will strongly consider using the proceeds to capitalize the Subsidiary if Congress does not resolve the premium disparity between members of the SAIF, like the Bank, and members of the Bank Insurance Fund ("BIF") of the FDIC. See "SPECIAL CONSIDERATIONS AND RISK FACTORS - Disparity in Insurance Premiums and Special Assessment." In addition, the Company will use the proceeds to expand its lending activities. Market for Securities......... The Units, the Common Stock and the Warrants are currently not listed on any securities exchange or on the NASDAQ National or SmallCap Markets. The Common Stock does trade from time to time on the NASDAQ Bulletin Board. There is no trading market for the Units or the Warrants. In connection with the Offering, the Company has received conditional approval to have 5 the Common Stock and the Warrants listed on the American Stock Exchange under the symbols "_______" and "______" respectively. Among the conditions contained in the approval is a requirement that the Common Stock and the Warrants sold pursuant to the Offering be distributed to at least _______ subscribers who are not current stockholders of the Company. Although the Company intends to use its best efforts to satisfy this requirement, no assurance can be given that the Company will be able to satisfy this condition. In the event the Company is unable to satisfy this condition, the Common Stock and the Warrants will not be listed on the American Stock Exchange and will, instead, be traded on the NASDAQ Bulletin Board. Special Considerations and Risk Factors.................. Prospective purchasers of the Units should consider the information discussed under the heading "SPECIAL CONSIDERATIONS AND RISK FACTORS." 6 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth at and for each of the two years presented below are derived from the consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent auditors, whose report thereon is included elsewhere herein. The selected consolidated financial information for the six month periods ended June 30, 1996 and 1995 are derived from unaudited financial statements of the Company. The results of operations for the six months ended June 30, 1996 are unaudited and are not necessarily indicative of the results of operations to be expected for the twelve months ending December 31, 1996. The selected consolidated financial information should be read in conjunction with the consolidated financial statements of the Company, including the related notes, thereto set forth elsewhere in this Prospectus. Six Months Ended Years Ended June 30, December 31, ------------------ ------------------ 1996 1995 1995 1994 ------ ------ ------ ------ (Dollars in thousands, except per share data) INCOME STATEMENT DATA: Interest income ................ $4,949 $3,461 $7,770 $4,938 Interest expense ............... 2,136 1,350 3,334 1,830 ------ ------ ------ ------ Net interest income ............ 2,813 2,111 4,436 3,108 Provision for loan losses ...... 257 145 229 161 Other income ................... 1,050 625 1,385 628 Other expense .................. 2,791 1,777 3,978 2,600 ------ ------ ------ ------ Income before income taxes ..... 815 814 1,614 975 Income tax expense ............. 312 313 609 219 ------ ------ ------ ------ Net income ..................... $ 503 $ 501 $1,005 $ 756 ====== ====== ====== ====== 7
Six Months Ended Years Ended June 30, December 31, ---------------------- ----------------- 1996 1995 1995 1994 ---- ---- ---- ---- PER SHARE DATA: Net Income ................... $ 0.47 $ 0.52 $ 1.04 $ 0.84 Cash dividends ............... 0.11 0.15 0.24 -0- Book value ................... 9.41 8.58 9.24 8.04 Weighted average shares outstanding .................. 1,058,282 962,380 963,019 900,954 BALANCE SHEET DATA: Total Assets ................. $138,448 $ 96,581 $121,804 $ 78,648 Total loans .................. 84,064 46,033 59,108 36,421 Investment securities(1) ................ 34,208 31,912 36,161 30,476 Deposits ..................... 125,623 86,565 110,998 70,695 Total stockholders' equity ....................... 10,256 7,874 8,476 7,360 PERFORMANCE RATIOS: Return on average assets ....................... .78% 1.17% 1.03% 1.07% Return on average stockholders' equity ......... 10.58% 13.27% 12.82% 11.53% Net interest margin .......... 4.55% 5.12% 4.70% 4.52% Dividend payout ratio ........ 23.96% 27.43% 22.81% 0% Equity to assets ratio ....... 7.38% 8.84% 8.07% 9.26%
- -------- (1) Includes securities held to maturity and securities available for sale. 8 SPECIAL CONSIDERATIONS AND RISK FACTORS A prospective purchaser should review and consider carefully the following factors, together with the other information contained in this Prospectus, in evaluating an investment in the Units. DISPARITY IN INSURANCE PREMIUMS AND SPECIAL ASSESSMENT Unlike deposits of most commercial banks, deposits of the Bank are insured by the SAIF. Both the SAIF and the BIF, the deposit insurance fund that covers most commercial bank deposits, are statutorily required to hold reserves equal to 1.25% of insured deposits. Under federal law, the FDIC may not reduce insurance premiums until a fund holds reserves equal to 1.25% of insured deposits. The BIF reached this statutorily required ratio in mid-1995, and the FDIC established a new assessment rate schedule for BIF members of 0 to 31 basis points. Approximately 92% of BIF members pay only the statutorily mandated minimum payment of $2,000 per year for deposit insurance, with no additional premium. Since the SAIF has not reached its statutorily mandated reserve ratio, the FDIC has maintained the assessment rate schedule for SAIF-member institutions at 23 to 31 basis points. Due to the differential in FDIC insurance premium assessments, SAIF members, such as the Bank, may be at a substantial competitive disadvantage to BIF members with respect to pricing of loans and deposits and the ability to achieve lower operating costs through reduced premium rates. Several alternatives to mitigate the effect of the BIF/SAIF premium disparity have been proposed by Congress. In November, 1995, Congress passed legislation designed to recapitalize the SAIF, thereby leading to equalized premium assessments, by requiring all SAIF member institutions to pay a one time fee of approximately 85 basis points on the amount of deposits held by a SAIF member institution. Under the legislation, certain institutions, such as the Bank, which were chartered as de novo commercial banks with deposits insured by the SAIF, would be entitled to a 20% reduction in the amount of the special assessment. This payment would have been required in January, 1996. President Clinton vetoed this legislation in December, 1995. If this legislation had been accepted by the President, it would have had the effect of immediately reducing the capital of SAIF member institutions by the amount of their assessments. Based on the Bank's deposits as of March 31, 1995, the measurement date contained in the proposed legislation, the Bank's special assessment would have been $493,113. Since this legislation was vetoed, various other proposals have been discussed in Congress, most of which would require SAIF members to pay an upfront special assessment in return for reduced premiums and an eventual merger of the SAIF and the BIF. 9 Management of the Company is unable to predict whether any proposal will be enacted or whether ongoing SAIF premiums will be reduced to a level comparable to that of BIF premiums. See "SUPERVISION AND REGULATION." Management of the Company has reviewed several alternative strategies to compensate for the BIF-SAIF premium disparity, including chartering a new commercial bank subsidiary of the Company to be insured by the BIF fund. See "--Growth Strategy" and "Use of Proceeds." GROWTH STRATEGY The Company has adopted an aggressive growth strategy pursuant to which the Company has grown through the establishment of new branches. The Company has opened three new branches in Flemington, Springfield and Scotch Plains, New Jersey since June 1, 1995. Growth through de novo branching involves certain risks and costs which might not be incurred if the Company acquired an existing institution or branch along with its associated deposits and loans. In establishing de novo branches, the Company is required to enter into a market which may already be served by existing institutions and compete without the benefit of existing customer relationships. The Company must fund the majority of a branch's start up costs prior to the time the branch opens for business and attracts deposits. It typically takes up to twelve months for a branch to contribute to the Company's profitability. Among the strategies reviewed by Company management to ameliorate the BIF-SAIF premium disparity is chartering a new commercial bank subsidiary of the Company which will be insured by the BIF fund of the FDIC. This strategy entails a variety of risks, including the ability of the Company to yield sufficient deposit insurance premium savings to justify the expenses of establishing the Subsidiary. In the event the Company elects to use the proceeds of the Offering to capitalize the Subsidiary, no assurance can be given that Congressional responses to the BIF-SAIF issue will not preclude the Company from recouping its investment from deposit insurance premium savings. See "Use of Proceeds." CONTROL BY OFFICERS AND DIRECTORS Upon completion of the Offering, directors and executive officers of the Company and their affiliates will control a substantial percentage of the Common Stock. Executive Officers and directors of the Company will own approximately 54% of the outstanding shares of the Common Stock. Because the directors and executive officers will own a majority of the Company's outstanding Common Stock, as a practical matter, it will be difficult to undertake any corporate actions requiring stockholder approval, or to elect a board of directors of the 10 Company, without the support of the directors, executive officers and their affiliates. ABSENCE OF A PUBLIC MARKET There is currently no established public market for the Units, the Common Stock and the Warrants. The Common Stock trades from time to time on the NASDAQ Bulletin Board. In connection with the Offering, the Company has applied to have the Warrants and the Common Stock listed on the American Stock Exchange. The Common Stock and the Warrants have been conditionally approved for listing on the American Stock Exchange under the symbols "_____" and "_____" respectively. Among the conditions contained in the American Stock Exchange's approval is a requirement that the shares of Common Stock and the Warrants sold in the Offering be distributed to at least ___________ subscribers who are not existing shareholders of the Company. Although the Company intends to use its best efforts to satisfy this requirement, no assurance can be given that the Company will be successful in satisfying the conditions included in the American Stock Exchange's conditional approval of having the Common Stock and the Warrants listed on the American Stock Exchange. In the event the Common Stock and the Warrants are not listed on the American Stock Exchange, the Common Stock and the Warrants will be traded on the NASDAQ Bulletin Board. However, the NASDAQ Bulletin Board provides a far less liquid market for trading of the Common Stock and the Warrants, and it may be more difficult for shareholders to sell large blocks of the Common Stock or the Warrants if the Company's Common Stock and Warrants are traded on the NASDAQ Bulletin Board instead of the American Stock Exchange. Even if the Common Stock and the Warrants are listed on the American Stock Exchange, no assurances can be given that an active public trading market for the Common Stock or the Warrants will develop or if such a market develops, that it will be sustained. SOURCES OF DIVIDENDS ON COMMON STOCK The Company is a legal entity separate and distinct from the Bank. The Company has no material assets other than its ownership of the Bank. Earnings of the Company are wholly dependent on the earnings of the Bank, as the Company has engaged in no significant operations of its own. Accordingly, the earnings of the Company, and its ability to pay dividends with respect to the Common Stock, are largely dependent on the receipt by the Company of the earnings of the Bank in the form of dividends. Any restriction on the ability of the Bank to pay dividends to the Company could significantly and adversely affect the ability of the Company to pay dividends with respect to the Common Stock. The Bank's ability to pay dividends or make other capital distributions to the Company is governed by regulations imposed 11 by the FDIC and the New Jersey Department of Banking (the "Department"), the Bank's primary regulators. See "Supervision and Regulation." COMPETITION The banking and financial services field in which the Company is engaged is highly competitive and most competitors have substantially greater financial resources than the Company does. The Company's principal market area is served by branch offices of large commercial banks and thrift institutions. Such institutions have substantially greater resources than the Company to expend upon advertising and marketing, and their substantially greater capitalization enables those competitors to make much larger loans. The Company's success depends a great deal upon its judgment that large and mid-size financial institutions do not adequately serve small businesses and consumers in its principal market area and the Company's ability to compete favorably for such customers. In addition to existing competition, on September 29, 1994, the Riegel-Neal Interstate Banking and Branching Efficiency Act (the "Interstate Act") was signed into law. The Interstate Act reduces restrictions on the acquisition of New Jersey financial institutions by out of state bank holding companies and financial institutions, and permits the operations of acquired New Jersey institutions to be conducted under existing charters, thereby making acquisitions of New Jersey institutions more efficient and cost effective for out of state bank holding companies and financial service institutions. Adoption of the Interstate Act may make the New Jersey banking market even more competitive than it currently is. See "Supervision and Regulation." LENDING RISKS The risk of non-payment (or deferred or delayed payment) of loans is inherent in commercial banking. Such non-payment, or delayed or deferred payment of loans to the Company, if they occur, may have a material adverse effect on the Company's earnings and overall financial condition. Additionally, in compliance with applicable banking laws and regulations and in light of sound judgment, the Company maintains an allowance for loan losses created through charges against earnings. As of June 30, 1996, the Company's allowance for loan losses was $774,417. The Company's marketing focus on small to medium-size businesses may result in the assumption by the Company of certain lending risks that are different from or greater than those which would apply to loans made to larger companies. Company management seeks to minimize the Company's credit risk exposure through credit controls which include evaluation of potential borrowers, collateral available, liquidity and cash flow. 12 However, there can be no assurance that such procedures will actually reduce loan losses. FUTURE ISSUANCE OF SECURITIES; EXERCISE OF WARRANTS In order to have sufficient capital to facilitate its growth strategy, the Company may be required to raise additional capital. In the event the Company is unable to raise such capital, it may not be able to undertake its current expansion strategy and management will be required to reorient its long term strategy for the Company. There can be no assurance that the Company will be able to generate or attract additional capital in the future on favorable terms. In addition, the issuance of additional securities to raise additional capital may result in dilution to the then current stockholders of the Company. The Warrants issued as part of the Units may not be exercised unless the Company maintains an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants with the SEC and with various securities administrators for the states in which the warrant holders reside, or unless the issuance of such shares of Common Stock is exempt from registration. Although the Company will make every reasonable effort to maintain such registration, no assurances can be given that the Company will be successful. POTENTIAL IMPACT OF CHANGES IN MONETARY POLICY AND INTEREST RATES The operating results of the Company may be significantly affected (favorably or unfavorably) by market rates of interest which, in turn, are affected by prevailing economic conditions, by the fiscal and monetary policies of the United States Government and by the policies of various regulatory agencies. The earnings of the Company will depend primarily upon its interest rate spread (i.e., the difference between income earned on its loans and investments and the interest paid on its deposits). Like many financial institutions, the Company may be subject to the risk of fluctuations in interest rates, which, if significant, may have a material adverse effect on its operations. See "SUPERVISION AND REGULATION". SUPERVISION AND REGULATION The Federal and state laws and regulations applicable to the Company and the Bank give regulatory authorities extensive discretion in connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect depositors and the deposit insurance funds and not for the purpose of protecting stockholders. These laws and regulations can materially affect the future business of the Company and the Bank. Laws and regulations now affecting the Company and the 13 Bank may be changed at any time, and the interpretation of such laws and regulations by bank regulatory authorities is also subject to change. The Company can give no assurance that future changes in laws and regulations or changes in their interpretation will not adversely affect the business of the Company and the Bank. See "SUPERVISION AND REGULATION." USE OF PROCEEDS The net proceeds to the Company from the sale of the Units offered hereby is estimated to be approximately $4,882,500 ($5,385,750 if the over-subscription option is exercised in full by the Company), after deducting offering expenses. The Company intends to use the proceeds of the Offering to fund the Company's ongoing expansion. The proceeds may be used to fund additional branches of the Bank, or may be used by the Company to fund the initial capitalization of the Subsidiary. If congressional action is not taken to ameliorate the BIF/SAIF premium disparity, the Company will strongly consider using the proceeds to capitalize the Subsidiary. Under the regulations of the New Jersey Department of Banking, a de novo institution must have minimum capital of $5 million. The Company may use the net offering proceeds, together with certain internally generated funds, to fund the initial capitalization of the Subsidiary. The Company may also use a portion of the proceeds to fund expansion of its leading activities. MARKET AND PRICE RANGE OF COMMON STOCK Commencing in November, 1995, the Common Stock of the Company became listed for trading on the NASDAQ Bulletin Board. Prior to that time, the Common Stock was not traded on any recognized securities exchange. As of August 31, 1996, there were 296 stockholders of record of the Common Stock. In connection with the Offering, the Company has received conditional approval to have the Common Stock and Warrants listed for trading on the American Stock Exchange under the symbols "_____" and "_____" respectively. Among the conditions contained in the American Stock Exchange's approval is a requirement that the Common Stock and Warrants sold pursuant to the Offering be distributed to at least _______ subscribers who are not currently shareholders of the Company. Although the Company intends to use its best efforts to satisfy this condition, no assurances can be given that this condition will be satisfied. In the event this condition is not satisfied, the Common Stock and the Warrants will be traded on the NASDAQ Bulletin Board, a less liquid market than the American Stock Exchange. Even if the conditions contained in the American Stock Exchange's conditional approval are satisfied and the stock is listed for trading on the American 14 Stock Exchange, there can be no assurance that an active or liquid trading market for the Common Stock or the Warrants will develop or, if developed, be maintained. The following table sets forth the high and low bid prices of the Common Stock, as reported on the NASDAQ Bulletin Board since November, 1995, the date the Company first became listed on the Bulletin Board. The high and low bid prices reflect interdealer quotations, without retail mark-up, mark-down or commissions and do not necessarily represent actual transactions. Bid --------------------------------- Cash High Low Dividend ------ ----- -------- 1995 4th Quarter $15.00 $14.00 $.05 1996 1st Quarter.............................. 16.25 14.00 .06 2nd Quarter.............................. 17.75 15.00 .06 3rd Quarter (through August 31, 1996).................................... 17.50 16.75 .06 As of August 31, 1996, options to purchase 39,750 shares of Common Stock were outstanding, all of which were immediately exercisable. In addition, the Company has issued 286,621 shares of stock without registration and which are subject to two year holding periods. The holding period on 125,821 of these shares lapses in March, 1998 and the holding period on the remaining 160,800 shares lapses in September, 1998. 15 DIVIDEND POLICY The Company began paying a cash dividend in the first quarter of 1995 and has paid a quarterly dividend each quarter since. The Company's current dividend is $.06 per share. Additionally, the Company issued 10% stock dividends during 1992 and 1993 and a 5% stock dividend in 1996. The future payment of cash dividends, if any, by the Company will be determined from time to time by the Board of Directors which will consider, among other factors, the Company's financial condition and results of operations, investment opportunities, capital requirements and regulatory limitations. Funds for the payment of cash dividends by the Company are derived from dividends paid by the Bank to the Company. Accordingly, restrictions on the Bank's ability to pay cash dividends directly affect the payment of cash dividends by the Company. The Bank is subject to certain limitations on the amount of cash dividends that it may pay under the Banking Act, which provides that a bank may pay dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50 percent of its capital stock or the payment of the dividend will not reduce the bank's surplus. As of June 30, 1996, the Bank had 3,778,102 available for the payment of dividends to the Company pursuant to these restrictions. CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1996 and as adjusted to give effect, after deducting offering expenses, to the sale by the Company of 305,000 Units offered hereby. As adjusted numbers are based upon an offering price of $16.50 per Unit. June 30, 1996 ------------------------ Actual As Adjusted ------ ----------- (Dollars in Thousands) Subordinated Debt ................................. $ 2,010 $ 2,010 ------- Stockholders' equity:(1) Common Stock, no par value 2,500,000 shares authorized, 1,089,392 shares issued and 1,394,392 shares issued, as adjusted.............................. 9,462 $14,345 ------- Retained earnings.................................. 880 $ 880 ------- -16- Net unrealized holding (losses) on available for sale securities.................... (86) (86) ------- ------- Total stockholders' equity................ $12,266 $17,149 ======= ======= - ---------- (1) Does not include 305,000 shares of Common Stock reserved for issuance upon exercise of Warrants and an aggregate of 120,000 shares of Common Stock reserved for issuance under the Company's 1994 Stock Option Plan for Employees, the Company's 1994 Stock Option Plan for Non-Employee Directors and the Company's Stock Bonus Plan. The table above does not give effect to an exchange of $2 million in the Company's subordinated notes for 160,800 shares of the Company's Common Stock which was effectuated in September, 1996. The effect of this exchange is to decrease on both an actual and an as-adjusted basis, the Company's subordinated debt to zero and to increase in the Company's stockholders equity by $2,010,000. The following tables set forth the capital ratios of the Company and the Bank as of June 30, 1996 and as adjusted to give effect, after deducting offering expenses, to the sale by the Company of the 305,000 Units offered hereby at a price of $16.50 per Unit, as well as the minimum required regulatory capital for the Company and the Bank. -17- THE COMPANY
June 30, 1996 ---------------------------------- Required Regulatory Actual As Adjusted Minimum --------- ------------ ------------------- Risk based capital: Tier I capital................................ 10.40% 14.94% 4.00% Total capital................................. 11.19% 15.71% 8.00% Leverage ratio.................................... 7.72% 11.32% 3.00-5.00%
THE BANK
June 30, 1996 ---------------------------------- Required Regulatory Actual As Adjusted Minimum --------- ------------ ------------------- Risk based capital() Tier I capital................................ 10.40% 10.40% 4.00% Total capital................................. 11.19% 11.19% 8.00% Leverage ratio.................................... 7.72% 7.72% 3.00-5.00%
- --------------- Both the Company and the Bank are subject to minimum capital requirements promulgated by the FRB, the FDIC and the New Jersey Department of Banking, their respective primary regulators. See "Supervision and Regulation - Bank Holding Company Regulation - Capital Adequacy Guidelines for Bank Holding Companies." -18- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's financial statements and the notes relating thereto including herein. When necessary, reclassifications have been made to prior years' data throughout the following discussion and analysis for purposes of comparability with 1995 data. OVERVIEW AND STRATEGY Since the Company commenced operations in September, 1991, the Company has increased its asset base at a rapid pace. The Company was created through the purchase of two existing branches from the RTC. Upon commencement of its operations, the Company had total assets of $61.9 million, consisting primarily of cash and cash equivalents and investment securities. At June 30, 1996, the Company had total assets of $138.4 million, including loans of $84.1 million. Upon commencing operations, the Company had two branches located in Annandale and North Plainfield, New Jersey. The Company has subsequently expanded along the Route 22/78 corridor into Flemington and eastward into Scotch Plains and Springfield, New Jersey. In addition, the Company has relocated its main office from Annandale to Clinton, New Jersey. Although the Company's emphasis has been on growth, the Company became profitable in its second year of operation, and its net income has increased to $1.0 million for the year ended December 31, 1995 and $503 thousand for the six months ended June 30, 1996. As a result of the Company's success in continuing growth while retaining profitability, and in order to provide stockholders of a return on their investment, the Company began paying cash dividends in the first quarter of 1995. RESULTS OF OPERATIONS The Company's results of operations depend primarily on its net interest income, which is the difference between the interest earned on its interest-earning assets and the interest paid on funds borrowed to support those assets, such as deposits. Net interest margin is a function of the difference between the weighted average rate received on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, as well as the average level of interest-earning assets as compared with that of interest-bearing liabilities. Net income is also affected by the amount of non-interest income and operating expenses. -19- NET INCOME For the six months ended June 30, 1996, net income totaled $503 thousand, remaining relatively unchanged from the $501 thousand earned in the comparable period of 1995. Although the Company's net interest income increased by $703 thousand, or 33.3% over the comparable period of 1995, the increase was offset by an increase of $1.0 million, or 57.1%, in total other expenses. The increase in the Company's net interest income resulted from an increase of $1.5 million, or 43.0%, in total interest income partially offset by a $786 thousand increase in total interest expense. The increase in total interest income was attributable to a $38.0 million, or 82.6%, increase in the Company's loan portfolio. Despite the increase in the Company's loan portfolio, the Company's average yield on its interest earning assets declined to 8.00% for the six months ended June 30, 1996 from 8.39% for the comparable period of 1995. The decline in the Company's average yield reflects the repricing of the Company's adjustable rate loans to lower market rates of interest during 1996. In addition, new loans originated by the Company during 1996 were at lower rates of interest than those loans originated during 1995, reflecting reduced market rates. The Company's net income increased from 1994 to 1995 by $249 thousand, or 32.9%, to $1.0 million for the year ended December 31, 1995 from $756 thousand for the year ended December 31, 1994. This increase was primarily attributable to an increase in net interest income of $1.3 million, or 42.7%, during 1995. The increase in net interest income was attributable to an increase in interest income of $2.8 million, or 57.4%, to $7.8 million for the year ended December 31, 1995 from $4.9 million for the year ended December 31, 1994, primarily as a result of an increase in the Company's loan portfolio. The volume increases in the Company's loan portfolio were primarily funded through the maturation of lower yielding securities, thereby increasing the Company's average yield and net margin. The Company's average yield on interest earning assets increased to 8.24% for the year ended December 31, 1995 from 7.18% for the year ended December 31, 1994. Interest expense rose $786 thousand, or 58.2%, to $2.1 million for the six months ended June 30, 1996 compared to $1.4 million for the comparable period of 1995, and $1.5 million, or 82.2%, to $3.3 million for the year ended December 31, 1995 from $1.8 million for the year ended December 31, 1994. The increases in interest expense over all periods is primarily attributable to a 77.7% increase in the Company's deposits from December 31, 1994 to June 30, 1996. The increase in net interest income during 1995 compared to 1994 was partially offset by higher other expenses and a higher provision for loan losses. -20- On a per share basis, earnings were $.47 for the six months ended June 30, 1996, $1.04 for the year ended December 31, 1995, and $.84 for the year ended December 31, 1994. COMPARATIVE AVERAGE BALANCE SHEETS The following table reflects the components of the Company's net interest income, setting forth for the periods presented herein, (1) average assets, liabilities and stockholders' equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company's net interest spread (i.e., the average yield on interest-earnings assets less the average rate on interest-bearing liabilities) and (5) the Company's net yield on interest-earning assets. Rates are computed on a taxable equivalent basis. -21-
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ----------------------------------------------------------------- 1996 1995 1994 ---------------------------- ---------------------------- ---------------------------------- 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) ASSETS Interest earning assets: Taxable loans (net of unearned income)........................... $69,719 $3,487 10.00% $44,743 $4,782 10.69% $31,295 $2,962 9.47% Tax exempt securities............. 572 16 5.59% 93 5 5.33% 0 0 0.00% Taxable investment securities..... 33,761 1,015 6.01% 31,778 2,074 6.53% 27,424 1,716 6.26% Interest bearing deposits......... 13,169 258 3.92% 12,670 617 4.87% 7,848 166 2.12% Federal funds sold................ 6,483 174 5.36% 5,012 292 5.82% 2,191 93 4.26% Total interest earning assets..... 123,704 4,950 8.00% 94,295 7,770 8.24% 68,757 4,938 7.18% Non-interest earning assets....... 5,686 3,328 2,415 Allowance for possible loan losses............................ (654) (447) (349) Total Assets............. $128,736 $97,176 $70,823 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: NOW deposits............. $12,704 $146 2.30% $10,665 $275 2.58% $6,288 $153 2.43% Savings deposits......... 23,147 316 2.73% 20,677 626 3.03% 23,467 647 2.76% Money market deposits.... 6,182 97 3.13% 5,277 197 3.74% 3,595 100 2.78%
-22-
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ----------------------------------------------------------------- 1996 1995 1994 ---------------------------- ---------------------------- ---------------------------------- 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) Time deposits .............. 55,418 1,518 5.48% 38,781 2,113 5.45% 23,555 930 3.95% Subordinated debt .......... 1,265 59 9.36% 1,378 123 8.94% 0 0 0% Total interest bearing liabilities .............. 98,716 2,136 4.33% 76,777 3,334 4.34% 56,904 1,830 3.22% Non-interest bearing liabilities: Demand deposits ............ 19,991 3.60% 11,887 3.76% 7,134 2.86% Other liabilities .......... 524 671 227 Total non-interest bearing liabilities ...... 20,515 12,558 7,361 Shareholders' equity ....... 9,504 7,841 6,558 Total liabilities and shareholders' equity ..... $128,736 $97,176 $70,823 Net interest differential .. $ 2,813 $4,436 $3,108 Net yield on interest- earning assets ........... 4.55% 4.70% 4.52%
-23- The following table presents by category the major factors that contributed to the changes in net interest income for each of the years ended December 31, 1995 and 1994 and for the six months ended June 30, 1996, as compared to each respective previous period. Amounts have been computed on a fully tax-equivalent basis, assuming a Federal income tax rate of 34%.
Six Months Ended June 30, Year Ended December 31, 1996 versus 1995 1995 versus 1994 ------------------------------ --------------------------- Increase (Decrease) Due to Change in: Average Average Average Average Volume Rate Net Volume Rate Net ------- ------- --- ------- ------- --- (In Thousands) Interest income: Taxable loans (net of unearned income) ...... $1,640 ($ 136) ($ 107) $1,273 $ 382 $ 164 Tax exempt securities ............ 0 0 16 0 0 5 Taxable investment securities ............ 60 (107) (6) 272 75 12 Interest bearing deposits .............. 124 (47) (28) 102 216 133 Federal funds sold ...... 96 (8) (8) 120 34 44 Total interest income ....... 1,920 (299) (133) 1,768 707 358
-24-
Six Months Ended June 30, Year Ended December 31, 1996 versus 1995 1995 versus 1994 ----------------------------- --------------------------- Increase (Decrease) Due to Change in: Average Average Average Average Volume Rate Net Volume Rate Net ------- ------- --- ------- ------- --- (In Thousands) Interest expense: NOW deposits ............. 44 (11) (4) 107 9 6 Savings deposits ......... 33 (28) (3) (77) 63 ($ 8) Money market deposits ............... 18 (17) (3) 47 34 16 Time deposits ............ 609 80 64 601 354 229 Subordinated debt ........ 1 3 0 0 0 123 Total interest expense ....... 705 27 54 677 460 367 Net interest income ........ $1,216 ($326) ($187) $1,090 $246 ($ 9)
-25- PROVISION FOR LOAN LOSSES For the six months ended June 30, 1996, the Company's provision for loan losses was $257 thousand, an increase of $112 thousand over the provision of $145 thousand for the six month period ended June 30, 1995. For the year ended December 31, 1995, the Company's provision for loan losses was $229 thousand, an increase of $68 thousand over the provision of $161 thousand for the year ended December 31, 1994. The increased provisions reflect the continued growth in the Company's loan portfolio. OTHER INCOME Other income, primarily consisting of gains on sales of loans and service fees received from deposit accounts, amounted to $1.1 million for the six months ended June 30, 1996, an increase of $426 thousand, or 68.1%, from the comparable period of 1995. Other income for the year ended December 31, 1995 increased by $757 thousand, or 120%, to $1.4 million compared to $628 thousand in 1994. These increases were primarily related to increased gains on sale of loans by the Company in both the six month period ended June 30, 1996 and the year ended December 31, 1995, as well as the Company's increasing level of deposits. The Company is an active participant in the United States Small Business Administration's guaranteed loan program. Pursuant to this program, the United States Small Business Administration guarantees between 75% and 80% of the principal balance of any approved loan. After closing a loan, the Company sells the guaranteed portion of the loan. For the six month period ended June 30, 1996, the Company recognized $618 thousand in income from the gain on sale of loans, an increase of $248 thousand over the $370 thousand recognized from the six months ended June 30, 1995. For the year ended December 31, 1995, the Company recognized income of $871 thousand from the gain on sale of loans, an increase of $624 thousand over the $247 thousand recognized for the year ended December 31, 1994. The increases in gains on sale of loans are attributable to the Company's increasing penetration of the small business loan market in the Company's trade areas. OTHER EXPENSES Other expenses for the six months ended June 30, 1996 amounted to $2.8 million, an increase of $1.0 million, or 57.1%, from the comparable period of 1995 when other expenses totaled $1.8 million. For the year ended December 31, 1995, other expenses increased by $1.4 million, or 53.0%, to $4.0 million compared to $2.6 million for the year ended December 31, 1994. These increases were primarily attributable to increased salary, occupancy and other operating expenses. The increases in salary and occupancy expenses during the year ended December 31, 1995 and during the six months ended June 30, 1996 reflect the -26- Company's expansion through the establishment of new branches. Since the beginning of 1995, the Company has opened new branches in Flemington, Springfield and Scotch Plains, New Jersey and has relocated its main branch and corporate headquarters from Annandale to new leased space in Clinton, New Jersey. Increases in other operating expenses reflect increased FDIC deposit insurance premiums on the Company's expanding deposit base, as well as increased item processing and servicing charges. INCOME TAX EXPENSE The income tax provision, which includes both federal and state taxes, for the six months ended June 30, 1996 and for the years ended December 31, 1995 and 1994 was $312 thousand, $609 thousand and $219 thousand, respectively. Increases in income taxes were primarily attributable to increases in income before taxes in all periods reported, as well as full utilization of the Company's net operating loss carryforwards during the year ended December 31, 1994. FINANCIAL CONDITION At June 30, 1996, the Company's total assets were $138.4 million, compared to $121.8 million at December 31, 1995 and $78.6 million at December 31, 1994. Total loans increased to $84.1 million at June 30, 1996 from $59.1 million at December 31, 1995 and $36.4 million at December 31, 1994. Total deposits increased to $125.6 million at June 30, 1996 from $111.0 million at December 31, 1995 and $70.7 million at December 31, 1994. LOAN PORTFOLIO At June 30, 1996, the Company's total loans were $84.1 million, an increase of $25.0 million, or 42.2%, over total loans at December 31, 1995. The Company's loan portfolio at December 31, 1995 totaled $59.1 million, an increase of $22.7 million, or 62.3%, over total loans at December 31, 1994. These increases in the Company's loan portfolio reflect the Company's expansion through its new branches as well as its continued penetration of its existing marketplace. The Company's loan portfolio consists of commercial and industrial loans, real estate loans and consumer loans. Commercial and industrial loans are made for the purpose of providing working capital, financing the purchase of equipment or inventory and for other business purposes. Real estate loans consist of loans secured by commercial or residential property and loans for the construction of commercial or residential property. Consumer loans are made for the purpose of financing the purchase of consumer goods, home improvements, and other personal needs, and are generally secured by the personal property being purchased. -27- The Company's loans are primarily to businesses and individuals located in the Company's trade area. The Company has not made loans to borrowers outside of the United States. Commercial lending activities are focused primarily on lending to small business borrowers. The Company believes that its strategy of customer service, competitive rate structures and selective marketing, have enabled the Company to gain market entry to local loans. Company mergers and lending curtailments at larger banks competing with the Company have also contributed to the Company's efforts to attract borrowers. The following table sets forth the classification of the Company's loans by major category at June 30, 1996 and as of December 31, 1995 and 1994, respectively. -28-
December 31, June 30, ------------------------------------------- 1996 1995 1994 -------------------- ------------------ ------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- (Dollars in Thousands) Commercial and industrial............... $12,682 15.09% $ 9,125 15.44% $ 6,952 19.09% Real estate - non-residential properties............... 34,116 40.58% 23,612 39.95% 15,018 41.23% Residential properties............... 23,053 27.42% 16,034 27.13% 9,514 26.12% Construction.............. 8,066 9.60% 5,705 9.65% 1,293 3.55% Lease financing........... 57 0.07% 83 0.14% 335 0.92% Consumer.................. 6,090 7.24% 4,549 7.70% 3,309 9.09% ------- ------- ------- ------- ------- ------- Total loans........... $84,064 100.00% $59,108 100.00% $36,421 100.00% ======= ======= ======= ======= ======= =======
The following table sets forth fixed and adjustable rate commercial and construction loans as of June 30, 1996 in terms of interest rate sensitivity.
Within 1 Year 1 to 5 Years After 5 years Total ------------- ------------ ------------- ----- (In Thousands) Loans with fixed rates: Commercial........... $ 5,216 $3,647 $ -- $ 8,863 Real estate.......... 5,720 -- -- 5,720 Loans with adjustable rates: Commercial............ -- 3,371 448 3,819 Real estate........... -- 2,346 -- 2,346 ------ ----- ---- ------- $10,936 $9,364 $448 $20,748 ======= ====== ==== =======
-29- ASSET QUALITY The Company's principal earning assets are its loans. Inherent in the lending function is the risk of the borrower's inability to repay their loan under its existing terms. Risk elements include non accrual loans, past due and restructured loans, potential problem loans, loan concentrations and other real estate. Non-performing assets include loans that are not accruing interest (non-accruing loans) as a result of principal or interest being in default for a period of 90 days or more. When a loan is classified as non-accrual, interest accruals discontinue and all past due interest is reversed and charged against current income. Until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of such payments as interest. The Company attempts to minimize overall credit risk through loan diversification and its loan approval procedures. The Company's due diligence begins at the time a borrower and the Company begin to discuss the origination of a loan. Documentation, including a borrower's credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source and timing of the repayment of the loan, and other factors are analyzed before a loan is submitted for approval. Loans made are also subject to periodic review. The following table sets forth information concerning the Company's non-performing assets as of the dates indicated: Non-Performing Loans -------------------- December 31, ------------ June 30, 1996 1995 1994 ------------- ---- ---- (In Thousands) Non-accrual loans........................ $ 166 $ 78 $ 47 Non-accrual loans to total loans......... .20% .13% .13% Non-performing assets to total assets.... .12% .06% .06% Allowance for possible loan losses as a percentage of non-performing loans.. 466.52% 720.42% 808.92% -30- The interest income that would have been recorded had these loans performed under the original contract terms was not material for the years ended December 31, 1995 and 1994 and was $9,516 for the six months ended June 30, 1996. At the dates indicated in the above table, there were no concentration of loans exceeding 10% of the Company's total loans and the Company had no foreign loans. ALLOWANCE FOR LOAN LOSSES The Company attempts to maintain an allowance for loan losses at a sufficient level to provide for potential losses in the loan portfolio. Loan losses are charged directly to the allowance when they occur and any recovery is credited to the allowance. Risks within the loan portfolio are analyzed on a continuous basis by the Company's officers, by outside, independent loan review auditors and by the Company's Audit Committee. A risk system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk and appropriate reserves. Along with the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known. Additions to the allowance are made by provisions charged to expense and the allowance is reduced by net charge-offs (i.e. - loans judged to be uncollectible and charged against the reserve, less any recoveries on such loans). Although management attempts to maintain the allowance at a level deemed adequate, future additions to the allowance may be necessary based upon changes in market conditions. In addition, various regulatory agencies periodically review the Company's allowance for loan losses. These agencies may require the Company to take additional provisions based on their judgments about information available to them at the time of their examination. The Company's allowance for possible loan losses totaled $774 thousand, $562 thousand and $380 thousand at June 30, 1996 and December 31, 1995 and 1994, respectively. The increases in the allowance are due to the continued increase in the Company's total loan portfolio. The following is a summary of the reconciliation of the allowance for loan losses for the six month periods ended June 30, 1996 and 1995 and for the years ended December 31, 1995 and 1994. -31- Six Months Ended Year Ended June 30, December 31, -------------- -------------- 1996 1995 1995 1994 ---- ---- ---- ---- (In Thousands) Balance at Beginning of Year ........... $562 $380 $380 $302 Charge-offs: Real estate ........................ -- 46 49 45 Installment ........................ -- 1 1 10 Commercial ......................... -- -- -- 27 Lease financing .................... 45 -- -- -- ---- ---- ---- ---- Total charge offs: ..................... 45 47 50 82 Provision charged to expense ........... 257 145 229 161 Recoveries--real estate ................ -- -- 3 -- ---- ---- ---- ---- Balance of allowance at end of year .............................. $774 $478 $562 $380 ==== ==== ==== ==== Ratio of net charge-offs to average loans outstanding ............ .06% .12% .11% .26% Balance of allowance at year - end as a % of loans at year end ...... .92% 1.04% .95% 1.04% The following table sets forth, for each of the Company's major lending areas, the amount and percentage of the Company's allowance for loan losses attributable to such category, and the percentage of total loans represented by such category, as of the periods indicated: -32- Allocation of the Allowance for Loan Losses by Category December 31, June 30, ------------------------------------ 1996 1995 1994 ------------------ ----------------- ----------------- % of % of % of Amount All Loans Amount All Loans Amount All Loans ------ --------- ------ --------- ------ --------- Balance Applicable to: Commercial and industrial ....... $158,493 15.1% $ 95,919 15.4% $ 61,601 19.1% Real Estate: Nonresidential properties ... 267,194 40.6% 187,856 39.9% 166,736 41.2% Residential properties ... 186,855 27.4% 91,659 27.1% 122,728 26.1% Construction ....... 86,337 9.6% 121,041 9.7% 11,083 3.5% Lease financing .... 11,947 0.1% 662 0.1% 2,870 0.9% Consumer ........... 63,591 7.2% 64,795 7.7% 15,173 9.1% -------- ----- -------- ----- -------- ----- Total .......... $774,417 100.0% $561,931 100.0% $380,191 100.0% ======== ===== ======== ===== ======== ===== -33- INVESTMENT SECURITIES The Company maintains an investment portfolio to fund increased loans or decreased deposits and other liquidity needs and to provide an additional source of interest income. The portfolio is composed of U.S. Treasury Securities, obligations of U.S. Government and government sponsored agencies, selected municipal and state obligations, and corporate fixed income securities. The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115), effective January 1, 1994. Under SFAS 115, securities are classified as securities held to maturity based on management's intent and the Company's ability to hold them to maturity. Such securities are stated at cost, adjusted for unamortized purchase premiums and discounts. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities, which are carried at market value. Realized gains and losses and gains and losses from marking the portfolio to market value are included in trading revenue. Securities not classified as securities held to maturity or trading securities are classified as securities available for sale, and are stated at fair value. Unrealized gains and losses on securities available for sale are excluded from results of operations, and are reported as a separate component of stockholders' equity, net of taxes. Securities classified as available for sale include securities that may be sold in response to changes in interest rates, changes in prepayment risks, the need to increase regulatory capital or other similar requirement. Management determines the appropriate classification of securities at the time of purchase. At June 30, 1996, $20.4 million of the Company's investment securities were classified as held to maturity and $13.9 million were classified as available for sale. At June 30, 1996, no investment securities were classified as trading securities. At June 30, 1996, total investment securities were $34.2 million, a decrease from total investment securities of $36.2 million at December 31, 1995, which was an increase from total securities of $30.5 million at December 31, 1994. The decrease in the Company's investment securities for the six months ended June 30, 1996 is attributable to the Company using the proceeds of maturing investment securities to fund new loan demand. The following table sets forth the carrying value of the Company's security portfolio as of the dates indicated. -34- A comparative summary of securities available for sale at June 30, 1996, December 31, 1995 and 1994 is as follows: Unrealized Available for Sale Amortized Cost Market Value Net Gain/(loss) - ------------------ -------------- ------------ --------------- US Treasury ................... $ 1,954,318 $ 1,957,828 $ 3,510 US government sponsored agencies .................... 8,682,411 8,623,895 (58,516) State and municipal ........... 757,000 755,737 (1,263) Other ......................... 2,519,142 2,517,337 (1,805) ----------- ----------- ----------- Total June 30, 1996 ........... $13,912,870 $13,854,797 ($ 58,073) US Treasury ................... $ 1,963,616 $ 1,977,094 $ 13,478 US government sponsored agencies .................... 7,504,828 7,564,063 59,234 US government agencies and corporations ............ 706,143 719,665 13,523 State and municipal ........... 1,360,000 1,365,337 5,337 Other ......................... 4,623,887 4,678,123 54,236 ----------- ----------- ----------- Total December 31, 1995 ....... $16,158,475 $16,304,283 $ 145,808 US government agencies and corporations ............ $ 1,793,650 $ 1,757,647 ($ 36,003) US government sponsored agencies .................... 250,000 192,500 (57,500) Other ......................... 5,633,171 5,249,144 (384,027) ----------- ----------- ----------- Total December 31, 1994 ....... $ 7,676,821 $ 7,199,291 ($ 477,529) -35- A comparative summary of investment securities held to maturity at June 30, 1996, December 31, 1995 and 1994 is as follows: Unrealized Held to Maturity Amortized Cost Market Value Net Gain/(Loss) - ---------------- -------------- ------------ --------------- US government agencies and corporations ................ $ 7,430,382 $ 7,406,719 ($ 23,663) US government sponsored agencies .................... 3,988,634 3,379,375 (609,259) Other ......................... 8,934,557 8,728,993 (205,564) ----------- ----------- ----------- Total June 30, 1996 ........... $20,353,573 $19,515,087 ($ 838,486) US government agencies and corporations ................ 6,773,258 6,764,329 (8,930) US government sponsored agencies .................... 3,987,500 3,500,499 (487,000) Other ......................... 9,095,985 8,999,487 (96,498) ----------- ----------- ----------- Total December 31, 1995 ....... $19,856,743 $19,264,315 ($ 592,428) US Treasury ................... $ 6,379,890 $ 6,290,405 ($ 89,485) US government sponsored agencies .................... 9,467,892 8,359,134 (1,108,758) Other ......................... 7,429,062 6,691,619 (737,443) ----------- ----------- ----------- Total December 31, 1994 ....... $23,276,844 $21,341,158 ($1,935,687) -36- The following table sets forth as of June 30, 1996 and December 31, 1995 the maturity distribution of the Company's investment portfolio. Maturity Schedule of Investment Securities
June 30,1996 ------------ Held to Maturity Securities Securities Available for Sale --------------------------- -------------------- (In Thousands) AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE COST VALUE RATE COST VALUE RATE ------ ------ ---- ------ ------ ---- US TREASURIES UNDER 1 YEAR ...... $ -- $ -- -- $ 1,954 $ 1,958 5.94% US TREASURIES 1-5 YEARS ......... -- -- -- -- -- -- US GOVERNMENT AGENCIES 1-5 YEARS ............. -- -- -- -- -- -- US GOVERNMENT AGENCIES 10+ YEARS ............. 7,430 7,407 6.17% -- -- -- US GOVERNMENT SPONSORED AGENCIES UNDER 1 YEAR ............ -- -- -- 5,202 5,224 6.98% US GOVERNMENT SPONSORED AGENCIES 1-5 YEARS ............. 1,239 1,236 5.05% 3,480 3,400 5.49% US GOVERNMENT SPONSORED AGENCIES 5-10 YEARS ............. 1,500 1,313 3.86% -- -- -- US GOVERNMENT SPONSORED AGENCIES OVER 10 YEARS .......... 1,250 831 3.41% -- -- -- STATE/MUNICIPAL UNDER 1 YEAR ...... -- -- -- 757 756 5.79% OTHER UNDER 1 YEAR .............. -- -- -- -- -- -- OTHER 1-5 YEARS ............... 669 679 6.20% 2,038 2,036 5.92% OTHER 10+ YEARS ............... 8,266 8,050 6.20% 481 481 6.42% TOTAL ............... $20,354 $19,515 5.79% $13,913 $13,855 6.22%
-37-
December 31, 1995 Held to Maturity Securities Securities Available for Sale --------------------------- -------------------- (In Thousands) AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE COST VALUE RATE COST VALUE RATE ------ ------ ---- ------ ------ ---- US TREASURIES UNDER 1 YEAR ...... $ -- $ -- -- $ 1,612 $ 1,621 5.93% US TREASURIES 1-5 YEARS ......... -- -- -- 352 356 5.93% US GOVERNMENT AGENCIES 1-5 YEARS ............. -- -- -- 706 720 6.80% US GOVERNMENT AGENCIES 10+ YEARS ............. 6,773 6,764 6.70% -- -- US GOVERNMENT SPONSORED AGENCIES UNDER 1 YEAR ............ -- -- -- 7,712 7,772 6.70% US GOVERNMENT SPONSORED AGENCIES 1-5 YEARS ............. 1,238 1,216 5.05% 499 511 7.90% US GOVERNMENT SPONSORED AGENCIES 5-10 YEARS ............. 1,500 1,382 4.43% -- -- -- US GOVERNMENT SPONSORED AGENCIES OVER 10 YEARS .......... 1,250 903 2.74% -- -- -- STATE/MUNICIPAL UNDER 1 YEAR ...... -- -- -- 1,360 1,365 7.21% OTHER UNDER 1 YEAR .............. -- -- -- 1,000 1,000 5.74% OTHER 1-5 YEARS ............... 667 667 5.86% 2,547 2,588 6.38% OTHER 10+ YEARS ............... 8,428 8,332 6.17% 371 371 6.92% TOTAL ............... $19,857 $19,264 5.93% $16,159 $16,304 6.61%
-38- DEPOSITS Deposits are the Company's primary source of funds. The Company experienced a growth in deposit balances of $14.6 million, or 13.2% to $125.6 million at June 30, 1996, from $111.0 million at December 31, 1995. Deposits increased by $40.3 million, or 57.0%, to $111.0 million at December 31, 1995 from $70.7 million at December 31, 1994. This growth was accomplished through the Company's expansion through its new branches, its emphasis on customer service, competitive rate structures and selective marketing. The Company attempts to establish a comprehensive relationship with its business borrowers, seeking deposits as well as lending relationships. This approach has helped the Company increase its non-interest bearing deposits. From December 31, 1994, the Company's non-interest bearing demand deposits increased from $9.2 million, or 12.9%, of total deposits to $23.3 million, or 18.5%, of total deposits, an increase of $14.2 million, or 154%. In addition, the Company's time deposits increased from $28.1 million to $59.1 million at June 30, 1996, an increase of $31.0 million, or 110%. The Company has no foreign deposits, nor are there any material concentrations of deposits. The following table sets forth the average amounts of various types of deposits for each of the periods indicated:
(IN THOUSANDS) 6/96 12/95 12/94 -------------- ---- ----- ----- Average Balance Amount % Amount % Amount % ------ - ------ - ------ - Deposits: NOW deposits................... $12,704 10.8% $10,665 12.2% $6,288 9.8% Savings deposits............... 23,147 19.7% 20,677 23.7% 23,467 36.6% Money market deposits..................... 6,182 5.3% 5,277 6.0% 3,595 5.6% Time deposits.................. 55,418 47.2% 38,781 44.4% 23,555 36.8% Demand deposits................ 19,991 17.0% 11,887 13.6% 7,134 11.1% -------- ------ ------- ------ ------- ------ Total interest-bearing liabilities.................. $117,443 100.0% $87,286 100.0% $64,039 100.0% ======== ====== ======= ====== ======= ======
The Company does not actively solicit short-term deposits of $100,000 or more because of the liquidity risks posed by such deposits. The following table summarizes the maturity distribution of certificates of deposits of denominations of $100,000 or more as of June 30, 1996. -39- Time Deposits ($100,000 and over) (In Thousands) Three months or less............................................... $4,136 Over three months through six months............................... 2,001 Over six months through twelve months.............................. 1,699 Over twelve months................................................. 711 ------ Total..................................................... $8,546 LIQUIDITY The Company's liquidity is a measure of its ability to fund loans, withdrawals or maturities of deposits and other cash outflows in a cost-effective manner. The Company's principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, sales and maturities of investment securities and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company's total deposits equaled $125.6 million, $111.0 million and $70.7 million as of June 30, 1996, December 31, 1995, and December 31, 1994, respectively. The increase in funds provided by deposit inflows during these years has been more than sufficient to provide for the Company's lending demand. Through the Company's investment portfolio the Company has generally sought to obtain a safe yet slightly higher yield than would have been available to the Company as a net seller of overnight Federal Funds while still maintaining liquidity. Through its investment portfolio, the Company also attempts to manage its maturity gap by seeking maturities of investments which coincide as closely as possible with maturities of deposits. The Company's investment portfolio also includes securities available for sale to provide liquidity for anticipated loan demand and other liquidity needs. Although the Company has traditionally been a net "seller" of Federal Funds (or overnight loans to large banks), the Company does maintain lines of credit with the Federal Home Loan Bank of New York, Summit Bank and Midlantic Bank, NA for "purchase" of Federal Funds in the event that temporary liquidity needs arise. Management believes that the Company's current sources of funds provide adequate liquidity for the current cash flow needs of the Company. CAPITAL A significant measure of the strength of a financial institution is its capital base. The Company's federal regulators have classified and defined bank capital into the -40- following components: (1) Tier I capital, which includes tangible shareholders' equity for common stock and qualifying perpetual preferred stock, and (2) Tier II capital, which includes a portion of the allowance for possible loan losses, certain qualifying long-term debt and preferred stock which does not qualify for Tier I capital. Minimum capital levels for banks are regulated by risk-based capital adequacy guidelines which require a bank to maintain certain capital as a percent of the bank's assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets.) A bank is required to maintain, at a minimum, Tier I capital as a percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier II capital as a percentage of risk-adjusted assets of 8.0%. In addition to the risk-based guidelines, the Company's regulators require that a bank which meets the regulator's highest performance and operation standards maintain a minimum leverage ratio (Tier I capital as a percentage of tangible assets) of 3%. For those banks with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be proportionately increased. Minimum leverage ratios for each bank are evaluated through the ongoing regulatory examination process. The following table summarizes the risk-based and leverage capital ratios for the Company at June 30, 1996, as well as the required minimum regulatory capital ratios: CAPITAL ADEQUACY Minimum June 30, 1996 Regulatory Requirements ------------- ----------------------- Risk-based Capital: Tier I capital ratio.......... 10.4% 4.00% Total capital ratio........... 11.19% 8.00% Leverage ratio................... 7.72% 3.00-5.00% IMPACT OF INFLATION AND CHANGING PRICES The financial statements of the Company and notes thereto, presented elsewhere herein, have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased -41- cost of the Company's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995 the Financial Accounts Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123. "Accounting for Stock-Based Compensation" (SFAS 123). This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS 123 encourages all entities to adopt the "fair value based method" of accounting for employee stock compensation plans. However, SFAS 123 also allows an entity to continue to measure compensation cost under such plans using the "intrinsic value based method." The accounting requirements of this statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company does not intend to apply the fair value based method, but the Company's financial statements in 1996 and thereafter will include the disclosure required by SFAS 123. Such disclosures include net income and earnings per share as if the fair value based method had been applied. On June 28, 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. The financial-components approach focuses on the assets and liabilities that exist after the transfer. Many of these assets and liabilities are components of financial assets that existed prior to the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with pledge of collateral. It is important to note that this Statement extends the "available-for-sale" or "trading" approach in SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, to non-security financial assets that can contractually be prepaid or otherwise settled in such a way that the holder of the asset would not recover substantially all of its recorded -42- investment. Thus, non-security financial assets (no matter how acquired) such as loans, other receivables, interest-only strips or residual interests in securitization trusts (for example, tranches subordinate to other tranches, cash reserve accounts or rights to future interest from serviced assets that exceed contractually specified servicing fees) that are subject to prepayment risk that could prevent recovery of substantially all of the recorded amount are to be reported at fair value with the change in fair value accounted for depending on the asset's classification as "available-for-sale" or "trading." The Statement also amends SFAS 115 to prevent a security from being classified as held-to-maturity if the security can be prepaid or otherwise settled in such a way that the holder of the security would not recover substantially all of its recorded investment. This Statement requires that a liability be derecognized if and only if either (a) the debtor pays the creditor and is relieved of its obligation for the liability or (b) the debtor is legally released from being the primary obligor under the liability either judicially or by the creditor. Therefore, a liability is not considered extinguished by an in-substance defeasance. This Statement provides implementation guidance for accounting for (1) securitizations, (2) transfers of partial interests, (3) servicing of financial assets, (4) securities lending transactions, (5) repurchase agreements including "dollar rolls", (5) "wash sales," (6) loan syndications and participations, (7) risk participations in banker's acceptances, (8) factoring arrangements, (9) transfers of receivables with recourse, (10) transfers of sales-type and direct financing lease receivables and (11) extinguishments of liabilities. A number of existing FASB Statements are superseded or amended by SFAS 125. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. Also, the extension of the SFAS 115 approach to certain non-security financial assets and the amendment to SFAS 115 is effective for financial assets held on or acquired after January 1, 1997. Reclassifications that are necessary because of the amendment do not call into question an entity's intent to hold other debt securities to maturity in the future. The Company, at this time, does not believe that SFAS 125 will have a significant impact on the consolidated financial position or results of operations in 1997. -43- BUSINESS GENERAL The Company is a Delaware business corporation and bank holding company registered under the BHCA. The Company was incorporated on February 14, 1994 for the purpose of acquiring the Bank and thereby enabling the Bank to operate within a holding company structure. Management of the Bank believed that a holding company would facilitate potential acquisitions of other financial institutions and provide financial flexibility for the growth of the Bank. On December 1, 1994, the Company acquired 100% of the outstanding shares of the Bank. At June 30, 1996, the Company had total assets of $138.4 million, deposits of $125.6 million, total loans of $84.1 million, and stockholder's equity of $10.3 million. The principal activities of the Company are owning and supervising the Bank. The Bank is a community-oriented, full service commercial bank providing commercial and consumer financial services to businesses and individuals in the Company's Trade Area, described below. The Company believes that it will continue to gain market share in its Trade Area and will continue to meet a similar or greater portion of the demand for credit. The Company meets the competition from the many existing and larger financial institutions in its Trade Area by emphasizing personalized service, responsive decision making and an overall commitment to excellence. Management believes that the economic conditions in the Company's Trade Area are conducive to the Company's continued growth. The Company's Trade Areas are bounded by several of New Jersey's primary highways, including the Route 22/78 corridor, Route 287 and Route 202. The economy of the greater New York-New Jersey market has historically benefitted from having a large number of corporate headquarters and a concentration of financial services-related industries. It also has a well educated employment base and a large number of industrial, service and high-technology businesses. Over the past two years, New Jersey's economy has slowly begun to recover from the effects of a prolonged decline in the national and regional economy, layoffs in the financial services industry and corporate relocations. Employment levels and real estate markets in the Bank's market area have stabilized and in some instances begun to improve. Whether such improvement will continue is dependent, in large part, upon the general economic health of the United States and other factors beyond the Bank's control and, therefore, cannot be estimated. DEPOSITS The Company offers a full range of deposit accounts including business and personal checking accounts, interest-bearing NOW accounts, money market accounts and certificates of -44- deposit and is competitive in structuring the terms (e.g., interest rates, minimum balances, etc.) of the deposit accounts as part of its strategy to gain deposits as a new entrant into its Trade Area. In spite of this effort, the Company believes that its cost of funds is comparable to the average costs experienced by its competitors. LOANS The Company lends funds to individuals and businesses for personal and commercial purposes. The Company emphasizes the origination of loans with adjustable rates of interest tied to the Company's Prime Rate, with 72% of the Company's portfolio consisting of adjustable rate loans and 28% consisting of fixed rate loans. The interest rates on these adjustable rate loans are repriced from time to time to reflect changes, up or down, in the cost of funds to the Company. In order to be competitive with other established banking institutions in its trade area, the Company charges rates which are generally comparable to those charged by other lenders. In addition, the Company has been very active in providing loans to small businesses through the United States Small Business Administration ("SBA") guaranteed loan program. Under the SBA program, loans are available to small businesses which meet certain criteria. Up to 90% of the principal of a loan to a qualified business is guaranteed by the United States Government. The Company sells the guaranteed portion of its SBA loans into the secondary market and thereby derives premium income. The Company's ability to offer SBA loans on an ongoing basis is dependent upon, among other factors, appropriation of funds by the federal government to the SBA program. The Company has been designated a "preferred lender" for the states of New Jersey, Delaware, New York and Pennsylvania by the SBA. This means that the Company may originate SBA guaranteed loans without prior SBA approval, although the guaranteed portion of this loan will be 80% for loans up to $100,000 and 75% for loans over $100,000 and up to $1,000,000. The Company's commercial loans are generally secured by business assets, personal guarantees of the principals of closely-held businesses and often by the personal assets of such principals. The loans are made to small and mid-sized businesses in the Company's Trade Area. Federal and State law and regulations restrict how much any bank may lend to a single customer with the restrictions stated as a percentage of the primary capital of the Company. See "SUPERVISION AND REGULATION". The Company believes that it can attract commercial borrowers by providing competitive rates, superior service, local decision-making and flexibility in loan structure. The Board of Directors believes that small and mid-sized businesses are not always of primary importance to larger banking institutions for commercial lending purposes, whereas such businesses represent the main portion of the commercial loan business for the Company. -45- The Company grants both secured and unsecured personal loans to finance the purchase of automobiles, durable goods or other consumer goods. The Board of Directors believes that the Company's competitive interest rates and superior service (which includes, among other things, convenience, personal attention and prompt local decision-making) are important competitive factors in attracting personal loans from credit-worthy consumers. The Company also makes residential and commercial real estate loans and, on a limited basis, construction loans. OTHER ACTIVITIES The Company also derives income from investments in securities, typically obligations of the United States Government and Government Agencies. The Company also provides a variety of financial services to its customers including wire transfers, coin and currency collections, issuing money orders, travelers checks and U.S. Series EE bonds, accepting direct deposit of payroll and of federal recurring payments and issuing both standby and commercial letters of credit. The Company, through FCB Services Co., Inc., a subsidiary of the Bank, sells tax deferred annuities. FCB Service Co., Inc. holds a New Jersey insurance license. FCB Service Co., Inc. earns commissions on annuities it sells. TRADE AREA The Primary Trade Area is defined as the neighborhoods served by the Bank's offices. The Bank's main office, located in Clinton, in combination with its Flemington office, serve the greater area of Hunterdon County. The Clinton office also services the southernmost communities of Warren and Morris Counties. The Bank's North Plainfield office serves those communities located in the northern, eastern and central parts of Somerset County, the northernmost communities of Middlesex County and the southernmost communities of Union County. The Bank's Springfield and Scotch Plains offices serve the northern, eastern and central communities of Union County, and the southwestern communities of Essex County. The Company has a secondary Trade Area along the Route 78/Route 22 corridor between its two Hunterdon County offices and its offices located in Union County. In addition to the previously mentioned Interstate highways, the Bank's Primary and Secondary Trade Areas also have access to a major network of other roads which includes Route 287 and Route 202. COMPETITION The Company is located in an extremely competitive environment. The Company's Trade Area is already serviced by major regional banks, large thrift institutions and by a variety of credit unions. Most of the Company's competitors have -46- substantially more capital and therefore greater lending limits than the Company. The Company's competitors generally have established positions in the Trade Area and have greater resources than the Company with which to pay for advertising, physical facilities, personnel and interest on deposited funds. The Company relies upon the competitive pricing of its loans, deposits and other services as well as its ability to provide local decision making and personal service in order to compete with these larger institutions. EMPLOYEES The Company employs 59 full-time and 7 part-time employees. None of the Company's employees are represented by any collective bargaining agreements. The Company believes that its relations with its employees are good. PROPERTIES The Company's main office is located in leased space in Clinton, New Jersey. The Company leases approximately 18,000 square feet, including space both for the Company's administrative headquarters and for the Bank's main branch. The Bank maintains two ATM machines, and, under its lease, has the right to use outside parking for its customers. The North Plainfield branch is owned by the Company. The building is situated at the southeast corner of Somerset Street and Mountain Avenue and consists of a two-story, 8,000 sq. ft. office building, 5,334 ft. of which is occupied by the Company. The building contains a full-service teller line and lobby, three drive-up teller lanes, a 24-hour ATM machine, and on-site parking of approximately 21 spaces. The Company's Flemington office is located in the heart of the town's small business and retail shopping district at 110 Main Street. The full-service office is leased from an unrelated third-party and consists of 2,670 square feet of bank lobby including separate teller and platform areas, a 24-hour ATM machine and a night depository. In addition to curbside parking, the Company is entitled to the use of leased parking spaces located in downtown lots immediately adjacent to its office. The Company maintains its Springfield office located at 733 Mountain Avenue. The lobby and platform areas consist of approximately 1,200 square feet of first floor bank space. The full-service office consists of a teller line, platform area, drive-up teller window, safe deposit boxes and night depository. The Company leases its office located at 2222 South Avenue in Scotch Plains, New Jersey. The Company leases approximately -47- 3,900 square feet and maintains a 24-hour ATM machine. In addition, the Company has the use of onsite parking at the site. The leases for both the Company's main office and the Scotch Plains branch are with certain members of the Company's Board of Directors. See "Compensation of Directors; CERTAIN TRANSACTIONS WITH MANAGEMENT." The Company is a member of the MAC and PLUS ATM network. LEGAL PROCEEDINGS The Company and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to the Bank's business. Management does not believe that there is any pending or threatened proceeding against the Company or the Bank which, if determined adversely, would have a material effect on the business or financial position of the Company or the Bank. -48- SUPERVISION AND REGULATION GENERAL Bank holding companies and banks are extensively regulated under both federal and state law. These laws and regulations are intended to protect depositors, not stockholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in the applicable law or regulation may have a material effect on the business and prospects of the Company and the Bank. See "Special Considerations and Risk Factors--Supervision and Regulation." BANK HOLDING COMPANY REGULATION General. As a bank holding company registered under the BHCA, the Company is subject to the regulation and supervision of the FRB. The Company is required to file with the FRB annual reports and other information regarding its business operations and those of its subsidiaries. Under the BHCA, the Company's activities and those of its subsidiaries are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries or engaging in any other activity which the FRB determines to be so closely related to banking or managing or controlling banks as to be properly incident thereto. The BHCA requires, among other things, the prior approval of the FRB in any case where a bank holding company proposes to (i) acquire all or substantially all of the assets of any other bank, (ii) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank (unless it owns a majority of such bank's voting shares) or (iii) merge or consolidate with any other bank holding company. The FRB will not approve any acquisition, merger, or consolidation that would have a substantially anti-competitive effect, unless the anti-competitive impact of the proposed transaction is clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The FRB also considers capital adequacy and other financial and managerial resources and future prospects of the companies and the banks concerned, together with the convenience and needs of the community to be served, when reviewing acquisitions or mergers. Additionally, the BHCA prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling -49- banks, or performing services for its subsidiaries; unless such non-banking business is determined by the FRB to be so closely related to banking or managing or controlling banks as to be properly incident thereto. In making such determinations, the FRB is required to weigh the expected benefits to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance funds in the event the depository institution becomes in danger of default. Under a policy of the FRB with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. The FRB also has the authority under the BHCA to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the FRB's determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. Capital Adequacy Guidelines for Bank Holding Companies. In January 1989, the FRB adopted risk-based capital guidelines for bank holding companies. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The risk-based guidelines apply on a consolidated basis to bank holding companies with consolidated assets of $150 million or more. For bank holding companies with less than $150 million in consolidated assets, the guidelines will be applied on a bank-only basis unless: (a) the parent bank holding company is engaged in nonbank activity involving significant leverage; or (b) the parent company has a significant amount of outstanding debt that is held by the general public. The minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is 8%. At least 4% of the total capital is -50- required to be "Tier I Capital," consisting of common stockholders' equity, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less certain goodwill items and other intangible assets. The remainder ("Tier II Capital") may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess of qualifying perpetual preferred stock, (c) hybrid capital instruments, (d) perpetual debt, (e) mandatory convertible securities, and (f) qualifying subordinated debt and intermediate-term preferred stock up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II capital less reciprocal holdings of other banking organizations' capital instruments, investments in unconsolidated subsidiaries and any other deductions as determined by the FRB (determined on a case by case basis or as a matter of policy after formal rule-making). Bank holding company assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets. Most loans are assigned to the 100% risk category, except for performing first mortgage loans fully secured by residential property which carry a 50% risk-weighing. Most investment securities (including, primarily, general obligation claims of states or other political subdivisions of the United States) are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury or obligations backed by the full faith and credit of the U.S. Government, which have a 0% risk-weight. In converting off-balance sheet items, direct credit substitutes including general guarantees and standby letters of credit backing financial obligations, are given a 100% risk-weighing. Transaction related contingencies such as bid bonds, standby letters of credit backing nonfinancial obligations, and undrawn commitments (including commercial credit lines with an initial maturity or more than one year) have a 50% risk-weighing. Short term commercial letters of credit have a 20% risk-weighing and certain short-term unconditionally cancelable commitments have a 0% risk-weighing. In addition to the risk-based capital guidelines, the FRB has adopted a minimum Tier I capital (leverage) ratio, under which a bank holding company must maintain a minimum level of Tier I capital to average total consolidated assets of at least 3% in the case of a bank holding company that has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a leverage ratio of at least 100 to 200 basis points above the stated minimum. -51- BANK REGULATION As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision, and control of the New Jersey Department of Banking. As an FDIC-insured institution, the Bank is subject to regulation, supervision and control of the FDIC, an agency of the federal government. The regulations of the FDIC and the New Jersey Department of Banking impact virtually all activities of the Bank, including the minimum level of capital the Bank must maintain, the ability of the Bank to pay dividends, the ability of the Bank to expand through new branches or acquisitions and various other matters. Insurance of Deposits. The Bank's deposits are insured up to a maximum of $100,000 per depositor under the Savings Association Insurance Fund of the FDIC. The Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA") effected a major restructuring of the federal regulatory framework applicable to depository institutions and deposit insurance. FDICIA requires the FDIC to establish a risk-based assessment system for all insured depository institutions. Under this legislation, the FDIC is required to establish an insurance premium assessment system based upon: (i) the probability that the insurance fund will incur a loss with respect to the institution; (ii) the likely amount of the loss; and (iii) the revenue needs of the insurance fund. In compliance with this mandate, the FDIC has developed a matrix that sets the assessment premium for a particular institution in accordance with its capital level and overall rating by the primary regulator. The FDIC's risk based insurance assessment system is not expected to have a material effect upon the operations of the Bank. Dividend Rights. Under the New Jersey Banking Act of 1948, a bank may declare and pay dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank's surplus. Recent Regulatory Enactments and Proposals. On September 29, 1994, the Riegel-Neal Interstate Banking and Branching Efficiency Act (the "Interstate Act") was enacted. The Interstate Act generally enhances the ability of bank holding companies to conduct their banking business across state boarders. The Interstate Act has two main provisions. The first provision generally provides that commencing on September 29, 1995, bank holding companies may acquire banks located in any state regardless of the provisions of state law. These acquisitions are subject to certain restrictions, including caps on the total percentage of deposits that a bank holding company may control both nationally and in any single state. New Jersey law currently allows interstate acquisitions by bank holding -52- companies whose home state has "reciprocal" legislation which would allow acquisitions by New Jersey based bank holding companies. The second major provision of the Interstate Act permits, beginning on June 1, 1997, banks located in different states to merge and continue to operate as a single institution in more than one state. States may, by legislation passed before June 1, 1997, opt out of the interstate bank merger provisions of the Interstate Act. In addition, states may elect to opt in and allow interstate bank mergers prior to June 1, 1997. A final provision of the Interstate Act permits banks located in one state to establish new branches in another state without obtaining a separate bank charter in that state, but only if the state in which the branch is located has adopted legislation specifically allowing interstate de novo branching. In April of 1996, the New Jersey legislature passed legislation which would permit interstate bank mergers prior to June 1, 1997, provided that the home state of the institution acquiring the New Jersey institution permits interstate mergers prior to June 1, 1997. In addition, the legislation permits an out-of-state institution to acquire an existing branch of a New Jersey based institution, and thereby conduct business in New Jersey. The legislation does not permit interstate de novo branching. This legislation is likely to enhance competition in the New Jersey marketplace as bank holding companies located outside of New Jersey become freer to acquire institutions located within the State of New Jersey. The RTC Completion Act became law in December 1993, and funds the SAIF, which is one of the depository insurance funds administered by the FDIC. The RTC Completion Act authorizes, but does not appropriate, $8.0 billion for the SAIF. Before any money can be appropriated for the SAIF, the Chairman of the FDIC must certify that SAIF insured institutions cannot pay their insurance premiums and that their ability to attract and maintain capital would be adversely affected. SAIF-insured institutions may be required to pay higher insurance premiums in the future in order to recapitalize the SAIF to a level equal to 1.25% of deposits. The FDIC has established a new assessment rate schedule of 0 to 31 basis points for BIF members beginning on September 30, 1995. Under the new assessment schedule, approximately 92.0% of BIF members would pay only a statutorily required minimum premium of $2,000. With respect to SAIF-member institutions, the FDIC has retained the existing assessment rate schedule applicable to SAIF-member institutions of 23 to 31 basis points. SAIF members, such as the Bank, could be placed at a substantial competitive disadvantage to BIF members with respect to pricing of loans and deposits and the ability to achieve lower operating costs. -53- Several alternatives to mitigate the effect of the BIF/SAIF premium disparity have been proposed by Congress. In November of 1995, Congress passed legislation designed to recapitalize the SAIF, thereby leading to equalized premium assessments, requiring all SAIF member institutions, including the Bank, to pay a one time fee of approximately 85 basis points on amounts on deposit held by each SAIF member institution as of March 31, 1995. Under the legislation, this payment would have been required in January, 1996. This legislation was vetoed by President Clinton in December, 1995. Management of the Company is not able to predict whether new legislation will be proposed or adopted, or what terms it may contain. To the extent that SAIF-insured institutions are required to pay higher federal deposit insurance premiums than financial institutions that are members of the BIF, such institutions could be placed at a competitive disadvantage, which may have an adverse effect on operating expenses and results of operations. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS POSITION WITH THE COMPANY AND DIRECTOR NAME AGE THE BANK(1) SINCE(2) - ---- --- ----------------------------- -------- Robert Van 53 Chairman of the Board and Chief 1990 Volkenburgh Executive Officer and Director of the Company; Chairman of the Board of the Bank James Hyman 50 President, Chief Operating 1990 Officer and Director of the Company; President and Chief Executive Officer of the Bank David D. 42 Vice Chairman, Corporate 1990 Dallas Secretary and Director of the Company; Vice Chairman of the Bank. - ---------- (1) Each director of the Company is also a director of the Bank. (2) Includes prior years of service on Board of Directors of the Bank. No director of the Company is also a director of any other company registered pursuant to Section 12 of the Securities -54- Exchange Act of 1934 or any company registered as an investment company under the Investment Company Act of 1940. DIRECTORS OF THE BANK WHO DO NOT SERVE AS DIRECTORS OF THE CORPORATION DIRECTOR NAME AGE POSITION WITH THE BANK SINCE ---- --- ---------------------- ----- Robert H. Dallas, II 49 Director 1990 Peter P. DeTommaso 70 Director 1991 John Fallone 42 Director 1994 Walter Hazard 53 Director 1990 Charles S. Loring 53 Director 1990 John O'Brien 58 Director 1994 Peter G. Schoberl 41 Director, Executive 1996 Vice President and Senior Lending Officer Samuel Stothoff 63 Director 1990 Allen Tucker 69 Director 1995 Robert J. van 31 Director 1995 Volkenburgh, Jr., M.D. Mr. van Volkenburgh, Jr. is the son of Robert J. Van Volkenburgh, the Chairman of the Board of the Company. Set forth below is certain information regarding the Directors and Executive Officers of the Company, including their principal occupation for the past 5 years: Robert Van Volkenburgh is Chief Executive Officer for Total Packaging Corporation and Best Packaging & Design Corp. which develops, manufacturers and distributes high quality point of purchase displays. David A. Dallas is Chief Executive Officer of Dallas Group of America, a chemical manufacturing firm. James Hyman is President and Chief Operating Officer of the Company and President and Chief Executive Officer of the Bank. -55- Set forth below is certain information regarding the Directors of the Bank who are not also Directors of the Company: Robert H. Dallas II is President of Dallas Group of America, a chemical manufacturing firm. Peter P. DeTommaso is President of Home Owners Heaven Inc., a hardware and lumber retail store. John Fallone is President of Fallone Organization, a real estate development company. Walter Hazard is founder and President of Atrion Corporation, a computer firm, and a Director of Atrion Communication Resources. Charles S. Loring is the owner of the firm of Charles S. Loring, CPA. John O'Brien is the owner of O'Brien Funeral Home. Peter G. Schoberl has been the Executive Vice President and Senior Lending Officer of the Bank since 1995. Previously, he was a Senior Vice President and the Senior Lending Officer of American Union Bank from 1990 to 1995. Samuel Stothoff is President of Samuel Stothoff Company, a well drilling firm. Allen Tucker is President of Tucker Enterprises, a real estate development firm. Robert J. van Volkenburgh, Jr., M.D. is a physician. In addition, he is the Chief Financial Officer of both Total Packaging Corporation and Best Packaging & Design Corp. and the Chief Executive Officer of RJV Capital Management, LLC, a family asset management company. Robert J. van Volkenburgh, Jr., M.D. is the son of Robert J. Van Volkenburgh, a Director of the Company. PRINCIPAL OFFICERS Set forth below is the name of and certain biographical information regarding an additional principal officer of the Company who does not also serve as a Director. The term of office for each officer is one year. THOMAS B. MARESCA Mr. Maresca, age 38, has been Senior Vice President of the Bank since 1994 and has been employed by the Bank since its -56- inception. He has been Chief Financial Officer of the Company since its inception. EXECUTIVE COMPENSATION The following table sets forth all remuneration earned in the past three years for services performed for the Company by the Chief Executive Officer and all other executive officers whose compensation from the Company exceeded $100,000. -57- SUMMARY COMPENSATION TABLE CASH AND CASH EQUIVALENT FORMS OF REMUNERATION Name and Principal Annual Annual Other Annual Position Year Salary Bonus Compensation(1) -------- ---- ------ ----- --------------- Robert Van Volkenburgh, 1995 $ 60,000 $ 0 $ 9,550 Chairman and Chief Executive Officer 1994 32,000 0 7,650 1993 0 0 5,000 James Hyman, President 1995 $120,000 $27,900 $ 0 and Chief Operating (2) Officer 1994 111,300 5,000 0 1993 109,788 6,000 0 - ---------- (1) Other annual compensation includes director fees, insurance premiums and the personal use of Bank automobiles. (2) $20,000 of the 1995 annual bonus paid to James Hyman represents the value of 2,457 shares of Common Stock issued to Mr. Hyman under the Company's Stock Bonus Plan in February of 1995. STOCK OPTION PLAN FOR EMPLOYEES The Company maintains a 1994 Stock Option Plan for Employees (the "Employee Plan"). Under the Employee Plan, 50,000 shares of Common Stock have been reserved for issuance, subject to adjustments as set forth therein. Officers and other key employees of the Company (including officers and employees who are directors), the Bank and any other subsidiaries which the Company may acquire or incorporate participate in the Employee Plan. The Option Committee administers the Employee Plan. The Option Committee has the authority to determine the key employees who will receive options under the Employee Plan, the terms and conditions of options granted under the Employee Plan and the exercise price therefor. For the fiscal year ended December 31, 1995, no options were granted under the Employee Plan. STOCK BONUS PLAN The Company maintains a Stock Bonus Plan (the "Stock Bonus Plan"). Under the Stock Bonus Plan, 20,000 shares of Common Stock have been reserved for issuance. Officers and other key employees of the Company (including officers and employees who are directors), the Bank and any other subsidiaries which the Company may acquire or incorporate participate in the Stock Bonus -58- Plan. The Board of Directors of the Company (or a committee appointed by the Board) administers and supervises the Stock Bonus Plan. The Board has the authority to determine the key employees or directors who will receive awards under the Plan and the number of shares awarded to each recipient. In 1995, one grant of 2,457 shares was awarded under the Stock Bonus Plan to James Hyman. CHANGE IN CONTROL AGREEMENT The Company has entered into a Change in Control Agreement with Peter Schoberl, an Executive Vice President and Senior Lending Officer of the Bank. The agreement has a four year term from January 1, 1995 through December 31, 1998. The agreement provides that upon the occurrence of a change in control (as defined in the agreement) of the Company and in the event Mr. Schoberl is terminated for reasons other than cause (as defined in the agreement), he will be entitled to severance pay in amounts equal to 100%, 75%, 50% and 25% of his base salary respectively in each of the first four years of the agreement. The agreement further provides that Mr. Schoberl will be entitled to receive benefits under the agreement in the event he resigns from his employment with the Company within 18 months of a change in control and 30 days of the occurrence of any of the following events after such change in control: (i) he is reassigned to a position of lesser rank or status than his position at the time of the change in control; (ii) his place of employment is relocated by more than thirty miles from its location prior to the change in control or (iii) his compensation or other benefits are reduced. COMPENSATION OF DIRECTORS Directors of the Company do not receive compensation for their service on the Company's Board. Directors of the Bank receive an annual retainer of up to $5,000, depending upon their years of service on the Board. Directors who have one year of service receive a $3,000 retainer, directors with two years of service receive a $4,000 retainer, and directors with three or more years of service receive the entire $5,000 retainer. Each Committee Chairman also receives a $1,000 Committee retainer. Directors also receive $300 for attendance at each Board of Directors meeting and $150 for attendance at each Committee meeting. In addition, Mr. Van Volkenburgh received a retainer of $8,333.33 per month for his services as Chairman of the Board of the Bank and Mr. David Dallas received a retainer of $4,166.66 per month for his service as Vice Chairman of the Board of the Bank. The Corporation maintains a 1994 Stock Option Plan for Non-Employee Directors (the "Plan") which provides for options to purchase shares of Common Stock to be issued to non-employee -59- directors of the Corporation, the Bank and any other subsidiaries which the Corporation may acquire or incorporate in the future. Individual directors to whom options are granted under the Plan are selected by the Option Committee of the Board of Directors. The Option Committee has the authority to determine the terms and conditions of options granted under the Plan and the exercise price therefor. For the fiscal year ended December 31, 1995, no options were granted under the Plan. CERTAIN TRANSACTIONS WITH MANAGEMENT The Bank has made in the past and, assuming continued satisfaction of generally applicable credit standards, expects to continue to make loans to directors, executive officers and their associates (i.e. corporations or organizations for which they serve as officers or directors or in which they have beneficial ownership interests of ten percent or more). These loans have all been made in the ordinary course of the Bank's business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility or present other unfavorable features. The Company leases both its headquarters and its Scotch Plains office from partnerships consisting of Messrs. Van Volkenburgh, R. Dallas and D. Dallas. Under the leases for these facilities, the partnerships are to receive annual rental payments of $391,708. The Company believes that these rent payments reflect market rents and that the leases reflect terms which are comparable to those which could have been obtained in a lease with an unaffiliated third party. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of August 31, 1996, certain information concerning the ownership of shares of Common Stock by (i) each person who is known by the Company to own beneficially more than five percent (5%) of the issued and outstanding Common Stock, (ii) each director of the Company and each director of the Bank, (iii) each named executive officer described in the section of this Prospectus captioned "Executive Compensation", and (iv) all directors and officers as a group. -60- THE COMPANY Name and Position Number of Shares Percent With Company Beneficially Owned (1) of Class ------------ ---------------------- -------- David D. Dallas Vice Chairman, Secretary 105,911 (2) 9.68% James Hyman President and Chief 15,970 (3) 1.46% Operating Officer Robert Van Volkenburgh Chairman of the Board and Chief Executive Officer 204,822 (4) 18.67% - ---------- (1) Beneficially owned shares include shares over which the named person exercises either sole or shared voting power or sole or shared investment power. It also includes shares owned (i) by a spouse, minor children or relatives sharing the same home, (ii) by entities owned or controlled by the named person, and (iii) by other persons if the named person has the right to acquire such shares within sixty (60) days by the exercise of any right or option. Unless otherwise noted, all shares are owned of record and beneficially by the named person. (2) Includes 14,561 shares owned by the Dallas Group of America Employee's Profit Sharing Plan and Trust, 17,811 shares owned by the Dallas Group of America, Inc. and 14,561 shares held by Trenton Liberty Insurance Company, T/A Alexander Insurance Managers. These shares are also disclosed as beneficially owned by Robert Dallas. Also includes 12,705 shares held by Mr. Dallas' mother in her own name, 6,020 shares held by Mr. Dallas' minor children in their own names, and 5,000 shares issuable upon the exercise of immediately exercisable options. (3) Includes 3,932 shares held by Mr. Hyman's spouse, of which Mr. Hyman disclaims beneficial ownership, 4,348 shares held in a brokerage account for Mr. Hyman's benefit, 262 shares held jointly with Mr. Hyman's spouse and 3,000 shares issuable upon the exercise of immediately exercisable options. (4) Includes 56,891 shares held by Mr. Van Volkenburgh's spouse in her own name, 21,150 shares held by Mr. Van Volkenburgh's son in his own name, 1,905 shares owned jointly by Mr. Van Volkenburgh and his spouse, 11,211 -61- shares held by Total Packaging Corporation, a corporation owned by Mr. Van Volkenburgh, and 15,000 shares held in a brokerage account for the benefit of Mr. Van Volkenburgh. Also includes 7,500 shares issuable upon the exercise of immediately exercisable stock options. Mr. Van Volkenburgh disclaims beneficial ownership of the shares held by his spouse in her own name and by his son in his name. Also includes 2,500 shares held by RJV Capital Management LLC, a limited liability company owned by Mr. Van Volkenburgh. -62- THE BANK Name and Position Number of Shares Percent With Bank Beneficially Owned (1) of Class --------- ---------------------- -------- Robert H. Dallas, II 84,721(2)(7) 7.76% Peter P. DeTommaso 92,769(3)(7) 8.50% John Fallone 28,872(7)(9) 2.65% Walter Hazard 36,887(4)(7) 3.38% Charles S. Loring 58,370(5)(7) 5.35% John O'Brien 35,331(7) 3.24% Samuel Stothoff 40,565(6)(7) 3.72% Peter G. Schoberl 1,830(8) 0.17% Allen Tucker 18,434(7) 1.69% Robert J. van 24,400(7) 2.24% Volkenburgh, Jr., M.D. - ---------- (1) Beneficially owned shares include shares over which the named person exercised either sole or shared voting power or sole or shared investment power. It also includes shares owned (i) by a spouse, minor children or relatives sharing the same home, (ii) by entities owned or controlled by the named person, and (iii) by other persons if the named person has the right to acquire such shares within sixty (60) days by the exercise of any right or option. Unless otherwise noted, all shares are owned of record and beneficially by the named person. (2) Includes 14,561 shares held by the Dallas Group of America Employee's Profit Sharing Plan and Trust, 14,561 shares held by the Trenton Liberty Insurance Company, T/A Alexander Insurance Managers, and 17,811 shares held by the Dallas Group of America, Inc. which 46,933 shares are also disclosed as beneficially owned by David D. Dallas, and 3010 shares owned by Mr. Dallas' minor child in his own name. (3) Includes 71,401 shares owned jointly with Mr. DeTommaso's spouse, 10,510 shares owned by the Home Owners Heaven Profit Sharing Plan, and 8,333 shares owned jointly by Mr. DeTommaso and his brother. -63- (4) Includes 10,596 shares held by the Atrion Corporation Pension Fund, 6,430 shares held by profit sharing funds controlled by Mr. Hazard, 4,166 shares held by Atrion Corporation and 2,083 shares held by Mr. Hazard's spouse. (5) Includes 5,028 shares held by Mr. Loring's spouse in her own name, 10,972 shares owned jointly with his spouse, and 6,121 shares held by an Estate for which Mr. Loring is the Executor. Mr. Loring disclaims beneficial ownership of the shares held by his spouse. (6) Includes 27,200 shares held jointly by Mr. Stothoff and his spouse and 5,590 shares held by Mr. Stothoff's spouse in her own name. Mr. Stothoff disclaims beneficial ownership of the shares held by his spouse. (7) Includes, 2,000 shares issuable upon the exercise of immediately exercisable options. (8) Includes 1,500 shares issuable upon the exercise of immediately exercisable options. (9) Includes 4,166 shares held jointly by Mr. Fallone and his spouse. -64- DESCRIPTION OF THE COMPANY'S SECURITIES UNITS Each Unit consists of one share of Common Stock and one Warrant. Each Warrant entitles the holder thereof to purchase one additional share of Common Stock at a purchase price of $17.00. The Common Stock and the Warrants will be transferable separately upon the closing of the Offering. COMMON STOCK General. As a corporation incorporated under the laws of Delaware, the rights of holders of the Company's stock are governed by the Delaware General Corporation Law and the Company's Certificate of Incorporation. The Company's Certificate of Incorporation provides for an authorized capitalization of 3,000,000 shares of capital stock, consisting of 2,500,000 shares of Common Stock, and 500,000 shares of preferred stock. As of June 30, 1996, the Company had 1,089,392 shares of Common Stock outstanding and no shares of preferred stock outstanding. Dividend Rights. The holders of the Company's Common Stock will be entitled to dividends, when, as, and if declared by the Company's Board of Directors, subject to the restrictions imposed by Delaware law. The only statutory limitation applicable to the Company is that dividends must be paid out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared or out of the preceding year's net profit. However, as a practical matter, unless the Company expands its activities, its only source of income will be the Bank. Therefore, the dividend restrictions applicable to the Bank described under the heading "Supervision and Regulation" will continue to impact the Company's ability to pay dividends. Voting Rights. Each share of the Company's common stock is entitled to one vote per share. Cumulative voting is not permitted. Under Delaware Law, a merger or consolidation may be approved by a majority of the votes cast at a meeting at which a quorum is present. Also, Delaware law permits the Board of Directors to authorize certain mergers, amend the certificate of incorporation in certain respects and take similar actions without a shareholder vote. Delaware law also permits a corporation to adopt provisions in its certificate of incorporation requiring greater than a majority vote to approve specified actions. The Company has not adopted such provisions. Delaware law also permits a corporation in its certificate of incorporation to classify its directors so -65- that different classes are elected at different annual meetings, and the Company's Certificate of Incorporation does so provide for a classified Board. See "-- Directors." Preemptive Rights. Under Delaware law, shareholders may have preemptive rights if these rights are provided in the certificate of incorporation. The Certificate of Incorporation of the Company does not provide for preemptive rights. Appraisal Rights. Under Delaware law, dissenting shareholders of the Company have appraisal rights (subject to the broad exception set forth in the next sentence) upon certain mergers or consolidations. Appraisal rights are not available in any such transaction if shares of the corporation are listed for trading on a national securities exchange or designated as a national market system security on the NASDAQ system or held of record by more than 2,000 holders. Directors. Under Delaware law and the Company's Certificate of Incorporation, the Company is to have a minimum of 3 directors and a maximum of 25, with the number of directors at any given time to be fixed by the Board of Directors. In addition, the Company's Certificate of Incorporation provides that the Board of Directors is to be divided into three classes, consisting of as nearly an equal number of directors as possible, with the term of office of one class expiring each year. The Company has three members of its Board of Directors. See "MANAGEMENT." WARRANTS Each Warrant entitles the holder thereof to purchase one share of Common Stock at a purchase price of $17.00 for a period of two years after the issuance of the Warrants. Upon the closing of the Offering, the Warrants will be freely tradeable without the Common Stock. Any Warrant not exercised on or before the expiration date shall expire and will not thereafter be exercisable. Warrant holders do not have the rights and privileges of holders of Common Stock. The Company will deliver to purchasers certificates representing one Warrant for each Unit purchased hereunder (the "Warrant Certificates"). Each Warrant Certificate will indicate the total number of shares for which the Warrant is exercisable. Thereafter, Warrant Certificates may be exchanged for new certificates of different denominations, and may be exercised or transferred by presenting them at the office of FCTC Transfer Services, L.P. (the "Warrant Agent"). If a market for the Warrants develops, holder may sell their warrants instead of exercising them. However, although the Company intends to file an application to have the Warrants listed on the American Stock -66- Exchange, there can be no assurance that a market for the Warrants will develop, or if developed, will continue. Each Warrant may be exercised by surrendering the Warrant Certificate, with the form of election to purchase on the reverse side properly completed and executed, together with payment of the exercise price to the Warrant Agent. The Warrants may be exercised in whole or in part, but no fractional shares of Common Stock will be issued upon exercise of the Warrant. If less than all of the Warrants evidenced by the Warrant certificate are exercised, a new Warrant Certificate will be issued for the remaining number of Warrants. The number of shares purchasable upon exercise and the exercise price of each Warrant will be proportionately adjusted upon the occurrence of certain events, including stock dividends, stock splits, reclassification and reorganizations. The Warrants will be issued and governed by a Warrant Agreement between the Company and the Warrant Agent. The Warrant Certificate provides that the company and the Warrant Agent may, without the consent of the Warrant holders, make changes in the Warrant Agreement which are required by reason of any ambiguity, manifest error or other mistake in the Warrant Agreement or Warrant Certificate, or that do not adversely affect or change the interest of the holders of the Warrants. TRANSFER AGENT AND WARRANT AGENT The Company's transfer agent for the Common Stock and Warrant Agent for the Warrants is FCTC Transfer Services, L.P. with offices at 111 Wood Avenue South, Suite 206, Iselin, New Jersey 08830. ANTI-TAKEOVER PROVISIONS Under the Federal Change in Bank Control Act (the "Control Act"), a 60 day prior written notice must be submitted to the FRB if any person, or any group acting in concert, seeks to acquire 10% or more of any class of outstanding voting securities of the Company, unless the FRB determines that the acquisition will not result in a change of control of the Company. Under the Control Act, the FRB has 60 days within which to act on such notice taking into consideration certain factors, including the financial and managerial resources of the acquiror, the convenience and needs of the community served by the bank holding company and its subsidiary banks and the antitrust effects of the acquisition. Under the BHCA, a company is generally required to obtain prior approval of the FRB before it may obtain control of a bank holding company. Control is generally described to mean the beneficial ownership of 25% or more of all outstanding voting securities of a company. -67- Pursuant to the Company's Certificate of Incorporation, the Board of Directors of the Company is divided into three classes, each of which shall contain approximately one-third of the whole number of the members of the Board. Each class shall serve a staggered term, with approximately one-third of the total number of directors being elected each year. The Company's Certificate of Incorporation and Bylaws provide that the size of the Board shall be determined by a majority of the directors. The Certificate of Incorporation and the Bylaws provide that any vacancy occurring in the Board, including a vacancy created by an increase in the number of directors or resulting from death, resignation, retirement, disqualification, removal from office or other cause, shall be filled for the remainder of the unexpired term exclusively by a majority vote of the directors then in office. The classified Board is intended to provide for continuity of the Board of Directors and to make it more difficult and time consuming for a stockholder group to use its voting power to gain control of the Board of Directors without the consent of the incumbent Board of Directors of the Company. Certain provisions of Delaware law are designed to provide Delaware corporations with additional protection against hostile takeovers. The takeover statute, which is codified in Section 203 of the Delaware General Corporate Law ("Section 203"), is intended to discourage certain takeover practices by impeding the ability of a hostile acquiror to engage in certain transactions with the target company. In general, Section 203 provides that a "Person" (as defined therein) who owns 15% or more of the outstanding voting stock of a Delaware corporation (an "Interested Stockholder") may not consummate a merger or other business combination transaction with such corporation at any time during the three-year period following the date such "Person" became an Interested Stockholder. The term "business combination" is defined broadly to cover a wide range of corporate transactions including mergers, sales of assets, issuances of stock, transactions with subsidiaries and the receipt of disproportionate financial benefits. The statute exempts the following transactions from the requirements of Section 203: (i) any business combination if, prior to the date a person became an Interested Stockholder, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an Interested Stockholder; (ii) any business combination involving a person who acquired at least 85% of the outstanding voting stock in the transaction in which he became an Interested Stockholder, with the number of shares outstanding for this purpose calculated without regard to those shares owned by the corporation's directors who are also officers and by certain employee stock plans; (iii) any business combination with an Interested -68- Stockholder that is approved by the Board of Directors and by a two-thirds vote of the outstanding voting stock not owned by the Interested Stockholder; and (iv) certain business combinations that are proposed after the corporation had received other acquisition proposals and which are approved or not opposed by a majority of certain continuing members of the Board of Directors. A corporation may exempt itself from the requirements of the statute by adopting an amendment to its Certificate of Incorporation or Bylaws electing not to be governed by Section 203. At the present time, the Board of Directors does not intend to propose any such amendment. THE OFFERING -- PLAN OF DISTRIBUTION The Company is hereby offering 305,000 Units, each Unit consisting of one share of Common Stock and one Warrant to purchase one share of Common Stock at an exercise price of $17.00. The Company will solicit subscriptions to purchase the Common Stock and will sell the Common Stock subscribed for hereby to the general public. The Company has reserved an option, exercisable for a period of ___ days after the effective date of the Registration statement of which this Prospectus forms a part, to sell up to an additional 30,500 Units to fill over-subscriptions for the Units. The Company has not engaged any underwriters in connection with the Offering. Certain executive officers of the Company will participate in the Offering by distributing offering materials, responding to inquiries from potential investors, maintaining records of subscriptions and attending information meetings, if any. Prior to this Offering, there has been a limited public trading market for the Common Stock of the Company and no public trading marked for the Warrants. As a result, the Price to Public set forth on the cover page of the Prospectus and the terms of the Warrants have been determined by the Company based upon a number of factors. These factors included the most recent bid price of the Company's common stock, the future prospects of the Company, the banking industry in general, the Company's recent financial performance and its position in the industry, and other factors deemed to be relevant by the Company. METHOD OF SUBSCRIPTION A prospective investor wishing to subscribe for Units in the Offering must do the following: (a) execute a Subscription Agreement; and (b) deliver a check, bank draft, or money order made payable, in United States currency to "UNITY BANCORP, INC." The Subscription Agreement, together with the full amount of the aggregate subscription price must be mailed, in the return envelope provided herewith, to: Unity Bancorp, Inc., Attention: James Hyman, 62 Old Highway 22, Clinton, NJ 08809. In order for the Stock Subscription Agreement to be valid, it must be received by the Company on or before ________ p.m. on _______ ___, 1996, unless the Offering is extended. -69- EXPIRATION OF THE OFFERING WILL BE AT ____ ON _______ ___, _______, UNLESS THE COMPANY EXTENDS THE OFFERING. THE COMPANY RESERVES THE RIGHT TO REJECT, IN WHOLE OR IN PART, IN ITS SOLE DISCRETION, ANY SUBSCRIPTION FOR ANY REASON. THE FULL SUBSCRIPTION PRICE FOR THE COMMON STOCK MUST BE INCLUDED WITH THE SUBSCRIPTION AGREEMENT. THE PURCHASE PRICE MUST BE PAID IN UNITED STATES CURRENCY BY CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO "UNITY BANCORP, INC." FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE SUBSCRIPTION AGREEMENT MAY CAUSE THE COMPANY TO REJECT THE SUBSCRIPTION IN WHOLE OR IN PART. LEGAL MATTERS The validity of the Units hereby will be passed upon for the Company by McCarter & English, Newark, New Jersey. EXPERTS The consolidated statements of condition as of December 31, 1995 and 1994, and the consolidated statements of income, changes in stockholders' equity and cash flows for the years ended December 31, 1995, 1994 and 1993 included in this Prospectus, have been included herein in reliance on the report of Arthur Andersen LLP, independent public accountants, given on the authority of that firm as experts in giving said reports. -70- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY Page ---- Consolidated Statements of Condition as of June 30, 1996 and 1995................................................ F-2 Consolidated Statements of Income for the six months ended June 30, 1996 and 1995.......................................... F-3 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995................................... F-4 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY Report of Independent Public Accountants................................... F-5 Consolidated Statements of Condition as of December 31, 1995 and 1994.............................................................. F-6 Consolidated Statements of Income for the years ended December 31, 1995, 1994, and 1993..................................... F-7 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994, and 1993................. F-8 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993...................................... F-9 Notes to Consolidated Financial Statements................................. F-10 F-1 Consolidated Statements of Condition
June 30 (Unaudited) 1996 1995 ------------- ------------- Assets Cash and due from banks ...................................................... $ 14,610,497 $ 12,332,826 Federal funds sold ........................................................... 1,925,000 4,325,000 ------------- ------------- Total cash and cash equivalents .................................... 16,535,497 16,657,826 Securities Available for sale (at market value) ................................... 13,854,797 7,348,748 Held to maturity (aggregate market value of $19,515,086 and $23,707,134) 20,353,571 24,563,239 ------------- ------------- 34,208,368 31,911,987 Loans (including loans held for sale of $2,863,482 and $1,963,334) ........... 84,064,412 46,032,706 Less: Unearned income ................................................. 15,168 28,432 Allowance for possible loan losses .......................... 774,417 478,792 ------------- ------------- Net loans ................................................... 83,274,827 45,525,482 Premises and equipment, net .................................................. 2,408,277 944,623 Accrued interest receivable .................................................. 1,023,616 746,197 Organizational costs, net .................................................... 0 17,254 Other assets ................................................................. 997,312 777,693 ------------- ------------- Total assets ....................................................... $ 138,447,897 $ 96,581,062 ============= ============= Liabilities and Shareholders' Equity Deposits Demand Noninterest Bearing ................................................ $ 23,283,463 $ 11,414,297 Interest bearing ................................................... 20,097,553 14,815,530 Savings ................................................................ 23,158,589 20,063,968 Time (includes deposits $100,000 and over of $8,546,364 and $3,741,341) 59,083,645 40,271,281 ------------- ------------- Total deposits ..................................................... 125,623,250 86,565,076 Subordinated debt ............................................................ 2,010,000 1,510,000 Accrued interest payable ..................................................... 422,262 266,637 Accrued expenses and other liabilities ....................................... 136,138 364,905 ------------- ------------- Total liabilities .................................................. 128,191,650 88,706,618 Commitments and contingencies Shareholders' Equity Common stock, no par value, 2,500,000 shares authorized; 1,089,392 and 917,760 issued and outstanding ....................... 9,462,444 7,371,889 Retained earnings ...................................................... 880,123 658,342 Net unrealized loss on available for sale securities ................... (86,320) (155,787) ------------- ------------- Total Shareholders' Equity ......................................... 10,256,247 7,874,444 ------------- ------------- Total liabilities and Shareholders' Equity ......................... $ 138,447,897 $ 96,581,062 ============= =============
F-2 Consolidated Statements of Operations
For the Six Months Ended June 30 (Unaudited) 1996 1995 ---------- ---------- Interest Income Interest on loans ........................................ $3,486,678 $2,088,853 Interest on Securities ................................... 1,288,877 1,277,794 Interest on Federal Funds Sold ........................... 173,844 93,991 ---------- ---------- Total interest income .................................... 4,949,399 3,460,638 Interest expense ........................................... 2,076,929 1,294,895 Interest on long term debt ................................. 59,211 55,164 ---------- ---------- Total interest expense ..................................... 2,136,140 1,350,059 ---------- ---------- Net interest income ........................................ 2,813,259 2,110,579 Provision for possible loan losses ......................... 257,288 145,405 ---------- ---------- Net interest income after provision for possible loan losses 2,555,971 1,965,174 ---------- ---------- Other income Service charges on deposit accounts....................... 223,721 136,152 Gain on sale of loans .................................... 617,611 370,125 Gain on sale of securities ............................... 31,850 0 Other income ............................................. 177,022 488,589 ---------- ---------- Total other income ....................................... 1,050,204 624,741 ---------- ---------- Other expenses Salaries and employee benefits ........................... 1,294,497 873,788 Occupancy expense ........................................ 328,168 94,338 Other operating expenses ................................. 1,168,597 808,230 ---------- ---------- Total other expenses ..................................... 2,791,262 1,776,356 ---------- ---------- Income before taxes ........................................ 814,913 813,559 Provision for income taxes ................................. 312,295 312,631 ---------- ---------- Net income ................................................. $ 502,618 $ 500,928 ========== ========== Net income per share ....................................... $0.47 $0.52 ========== ========== Weighted average shares outstanding ........................ 1,058,282 962,380 ========== ==========
F-3 Consolidated Statements of Cash Flows
For the six months ended June 30 (Unaudited) 1996 1995 ------------ ------------ Operating activities: Net income ....................................................... $ 502,618 $ 500,928 Adjustments to reconcile net income to net cash provided by (used in) operating activities Provision for possible loan losses ........................... 257,288 145,405 Depreciation and amortization ................................ 129,073 92,904 Gain on sale of premises and equipment ....................... 0 (1,033) Gain on sale of securities ................................... (31,850) 0 Gain on sale of loans ........................................ (617,611) (370,125) Amortization of securities premiums, net ..................... 32,128 21,229 Increase in accrued interest receivable ...................... (165,556) (93,533) Increase in other assets ..................................... (493,091) (213,043) Increase in accrued interest payable ......................... 30,737 133,018 Decrease in accrued expenses and other liabilities ........... (212,168) (181,527) ------------ ------------ Net cash (used in) provided by operating activities ..... (568,433) 34,223 ------------ ------------ Investing activities: Proceeds from sales of securities available for sale ............. 1,234,436 20,778 Purchases of securities held to maturity ......................... (1,006,172) (5,572,306) Purchases of securities available for sale ....................... (3,999,921) 0 Maturities and principal payments on securities held to maturity . 508,674 4,243,031 Maturities and principal payments on securities available for sale 5,014,918 69,305 Proceeds from sale of loans ...................................... 6,814,863 4,761,908 Net increase in loans ............................................ (31,232,533) (14,048,391) Capital Expenditures ............................................. (1,443,305) (207,521) Proceeds from sale of premises and equipment ..................... 0 9,500 ------------ ------------ Net cash used in investing activities ........................ $(24,109,040) $(10,723,696) ------------ ------------ Financing activities: Increase in deposits ............................................. 14,625,626 15,870,029 Proceeds from issuance of subordinated debt ...................... 2,010,000 1,510,000 Proceeds from issuance of common stock, net ...................... 0 20,000 Other ............................................................ 7,917 0 Cash Dividends ................................................... (120,430) (137,418) Net cash provided by financing activities .................... 16,523,113 17,262,611 (Decrease) increase in cash and cash equivalents ....................... (8,154,361) 6,573,137 Cash and cash equivalents at beginning of period ....................... 24,689,858 10,084,689 ------------ ------------ Cash and cash equivalents at end of period ............................. $ 16,535,497 $ 16,657,826 ============ ============ Supplemental disclosures: Interest paid .................................................... $ 2,105,403 $ 1,217,041 Income taxes paid ................................................ 878,500 420,000 Subordinated debt exchanged for common stock ..................... 1,510,000 0 ============ ============
F-4 Unity Bancorp. Inc. and Subsidiaries REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ARTHUR ANDERSEN LLP To the Shareholders and Board of Directors of Unity Bancorp, Inc.: We have audited the accompanying consolidated statements of condition of Unity Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Unity Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, effective January 1, 1993 the Company changed its method of accounting for income taxes and effective January 1, 1994 changed its method of accounting for securities. /s/ ARTHUR ANDERSEN LLP Roseland, New Jersey January 26, 1996 F-5 Unity Bancorp, Inc. and Subsidiaries Consolidated Statements of Condition
December 31 1995 1994 ------------ ------------ Assets Cash and due from banks .............................................................. $ 17,064,858 $ 7,684,689 Federal funds sold ................................................................... 7,625,000 2,400,000 ------------ ------------ Total cash and cash equivalents (Note 2 and 12) ................................ 24,689,858 10,084,689 Securities (Notes 2, 3 and 12) Available for sale (at market value) ............................................... 16,304,282 7,199,291 Held to maturity (aggregate market value of $19,264,315 and $21,341,158 in 1995 and 1994, respectively) .................................................. 19,856,743 23,276,844 ------------ ------------ Total securities ............................................................... 36,161,025 30,476,135 Loans (including loans held for sale of $3,515,561 and $890,349 in 1995 and 1994, respectively) (Notes 2, 4, 5 and 12) ............................. 59,108,042 36,420,687 Less: Unearned income ............................................................ 49,278 26,217 Less: Allowance for possible loan losses ......................................... 561,931 380,191 ------------ ------------ Net loans ...................................................................... 58,496,833 36,014,279 Premises and equipment, net (Notes 2 and 6) .......................................... 1,094,043 814,223 Accrued interest receivable .......................................................... 858,060 652,664 Other assets ......................................................................... 504,221 606,154 ------------ ------------ Total Assets ................................................................... $121,804,040 $ 78,648,144 ============ ============ Liabilities and Shareholders' Equity Deposits (Note 12) Demand Noninterest bearing .............................................................. $ 18,662,191 $ 9,155,302 Interest bearing ................................................................. 19,345,467 11,728,480 Savings ............................................................................ 22,202,038 21,688,665 Time (includes deposits $100,000 and over of $6,706,000 and $2,517,000 in 1995 and 1994, respectively) .................................................. 50,787,928 28,122,600 ------------ ------------ Total deposits ................................................................. 110,997,624 70,695,047 Subordinated debt (Notes 7 and 12) ................................................... 1,510,000 -- Accrued interest payable ............................................................. 391,525 133,619 Accrued expenses and other liabilities ............................................... 428,482 459,286 ------------ ------------ Total Liabilities .............................................................. 113,327,631 71,287,952 ------------ ------------ Commitments and contingencies (Note 10) Shareholders' equity (Notes 1, 8 and 11) Common stock, no par value, 2,500,000 shares authorized; 917,760 and 915,303 shares issued and outstanding in 1995 and 1994, respectively ............. 7,371,889 7,351,889 Retained earnings .................................................................. 1,070,573 294,832 Unrealized holding gain (loss) on securities available for sale, net of income taxes 33,947 (286,529) ------------ ------------ Total Shareholders' Equity ..................................................... 8,476,409 7,360,192 ------------ ------------ Total Liabilities and Shareholders' Equity ..................................... $121,804,040 $ 78,648,144 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-6 Unity Bancorp, Inc. and Subsidiaries Consolidated Statements of Income
For the years ended December 31 1995 1994 1993 ----------- ----------- ----------- Interest Income Interest on loans (Note 2) ................... $ 4,781,664 $ 2,962,336 $ 1,749,899 Interest on securities ....................... 2,696,182 1,881,830 1,704,136 Interest on Federal funds sold ............... 291,638 93,402 34,049 ----------- ----------- ----------- Total interest income .......................... 7,769,484 4,937,568 3,488,084 Interest expense ............................... 3,333,866 1,829,989 1,609,501 ----------- ----------- ----------- Net interest income ............................ 4,435,618 3,107,579 1,878,583 Provision for possible loan losses (Note 2) .... 228,560 160,563 183,288 ----------- ----------- ----------- Net interest income after provision for possible loan losses ......................... 4,207,058 2,947,016 1,695,295 ----------- ----------- ----------- Other income Service charges on deposits .................. 294,899 240,329 167,420 Net gain (loss) on sale of securities (Note 3) (18,999) -- 260,557 Gain on sale of loans (Note 2) ............... 871,185 247,236 301,173 Other income ................................. 238,093 140,851 67,658 ----------- ----------- ----------- Total other income ........................... 1,385,178 628,416 796,808 ----------- ----------- ----------- Other Expenses Salaries and employee benefits ............... 1,974,038 1,193,369 936,334 Occupancy expense ............................ 237,502 141,995 119,202 Other operating expenses ..................... 1,766,730 1,265,111 922,496 ----------- ----------- ----------- Total other expenses ......................... 3,978,270 2,600,475 1,978,032 ----------- ----------- ----------- Income before provision for income taxes ..... 1,613,966 974,957 514,071 Provision for income taxes (Notes 2 and 9 ..... 609,031 219,007 7,500 ----------- ----------- ----------- Net Income ..................................... $ 1,004,935 $ 755,950 $ 506,571 =========== =========== =========== Net income per share (Note 2) .................. $ 1.04 $ .84 $ .78 =========== =========== =========== Weighted average shares outstanding (Note 2) ... 963,019 900,954 650,358 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-7 Unity Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31 Unrealized Holding Gain (Loss) Additional Retained on Securities Total Common Paid-in Earnings Available Shareholders' Stock Capital (Deficit) for Sale Equity ----------- ----------- ----------- ------------- ------------ Balance, December 31, 1992 .............. $ 2,342,000 $ 2,307,000 $ (967,689) $ -- $ 3,681,311 Stock dividend - 10% .................. 234,200 (234,200) -- -- -- Issuance of common stock, net of offering costs ............... 556,115 288,669 -- -- 844,784 Net income - 1993 ..................... -- -- 506,571 -- 506,571 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1993 .............. 3,132,315 2,361,469 (461,118) $ -- 5,032,666 Stock dividend - 10% .................. 360,975 (360,975) -- -- -- Issuance of common stock, net of offering costs ............... 1,083,225 774,880 -- -- 1,858,105 Net income - 1994 ..................... -- -- 755,950 -- 755,950 Unrealized loss on securities available for sale, net of income tax ......... -- -- -- (286,529) (286,529) Exchange of bank common stock for holding company common stock (Notes 1 and 8) ..................... 2,775,374 (2,775,374) -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1994 .............. 7,351,889 -- 294,832 (286,529) 7,360,192 Cash dividend - $.24 per share ........ -- -- (229,194) -- (229,194) Issuance of common stock .............. 20,000 -- -- -- 20,000 Net income - 1995 ..................... -- -- 1,004,935 -- 1,004,935 Unrealized gain on securities available for sale, net of income tax ......... -- -- -- 320,476 320,476 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1995 .............. $ 7,371,889 $ -- $ 1,070,573 $ 33,947 $ 8,476,409 =========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-8 Unity Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows
For the years ended December 31 1995 1994 1993 ------------ ------------ ------------ Operating activities: Net income ....................................................... $ 1,004,935 $ 755,950 $ 506,571 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses ........................... 228,560 160,563 183,288 Depreciation and amortization ................................ 209,278 155,504 124,575 (Gain) loss on sale of premises and equipment ................ (1,033) 4,027 -- Net loss (gain) on sale of securities ........................ 18,999 -- (260,557) Gain on sale of loans ........................................ (871,185) (247,236) (301,173) Amortization of securities premiums, net ..................... 47,919 29,649 127,780 Increase in accrued interest receivable ...................... (205,396) (241,016) (98,557) Increase in other assets ..................................... (159,268) (123,141) (19,302) Increase in accrued interest payable ......................... 257,906 58,374 31,261 (Decrease) increase in accrued expenses and other liabilities (30,804) 380,439 (7,972) ------------ ------------ ------------ Net cash provided by operating activities .................. 499,911 933,113 285,914 ------------ ------------ ------------ Investing activities: Proceeds from sales of securities available for sale ............. 501,779 -- 12,309,559 Purchases of securities held to maturity ......................... (14,081,604) (10,057,477) (22,810,836) Purchases of securities available for sale ....................... (237,700) (2,490,000) -- Maturities and principal payments on securities held to maturity . 8,333,727 5,047,612 16,825,661 Maturities and principal payments on securities available for sale 266,097 312,999 -- Proceeds from sale of loans ...................................... 10,853,327 3,222,107 3,197,276 Net increase in loans ............................................ (32,693,256) (14,276,824) (14,726,017) Capital expenditures ............................................. (449,995) (66,066) (103,280) Proceeds from sale of premises and equipment ..................... 9,500 20,000 -- ------------ ------------ ------------ Net cash used in investing activities ...................... (27,498,125) (18,287,649) (5,307,637) ------------ ------------ ------------ Financing activities: Increase in deposits ............................................. 40,302,577 11,107,920 11,713,901 (Decrease) increase in other borrowed funds ...................... -- (905,036) 905,036 Proceeds from issuance of subordinated debt ...................... 1,510,000 -- -- Proceeds from issuance of common stock, net ...................... 20,000 1,858,105 844,784 Cash dividends ................................................... (229,194) -- -- ------------ ------------ ------------ Net cash provided by financing activities .................. 41,603,383 12,060,989 13,463,721 Increase (decrease in cash and cash equivalents ................... 14,605,169 (5,293,547) 8,441,998 Cash and cash equivalents at beginning of year ..................... 10,084,689 15,378,236 6,936,238 ------------ ------------ ------------ Cash and cash equivalents at end of year ........................... $ 24,689,858 $ 10,084,689 $ 15,378,236 ============ ============ ============ Supplemental disclosures: Interest paid .................................................... $ 3,075,960 $ 1,771,615 $ 1,578,240 Income taxes paid ................................................ 574,511 -- 7,500 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-9 Unity Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Organization and principles of consolidation: The accompanying consolidated financial statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, First Community Bank (the "Bank", or when consolidated with the Parent Company, "the Company"). All significant inter-company balances and transactions have been eliminated in consolidation. Effective December 1, 1994, each certificate representing common shares of the Bank was exchanged for an equal number of common shares of the Parent Company and the Parent Company acquired all of the outstanding common shares of the Bank. This exchange of shares has been accounted for as a reorganization of entities under common control resulting in no changes to the underlying carrying amount of assets and liabilities. The Bank was incorporated in the State of New Jersey on July 27,1990. The Bank was subsequently granted a charter by the New Jersey Department of Banking and commenced operations on September 13, 1991 after purchasing the deposits of two existing branches of another financial institution through the Resolution Trust Corporation. 2. Summary of significant accounting policies: Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities The Company prospectively adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), effective January 1, 1994. SFAS 115 requires the Company to classify its securities as: (1) held to maturity, (2) available for sale and (3) trading. Securities which the Company has the ability and intent to hold until maturity are classified as held to maturity. These securities are carried at cost adjusted for amortization of premiums and accretion of discounts. Securities which are held for an indefinite period of time which management intends to use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available for sale and are carried at market value. Differences between a security's amortized cost and market value is charged/credited directly to shareholders' equity, net of income tax effect. The cost of securities sold is determined on a specific identification basis. Gains and losses on sales of securities are recognized in the statements of income on the date of sale. The Company has not classified any of its securities as trading. Loans Interest is credited to operations primarily based upon the principal amount outstanding. When management believes there is sufficient doubt as to the ultimate collectibility of interest on any loan, the accrual of applicable interest is discontinued. Loan origination fees, net of direct loan origination costs, are deferred and are recognized over the estimated life of the related loans as an adjustment of the loan yield. The Company prospectively adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114) effective January 1, 1995. As defined in SFAS 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. SFAS 114 requires that the impairment of a loan be based on the present value of expected future cash flows, net of estimated costs to sell, discounted at the loan's effective interest rate. Impairment can also be measured based on a loan's observable market price or the fair value of collateral, if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, the Company establishes a valuation allowance, or adjusts existing valuation allowances, with a corresponding charge or credit to the provision for possible loan losses. The effect of adopting this new accounting standard was not material. Loans held for sale are reflected at the lower of aggregate cost or market value. F-10 Unity Bancorp, Inc. and Subsidiaries Allowance for Possible Loan Losses The allowance for possible loan losses is maintained at a level management considers adequate to provide for potential loan losses. The allowance is increased by provisions charged to expense and reduced by net charge-offs. The level of the allowance is based on management's evaluation of potential losses in the loan portfolio, after consideration of prevailing economic conditions in the Company's market area. Credit reviews of the loan portfolio, designed to identify potential charges to the allowance, are made during the year by management with the assistance of a loan review consultant. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Sales and Service of Commercial Loans The Company periodically sells certain loans to other financial institutions. Gains on such sales are recognized at the time of sale in an amount which approximates the present value of the difference between the effective interest rate to the Company and the net yield to the investor, excluding normal future loan servicing fees when applicable, over the estimated remaining lives of the loans sold. Serviced loans sold to other financial institutions are not included in the accompanying consolidated statements of condition. The total amount of such loans serviced, but owned by outside investors, amounted to approximately $9,982,000 and $6,567,000 at December 31, 1995 and 1994, respectively. Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The standard requires a change from the deferred to an asset and liability method of computing deferred income taxes. Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates to differences between the financial reporting and the tax basis of existing assets and liabilities. Prior years' financial statements have not been restated to comply with the provisions of SFAS 109. The effect of adopting SFAS 109 in 1993 was not significant, except that the utilization of net operating loss carry forwards would have been reflected as an extraordinary item in the accompanying consolidated statements of income prior to the adoption of SFAS 109. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, amounts due from banks (including certificates of deposit) and Federal funds sold. Generally, Federal funds are sold for a one-day period. At December 31, 1995 and 1994 certain certificates of deposit with maturities in excess of 90 days, amounting to approximately $3,357,000 at both dates, were included in cash and due from banks. Net Income Per Share Net income per share is computed based on the weighted average number of common shares and common share equivalents outstanding during each year. The weighted average shares have been adjusted retroactively for the effect of stock dividends. 3. Securities: Information with regard to the Company's securities portfolio at December 31, 1995 and 1994 is as follows:
1995 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Held to maturity Obligations of U.S. Government agencies ........ $10,760,758 $ 8,457 $ (504,387) $10,264,828 Mortgage-backed securities ..................... 9,095,985 1,005 (97,503) 8,999,487 ----------- ----------- ----------- ----------- Total held to maturity ....................... $19,856,743 $ 9,462 $ (601,890) $19,264,315 =========== =========== =========== =========== Available for sale U.S. Treasury securities ....................... $ 1,963,616 $ 13,478 $ 0 $ 1,977,094 Obligations of U.S. Government agencies ........ 8,210,971 72,757 0 8,283,728 Obligations of states and political subdivisions 1,360,000 6,147 (810) 1,365,337 Mortgage-backed securities ..................... 838,976 13,607 0 852,583 Corporate debt securities ...................... 3,547,211 40,629 0 3,587,840 FHLB stock ..................................... 237,700 0 0 237,700 ----------- ----------- ----------- ----------- Total available for sale ..................... $16,158,474 $ 146,618 $ (810) $16,304,282 =========== =========== =========== ===========
F-11 Unity Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
1994 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Held to maturity U.S. Treasury securities $ 6,379,890 $ 430 $ (89,915) $ 6,290,405 Obligations of U.S. Government agencies 9,467,892 2,291 (1,111,049) 8,359,134 Corporate debt securities 2,907,515 0 (108,641) 2,798,874 Mortgage-backed securities 4,521,547 585 (629,387) 3,892,745 ----------- ----------- ----------- ----------- Total held to maturity $23,276,844 $ 3,306 $(1,938,992) $21,341,158 =========== =========== =========== =========== Available for sale Obligations of U.S. Government agencies $ 2,043,650 $ 0 $ (93,503) $ 1,950,147 Mortgage-backed securities 4,633,171 0 (379,202) 4,253,969 Corporate debt securities 1,000,000 0 (4,825) 995,175 ----------- ----------- ----------- ----------- Total available for sale $ 7,676,821 $ 0 $ (477,530) $ 7,199,291 =========== =========== =========== ===========
The amortized cost and estimated market value of securities at December 31, 1995, by contractual maturity, are shown below. Estimated Amortized Market Cost Value ----------- ----------- Held to maturity Due after 1 year - 5 years $ 1,237,500 $ 1,215,501 Due after 5 years - 10 years 1,500,000 1,381,875 Due after 10 years 8,023,259 7,667,453 Mortgage-backed securities 9,095,984 8,999,486 ----------- ----------- $19,856,743 $19,264,315 =========== =========== Available for sale Due in 1 year or less $11,683,570 $11,758,987 Due after 1 year - 5 years 3,398,228 3,455,012 FHLB stock 237,700 237,700 Mortgage-backed securities 838,976 852,583 ----------- ----------- $16,158,474 $16,304,282 =========== =========== Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties. Proceeds from sales of securities were $501,779 in 1995 and $12,309,559 in 1993. Gross losses on sales of securities for 1995 were $18,999. Gross gains (losses) on sales of securities were $299,234 and ($38,667) in 1993. No securities were sold during 1994. During December 1995, the Company transferred securities held to maturity with a carrying value of approximately $15,920,000 and an unrealized gain of approximately $145,800 to available for sale. The transfers resulted from a reassessment of the Company's investment strategies pursuant to the release of a special report issued by the Financial Accounting Standards Board entitled "A Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities." This report allowed the Company to make a one time reclassification of securities within the categories without tainting other securities held to maturity. Securities with carrying values aggregating $300,000 were pledged to secure public deposits at December 31, 1995. F-12 Unity Bancorp, Inc. and Subsidiaries 4. Loans: Loans outstanding by classification as of December 31, 1995 and 1994, are as follows- 1995 1994 ----------- ----------- Loans secured by real estate - Residential properties $16,033,700 $ 9,514,489 Nonresidential properties 23,612,087 15,017,958 Construction loans 5,705,208 1,292,795 Commercial and industrial loans 9,125,192 6,951,838 Lease financing receivables 83,193 334,776 Loans to individuals 4,548,662 3,308,831 ----------- ----------- $59,108,042 $36,420,687 =========== =========== As of December 31, 1995 and 1994, loans accounted for on a nonaccrual basis amounted to approximately $78,000 and $47,000, respectively. The interest income that would have been recorded had these loans performed under the original contract terms was not significant. At December 31, 1995, $262,000 in loans were past due greater than 90 days but still accruing interest. As of December 31,1995, the Bank's recorded investment in impaired loans, defined as nonaccrual loans was $78,000 and the related valuation allowance was $16,000. This valuation allowance is included in the allowance for possible loan losses in the accompanying statement of condition. As of December 31, 1995, approximately 77% of the Company's loans were secured by real estate. As such, a substantial portion of the Company's borrowers' ability to repay their loans is dependent on the economic environment of the real estate industry in the Company's market area. In the ordinary course of business, the Company may extend credit to officers, directors or their associates. These loans are subject to the Company's normal lending policy. An analysis of such loans, all of which are current as to principal and interest payments, is as follows- Balance at December 31, 1994 $ 2,127,506 New loans 3,670,954 Repayments (1,844,886) ----------- Balance at December 31, 1995 $ 3,953,574 =========== 5. Allowance for possible loan losses: The allowance for possible loan losses is based on estimates and ultimate losses may vary from current estimates. These estimates are reviewed periodically and, as adjustments become known, they are reflected in operations in the periods in which they become known. An analysis of the change in the allowance for possible loan losses during 1995, 1994 and 1993 is as follows- 1995 1994 1993 --------- --------- --------- Balance at beginning of year $ 380,191 $ 301,673 $ 133,603 Provision charged to expense 228,560 160,563 183,288 Loans charged-off (50,257) (82,045) (15,218) Recoveries on loans previously charged-off 3,437 0 0 --------- --------- --------- Balance at end of year $ 561,931 $ 380,191 $ 301,673 ========= ========= ========= 6. Premises and equipment: The detail of premises and equipment as of December 31, 1995 and 1994 is as follows- 1995 1994 ----------- ----------- Land and building $ 631,966 $ 626,595 Furniture, fixtures and equipment 732,498 408,637 Leasehold improvements 116,332 21,400 ----------- ----------- 1,480,796 1,056,632 Less-Accumulated depreciation and amortization (386,753) (242,409) ----------- ----------- $ 1,094,043 $ 814,223 =========== =========== F-13 Unity Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Subordinated debt: The Company issued subordinated debentures on February 1, 1995. The debentures bear interest at 8 3/4%, payable quarterly and mature on February 1, 1998. The debentures are callable at the option of the Company at any time. The Company may also elect to convert the debentures to common stock at an exchange ratio to be determined based on the market price of the Company's stock at the time of conversion. 8. Shareholders' equity: As discussed in Note 1, effective December 1, 1994, all common shares of the Bank's stock outstanding were exchanged for common shares of the Parent Company. Whereas the Parent Company's common stock has no par value or stated value but the Bank's common stock has a par value of $5 per share, this transaction resulted in an increase in common stock and a corresponding decrease in additional paid-in capital in the amount of $2,775,374. 9. Income taxes: The components of the provision for income taxes are as follows- 1995 1994 1993 --------- --------- --------- Federal: Current $ 596,270 $ 233,386 $ 7,500 Deferred benefit (69,493) (68,229) 0 --------- --------- --------- Total Federal 526,777 165,157 7,500 State 82,254 53,850 0 --------- --------- --------- Total provision for income taxes $ 609,031 $ 219,007 $ 7,500 ========= ========= ========= A reconciliation between the reported income taxes and the amount computed by multiplying income before taxes by the statutory Federal income tax rate is as follows- 1995 1994 1993 --------- --------- --------- Federal income taxes at statutory rate $ 548,748 $ 331,485 $ 174,784 State income taxes, net of Federal income tax effect 54,288 35,541 0 Utilization of net operating loss carryforwards 0 (145,299) (167,284) Other 5,995 (2,720) 0 --------- --------- --------- Provision for income taxes $ 609,031 $ 219,007 $ 7,500 ========= ========= ========= Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The components of the net deferred tax asset at December 31, 1995 and 1994 are as follows- 1995 1994 --------- --------- Provision for possible loan losses $ 172,902 $ 97,028 Unrealized (gain) loss on securities available for sale (22,400) 191,000 Other, net (2,754) (17,087) --------- --------- $ 147,748) $ 270,941 ========= ========= 10. Commitments and contingencies: Lease Obligations- The Company leases its branch facilities under operating leases. Future minimum rental payments under these leases are as follows- 1996 $110,000 1997 64,000 1998 28,000 Litigation- The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. In management's judgment, the financial position or results of operations of the Company will not be affected materially by the final outcome of any present legal proceedings. F-14 Unity Bancorp, Inc. and Subsidiaries Commitments to Borrowers- Commitments to extend credit are legally binding loan commitments with set expiration dates. They are intended to be disbursed, subject to certain conditions, upon request of the borrower. The Company was committed to advance $8,780,000 to its borrowers as of December 31, 1995, which commitments generally expire within one year. Standby letters of credit are provided to customers to guarantee their performance, generally in the production of goods and services or under contractual commitments in the financial markets. The Company has entered into standby letters of credit contracts with its customers totaling $527,000 as of December 31, 1995, which generally expire within one year. Other- Deposits of the Bank are insured by the Savings Association Insurance Fund (SAIF). The Bank is assessed premiums by SAIF semiannually based on the collective experience of deposit institutions SAIF insures. Due to the aggregate unfavorable experience, the SAIF has proposed a special one time assessment of approximately 0.85% of qualifying deposits, the approval for which must be received by the U.S. Congress prior to assessment. At December 31, 1995 the Bank had approximately $111 million of deposits which may be subject to such a special assessment, if and when enacted into law. 11. Regulatory capital: Banking regulations provide that the Company must adhere to three minimum capital requirements. These regulations require, at a minimum, Tier I capital to risk-weighted assets of at least 4%, total capital of at least 8% of risk-weighted assets, and a leverage ratio of at least 3% to 5% of adjusted assets. At December 31,1995, the Company had Tier I capital, Total capital and leverage ratios of 10.77%, 11.48%, and 7.34%, respectively. 12. Fair value of financial instruments: The Company adopted Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" effective in 1995. The statement requires that the Company disclose estimated fair values for its financial instruments. The fair value estimates are made at a discrete point in time based upon relevant market information and information about the financial instruments. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on judgment regarding a number of factors. These estimates are subjective in nature and involve some uncertainties. Changes in assumptions and methodologies may have a material effect on these estimated fair values. In addition, reasonable comparability between financial institutions may not be possible due to a wide range of permitted valuation techniques and numerous estimates which must be made. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Federal Funds Sold- For those short-term instruments, the carrying value is a reasonable estimate of fair value. Securities- For the held to maturity and available for sale portfolios, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans- The fair value of loans is estimated by discounting the future cash flows using current market rates. Deposit Liabilities- The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates. Subordinated Debt- The carrying value is a reasonable estimate of fair value. Unrecognized Financial Instruments- At December 31, 1995, the Bank had standby letters of credit outstanding of $527,000. The fair value of these commitments is nominal. F-15 Unity Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) At December 31, 1995, the bank had commitments to extend credit totaling $8,780,000. The Bank does not charge a fee on these loan commitments and, consequently, there is no basis to calculate a fair value. The estimated fair value of the Company's financial instruments as of December 31, 1995 is as follows- Carrying Estimated Amount Fair Value ------------ ------------ Financial assets- Cash and Federal funds sold $ 24,689,858 $ 24,689,858 Securities held to maturity 19,856,743 19,264,315 Securities available for sale 16,304,282 16,304,282 Loans, net of allowance for possible loan losses 58,496,833 58,428,286 Financial liabilities- Deposits- Demand 38,007,658 38,007,658 Savings 22,202,038 22,202,038 Time 50,787,928 50,472,202 ------------ ------------ Total deposits 110,997,624 110,681,898 Subordinated debt 1,510,000 1,510,000 ------------ ------------ F-16 No person is authorized to give any information or make any representation other than as contained in this Prospectus and, if given or made, such other information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction where such offer would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implications that there had been no change in the affairs of the Company since any of the dates of which information of the dates of which information is furnished herein or since the date hereof. UNITS UNITY BANCORP, INC. ---------------- PROSPECTUS ---------------- ___________________, 1996 TABLE OF CONTENTS Page ---- Available Information................................................ 2 Prospectus Summary................................................... 3 Selected Consolidated Financial Data................................. 7 Special Considerations and Risk Factors.............................. 9 Use of Proceeds...................................................... 14 Market and Price Range of Securities................................. 14 Dividend Policy...................................................... 16 Capitalization....................................................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 19 Business............................................................. 44 Supervision and Regulation........................................... 49 Management........................................................... 54 Executive Compensation............................................... 57 Certain Transactions with Management................................. 60 Security Ownership of Certain Beneficial Owners and Management....... 60 Description of the Company's Securities.............................. 65 The Offering--Plan of Distribution................................... 69 Legal Matters........................................................ 70 Experts.............................................................. 70 Index to Consolidated Financial Statements........................... F-1 Consolidated Financial Statements.................................... F-2 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article Ninth of the Certificate of Incorporation of the Company and Section 145 of the Delaware General Corporate Law ("DGCL") provides that the corporation shall indemnify its present and former officers, directors, employees, and agents and persons serving at its request ("corporate agents") against expenses, including attorney's fees, judgments, fines or amounts paid in settlement, incurred in connection with any pending or threatened civil or criminal proceeding involving the corporate agent by reason of his being or having been a corporate agent if (a) the agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and (b) with respect to any criminal proceeding, the corporate agent had no reasonable cause to believe his conduct was unlawful. With respect to any derivative action, the Company is empowered to indemnify a corporate agent against his expenses (but not his liabilities) incurred in connection with any proceeding involving the corporate agent by reason of his being or having been a corporate agent if the agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. However, only the court in which the proceeding was brought can empower a corporation to indemnify a corporate agent against expenses with respect to any claim, issue or matter as to which the agent was adjudged liable for negligence or misconduct. Under Section 145 of the DGCL, the Company may indemnify a corporate agent in a specific case if a determination is made by any of the following that the applicable standard of conduct was met: (i) the Board of Directors, or a committee thereof, acting by a majority vote of a quorum consisting of disinterested directors; (ii) by independent legal counsel, if there is not a quorum of disinterested directors or if the disinterested quorum empowers counsel to make the determination; or (iii) by the shareholders. Section 145 of the DGCL further provides that a corporate agent is entitled to mandatory indemnification to the extent that the agent is successful on the merits or otherwise in any proceeding, or in defense of any claim, issue or matter in the proceeding. In advance of the final disposition of a proceeding, the Company may pay an agent's expenses if the agent agrees to repay the expenses unless it is ultimately determined he is entitled to indemnification. II-1 Article Ninth of the Certificate of Incorporation of the Company also provides that such indemnification shall not exclude any other rights to indemnification to which a person may otherwise be entitled, and authorizes the corporation to purchase insurance on behalf of any of the persons enumerated against any liability whether or not the corporation would have the power to indemnify him under the provisions of Article Ninth. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC Registration Fee.................................................... * AMEX Filing Fee......................................................... * Accounting Fees and Expenses ........................................... * Printing and Engraving.................................................. * Legal Fees and Expenses................................................. * Blue Sky Fees and Expenses.............................................. * Transfer Agent and Registrar Fees....................................... * Miscellaneous Expenses.................................................. * Total............................................................... * - -------------------- * To be completed by amendment. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. The following information relates to securities of the Bank or the Company issued or sold within the past three years which were not registered under the Securities Act of 1933, as amended (the "Securities Act"): (i) In 1994 before the reorganization of the Bank and the Company, the Bank issued a total of 216,645 shares of common stock at prices ranging from $8.00 to $9.25 per share. These shares were issued without registration under the Securities Act in reliance upon the exemption provided by Section 3(a)(5) of the Securities Act. No underwriters were involved in these issuances. (ii) In February 1995, the Company issued a total of $1.5 million of 8.75% Subordinated Notes due 1998 to 32 investors (the "1995 Note Holders"). These Subordinated Notes were issued without registration under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act. No underwriters were involved in these issuances. (iii) In February 1996, the Company issued 125,821 shares of Common Stock to the 1995 Note Holders in exchange for the 8.75% Subordinated Debentures due 1998 held by them. No commission or renumeration was paid directly or indirectly by the Company for soliciting the exchange. The transaction was completed without registration under the Securities Act in reliance upon the exemption provided in Section 3(a)(9) of the Securities Act. II-2 (iv) In April 1996, the Company issued $2.1 million of 8.25% Subordinated Notes due 1999 to directors and executive officers of the Company and the Bank and their affiliates (the "1996 Note Holders"). This transaction was completed without registration under the Securities Act in reliance upon an exemption provided in Section 4(2) of the Securities Act. No underwriters were involved in this transaction. (v) In September 1996, the Company issued 160,800 shares of Common Stock to the 1996 Note Holders in exchange for the 8.25% Subordinated Notes due 1999. No commission or renumeration was paid directly or indirectly by the Company for soliciting the exchange. The exchange was completed without registration under the Securities Act in reliance upon the exemption provided in Section 3(a)(9) of the Securities Act. ITEM 27. EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 3(i) Certificate of Incorporation of the Company, as amended 3(ii) Bylaws of the Company(1) 4(i) Warrant Agreement/Form of Warrant 4(ii) Form of Stock Certificate 4(iii) 1994 Stock Option Plan for Employees(1) 4(iv) 1994 Stock Option Plan for Non-Employee Directors(1) 4(v) Stock Bonus Plan 4(vi) Subscription Agreement(2) 5 Opinion of McCarter & English(2) 10(i) Lease Agreement (for main office) 10 (ii) Lease Agreement for Flemington Branch Office; Addendums to Lease and Lease for Parking 10(iii) Lease Agreement for Springfield Branch Office 10(iv) Lease Agreement for Scotch Plains Branch Office 10(v) 1994 Stock Option Plan for Employees and II-3 1994 Stock Option Plan for Non-Employee Directors (See 4(iii) and 4(iv)) 10(vi) Change in Control Agreement 10(vii) Stock Bonus Plan (See 4(v)) 21 Subsidiaries of the Registrant 23(i) Consent of McCarter & English (See Item #5) 23(ii) Consent of Arthur Andersen LLP 24 Power of Attorney 27 Financial Data Schedule - ---------- (1) Incorporated by reference from Exhibits 2(a) to 99(b) from the Registrant's Registration Statement on Form S-4, Registration No. 33-76392. (2) To be filed by amendment. II-4 ITEM 28. UNDERTAKINGS -- Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. -- In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. -- The undersigned registrant will: (1) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer under Rule 44(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective; and (2) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. II-5 SIGNATURES In accordance with the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe it meets all of the requirements for filing on Form SB-2 and has duly authorized this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clinton, State of New Jersey on September 20, 1996. UNITY BANCORP, INC. By: /s/ ROBERT VAN VOLKENBURGH ------------------------------- Robert Van Volkenburgh Chairman of the Board and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints any one of Robert Van Volkenburgh or James Hyman, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: Name Title Date - ---- ----- ---- /s/ ROBERT VAN VOLKENBURGH - -------------------------- Robert Van Volkenburgh Chairman of the Board, Chief September 20, 1996 Executive Officer and Director (Principal Executive Officer) September 20, 1996 /s/ JAMES HYMAN - ------------------------- James Hyman President, Chief Operating Officer and Director September 20, 1996 /s/ DAVID DALLAS - ------------------------- David Dallas Director, Vice Chairman of September 20, 1996 the Board and Secretary /s/ THOMAS MARESCA - ------------------------- Thomas Maresca Chief Financial Officer (Principal Financial and Accounting Officer) September 20, 1996 II-6 INDEX TO EXHIBITS EXHIBIT DESCRIPTION PAGE NUMBER 3(i) Certificate of Incorporation of the Company, as amended 3(ii) Bylaws of the Company(1) 4(i) Warrant Agreement/Form of Warrant 4(ii) Form of Stock Certificate 4(iii) 1994 Stock Option Plan for Employees(1) 4(iv) 1994 Stock Option Plan for Non-Employee Directors(1) 4(v) Stock Bonus Plan 4(vi) Subscription Agreement(2) 5 Opinion of McCarter & English(2) 10(i) Lease Agreement (for main office) 10(ii) Lease Agreement for Flemington Branch Office; Addendums to Lease and Lease for Parking 10(iii) Lease Agreement for Springfield Branch Office 10(iv) Lease Agreement for Scotch Plains Branch Office 10(v) 1994 Stock Option Plan for Employees and 1994 Stock Option Plan for Non-Employee Directors (See 4(iii) and 4(iv)) 10(vi) Change in Control Agreement 10(vii) Stock Bonus Plan (See 4(v)) 21 Subsidiaries of the Registrant 23(i) Consent of McCarter & English (See Item #5) 23(ii) Consent of Arthur Anderson LLP 24 Power of Attorney 27 Financial Data Schedule - ------------------ (1) Incorporated by reference from Exhibits 2(a) to 99(b) from the Registrant's Registration Statement on Form S-4, Registration No. 33-76392. Exhibit 3(ii) (2) To be filed by amendment. EX-3.(I) 2 CERTIFICATE OF INCORPORATION Exhibit 3(i) CERTIFICATE OF INCORPORATION OF UNITY BANCORP, INC. The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified and referred to as the "Delaware General Corporation Law"), hereby certifies that: FIRST: The name of the Corporation is Unity Bancorp, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The Corporation Trust Company is the Corporation's registered agent at that address. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 2,500,000 shares of Common Stock with no par value. FIFTH: The name and mailing address of the incorporator is: Robert A. Schwartz, Esq. McCarter & English Four Gateway Center 100 Mulberry Street P.O. Box 652 Newark, N.J. 07101-0652 SIXTH: The Corporation is to have perpetual existence. SEVENTH: (a) The number of directors constituting the entire Board of Directors shall be not less than three (3) nor more than twenty-five (25) as fixed from time to time by vote of a majority of the entire Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the entire Board shall be four (4) until otherwise fixed by a majority of the entire Board. (b) The Board of Directors shall be divided into three (3) classes, as nearly equal in number as the then total number of directors constituting the entire Board permits, with the term of office of one class expiring each year. At the first annual meeting of stockholders, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. At each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. EIGHTH: The Board of Directors shall have the power to make, alter or repeal the By-laws of the Corporation, subject to the right of the stockholders of the Corporation to alter or repeal any By-law made by the Board of Directors. NINTH: (a) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law. (b) (i) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil or criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his -2- conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, in itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. (ii) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claims, issues or matters as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or such other court shall deem proper. (iii) The right to indemnification conferred in this Article Ninth shall also include the right to be paid by the Corporation the expenses incurred in connection any such proceeding in advance of its final disposition to the fullest extent permitted by the Delaware General Corporation Law. (iv) The Corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Corporation and such other persons serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise to such extent and to such effect as is permitted by the Delaware General Corporation Law and the Board of Directors shall determine to be appropriate. (c) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expenses, -3- liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the Delaware General Corporation Law. (d) The right to indemnification conferring in this Article Ninth shall be a contract right. The rights and authority conferred in this Article Ninth shall not be exclusive of any other right which any person may otherwise have or hereafter acquire. (e) No amendment, modification or repeal of this Article Ninth, nor the adoption of any provision of this Certificate of Incorporation or the By-laws of the Corporation, nor, to the fullest extent permitted by the Delaware General Corporation Law, any amendment, modification or repeal of law shall eliminate or reduce the effect of this Article Ninth or adversely affect any right or protection then existing hereunder in respect of any acts or omissions occurring prior to such amendment, modification, repeal or adoption. TENTH: The election of directors of the Corporation need not by written ballot, unless the By-laws of the Corporation otherwise provide. ELEVENTH: From time to time any of the provisions of this Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article Eleventh. TWELFTH: The following named persons shall constitute the first Board of Directors of the Corporation and shall hold office until the first annual shareholders' meeting or until their successors are elected and qualified: Robert Van Volkenburgh Donald F. Ennis c/o Unity Bancorp, Inc. c/o Unity Bancorp, Inc. 219 Concourse Drive 219 Concourse Drive Annandale, NJ 08801 Annandale, NJ 08801 David Dallas James Hyman c/o Unity Bancorp, Inc. c/o Unity Bancorp, Inc. 219 Concourse Drive 219 Concourse Drive Annandale, NJ 08801 Annandale, NJ 08801 -4- THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the Delaware General Corporation Law, does make this certificate, hereby certifying and declaring that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 3rd day of February, 1994. /S/ROBERT A. SCHWARTZ --------------------- Robert A. Schwartz -5- CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF UNITY BANCORP, INC. Unity Bancorp, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling for consideration thereof at the Annual Meeting of the Shareholders of the Corporation. The resolution setting for the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended as follows: "By striking out the whole of Article FOURTH as it exists now and inserting in lieu and instead thereof a new Article Fourth reading as follows: FOURTH: (a) The total authorized capital stock of the Corporation shall be 3,000,000 shares, consisting of 2,500,000 shares of Common Stock and 500,000 shares of Preferred Stock which may be issued in one or more classes or series. The shares of Common Stock shall constitute a single class and shall be without nominal or par value. The shares of Preferred Stock of each class or series shall be without nominal or par value, except that the amendment authorizing the initial issuance of any class or series, adopted by the Board of Directors as provided herein, may provide that shares of any class or series shall have a specified par value per share, in which event all of the shares of such class or series shall have the par value per share so specified. (b) The Board of Directors of the Corporation is expressly authorized from time to time to adopt and to cause to be executed and filed without further approval of the shareholders amendments to this Certificate of Incorporation authorizing the issuance of one or -6- more classes or series of Preferred Stock for such consideration as the Board of Directors may fix. In an amendment authorizing any class or series of Preferred Stock, the Board of Directors is expressly authorized to determine: (i) The distinctive designation of the class or series and the number of shares which will constitute the class or series, which number may be increased or decreased (but not below the number of shares then outstanding in that class or above the total shares authorized herein) from time to time by action of the Board of Directors; (ii) The dividend rate of the shares of the class or series, whether dividends will be cumulative, and, if so, from what date or dates; (iii) The price or prices at which, and the terms and conditions on which, the shares of the class or series may be redeemed at the option of the Corporation; (iv) Whether or not the shares of the class or series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof; (v) Whether or not the shares of the class or series will be convertible into, or exchangeable for, any other shares of stock of the Corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (vi) The rights of the shares of the class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (vii) Whether or not the shares of the class or series will have priority over, parity with, or be junior to the shares of any other class or series in any respect, whether or not the -7- shares of the class or series will be entitled to the benefit of limitations restricting the issuance of shares of any other class or series having priority over or on parity with the shares of such class or series and whether or not the shares of the class or series are entitled to restrictions on the payment of dividends on, the making of other distributions in respect of, and the purchase or redemption of shares of any other class or series of Preferred Stock or Common Stock ranking junior to the shares of the class or series; (viii) Whether the class or series will have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; and (ix) Any other preferences, qualifications, privileges, options and other relative or special rights and limitations of that class or series. SECOND: That thereafter, pursuant to the resolution of the Board of Directors, the Annual Meeting of the Shareholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed this _______ day of May, 1995. by James Hyman, its President. Unity Bancorp, Inc. By: /S/ JAMES HYMAN ---------------------- James Hyman, President -8- EX-4.(I) 3 WARRANT AGREEMENT Exhibit 4(i) WARRANT AGREEMENT Agreement, dated as of this ____ day of ______, 1996, by and between Unity Bancorp, Inc., a Delaware corporation (the "Company") and FCTC Transfer Services, Inc., (the "Warrant Agent"). W I T N E S S E T H WHEREAS, the Company is offering for sale up to 335,500 Units (the "Units"), each Unit consisting of one share of the Company's Common Stock, no par value (the "Common Stock"), and one Warrant (the "Warrant") which entitles the holder thereof to purchase one share of Common Stock at the purchase price of $17.00 per share at any time on or before ______ __, 1998. WHEREAS, the Company desires to appoint the Warrant Agent to act on its behalf in connection with the (i) issuance, transfer and exchange of the certificates representing the Warrants (the "Warrant Certificates"), (ii) the exercise of the Warrants by the holders thereof (together with any registered successors or assigns, the "Holders") and (iii) the adjustment of the Warrants in certain events as contained herein in accordance with the terms of the Warrants and this Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: 1.0. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant Agent as its agent to issue the Warrant Certificates, as set forth herein, subject to resignation or replacement of the Warrant Agent as provided herein. The Warrant Agent agrees to accept such appointment, subject to the terms and conditions as set forth herein and to issue, transfer and exchange the Warrant Certificates pursuant to the terms provided for herein and to notify the Company's transfer agent to issue the certificates representing the appropriate number of shares of Common Stock (or other consideration) upon exercise of the Warrants. The Company agrees to issue and honor the Warrants on the terms and conditions as herein set forth and to instruct its transfer agent to issue its Common Stock (or other securities) upon notice from the Warrant Agent of the proper exercise of any Warrant. The Warrant Agent is hereby empowered to enforce any rights of the Holders for the benefit of any Holders, subject to the terms and conditions contained herein. 2.0. ISSUANCE OF WARRANT CERTIFICATES. 2.1. FORM OF WARRANT CERTIFICATE. All Warrants shall be issued substantially in the form of the Warrant Certificate annexed hereto as Exhibit A. The terms of any such Warrant Certificate are incorporated herein by reference. 2.2. EXECUTION OF WARRANTS. The Warrants shall be issued in registered form only. No Warrants shall have been duly and validly issued until a Holder has received a Warrant Certificate executed by the chairman or president of the Company and the secretary or treasurer of the Company and such Certificate is countersigned by an authorized officer of the Warrant Agent. All Warrant Certificates shall bear the Company's corporate seal. Any Warrant Certificates may be executed by the officers of the Company by means of a facsimile signature. The Warrant Agent shall maintain the register of all Holders. 2.3. MAXIMUM NUMBER OF WARRANTS. The Company hereby authorizes the Warrant Agent to issue up to 335,500 Warrants pursuant to the terms hereof subject to adjustment as hereafter provided in Section 4 hereof. 2.4. INITIAL HOLDERS. The Company shall deliver to the Warrant Agent a list of the names of the persons who shall be the initial Holders of the Warrants and the number of Warrants to which each such person is entitled. The Warrant Agent is hereby authorized by the Company to promptly issue Warrant Certificates for up to 335,500 Warrants upon receipt of the written request of the Company, which shall include the list referred to in the preceding sentence. The Company shall deliver to the Warrant Agent, along with this Warrant Agreement, a sufficient number of duly executed Warrant Certificates. The Warrant Certificates requested by the Company shall be completed and countersigned by the Warrant Agent and promptly delivered to the Company to be mailed or delivered to the Holders pursuant to the terms hereof. When requested by the Warrant Agent, from time to time hereafter, the Company will execute additional Warrant Certificates in blank for the Warrant Agent to issue hereunder. 2.5. RIGHTS OF A HOLDER. Subject to adjustment as provided herein, each Warrant shall evidence the right to purchase one share of the Company's Common Stock at the Warrant Price of $17.00. Following the Expiration Date, as defined in Section 3.1 below, any Warrant not previously exercised shall be null and void. 3.0. EXERCISE OF WARRANT. 3.1. EXERCISE PERIOD. The Warrants may be exercised, in whole or in part, at any time commencing __________ __, 1996, but not later than 5:00 P.M., New Jersey time, on __________ __, 1998 (the "Expiration Date"). If the Expiration Date is not a Business Day, it shall automatically be extended to 5:00 P.M. on the next day which is a Business Day. Business Day -2- means any day other than a Saturday, Sunday, or holiday on which banks in New Jersey are authorized by law to close. 3.2. MEANS OF EXERCISE. In order to exercise a Warrant, the Holder must present and surrender the Warrant Certificate to the Warrant Agent at its office, with the Subscription Form on the back of the Warrant Certificate duly executed and it must be accompanied by payment in full, in the form of cash, by certified or official bank check payable to the order of the Company or its successor, of the aggregate Warrant Price for the number of shares of Common Stock specified in such Subscription Form. The Warrant Agent shall immediately pay over to the Company any funds received upon such exercise of Warrants. 3.3. ISSUANCE OF COMMON STOCK. Upon the request of the Warrant Agent, the Company shall promptly deliver or cause its transfer agent to deliver to the Holder exercising a Warrant a certificate or certificates evidencing the shares of Common Stock purchased when any Warrant is validly exercised. 3.4. CERTAIN EXERCISE PROVISIONS. If any Warrant is exercised in part only, a new Warrant Certificate, dated the date of such exercise, evidencing the rights of the Holder thereof to purchase the balance of the shares of Common Stock purchasable under such original Warrant shall promptly be issued to such Holder. Upon receipt of any Warrant Certificate by the Warrant Agent, at its office, in proper form for exercise and accompanied by payments as herein provided, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. 4.0. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES PURCHASABLE AND OTHER TERMS IN CERTAIN EVENTS. The Warrant Price and the number of shares of Common Stock purchasable upon exercise of any Warrant and the other terms and conditions of the Warrant shall be subject to adjustment and modification as follows in the circumstances provided: 4.1. DECLARATION OF STOCK DIVIDEND, SPLITS, REVERSE SPLITS OR RECLASSIFICATION OR REORGANIZATION. (a) In case the Company shall declare any dividend or other distribution upon its outstanding shares of Common Stock payable in Common Stock or shall subdivide its outstanding shares of Common Stock into a greater number of shares, then the number of shares of Common Stock which may thereafter be purchased upon the exercise of any Warrant shall be increased in proportion to the increase in the number of shares of Common Stock outstanding through such dividend or subdivision and the Warrant Price per -3- share shall be decreased in such proportion. In case the Company shall at any time combine the outstanding shares of its Common Stock into a smaller number of shares, the number of shares of Common Stock which may thereafter be purchased upon the exercise of any Warrant shall be decreased in proportion to the decrease in the number of shares of Common Stock outstanding through such combination and the Warrant Price per share shall be increased in such proportion. The Company shall cause a notice to be mailed to each Holder at least twenty (20) days prior to the applicable record date for the activity covered by this Section 4.1(a). The Company's failure to give the notice required by this Section 4.1(a) or any defect therein shall not affect the validity of the activity covered by this Section 4.1(a). (b) In case the Company shall at any time (i) distribute any rights, options or warrants to all holders of shares of Common Stock, (ii) issue other securities to all holders of shares of Common Stock by reclassification of its shares of Common Stock, or (iii) issue by means of a capital reorganization other securities of the Company in lieu of the Common Stock or in addition to the Common Stock, then the number of shares purchasable upon exercise of each Warrant immediately prior thereto shall be adjusted so that the Holder of each Warrant shall be entitled to receive the kind and number of shares or other securities of the Company which the Holder would have owned or have been entitled to receive after the happening of the event described above, had such Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. The Company shall cause a notice to be mailed to each Holder at least 20 days prior to the applicable record date for the activity covered by this Section 4.1(b). The Company's failure to give the notice required by this Section 4.1(b) or any defect therein shall not affect the validity of the activity covered by this Section 4.1(b). (c) An adjustment made pursuant to this Section 4.1 shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (d) For the purpose of this Section 4.1, the term "shares of Common Stock" shall mean (x) the class of stock designated as the Common Stock at the date of this Warrant Agreement, or (y) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, from no par value to par value or from par value to no par value. In the event that at any time, as a result of an adjustment made pursuant to this Section 4.1, the Holder shall become entitled to purchase any shares of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of each Warrant and the Warrant Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as -4- practicable to the provisions with respect to the shares of Common Stock contained in this Section 4.1. 4.2. LIQUIDATION, DISSOLUTION OR WINDING UP. Notwithstanding any other provisions hereof, in the event of the liquidation, dissolution, or winding up of the affairs of the Company (other than in connection with a consolidation, merger or sale or conveyance of all or substantially all of its assets outside of the ordinary course of business), the right to exercise this Warrant shall terminate and expire at the close of business on the last full business day before the earliest date fixed for the payment of any distributable amount on the Common Stock. The Company shall cause a notice to be mailed to each Holder at least 20 days prior to the applicable record date for such payment stating the date on which such liquidation, dissolution or winding up is expected to become effective, and the date on which it is expected that holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property or assets (including cash) deliverable upon such liquidation, dissolution or winding up, and that each Holder may exercise outstanding Warrants during such 20 day period and, thereby, receive consideration in the liquidation on the same basis as other previously outstanding shares of the same class as the shares acquired upon exercise. The Company's failure to give notice required by this Section 4.2 or any defect therein shall not affect the validity of such liquidation, dissolution or winding up. 4.3. MERGER, CONSOLIDATION, ETC. (a) In case of any consolidation with or merger of the Company into another corporation or sale or conveyance of all or substantially all of its assets outside of the ordinary course of business (such consolidation, merger, sale or conveyance, collectively referred to hereinafter as a "Change") then, as a condition of such Change, lawful and adequate provisions shall be made whereby the Holders shall thereafter have the right to receive upon payment of the Warrant Price in effect immediately prior to such Change, upon the basis and upon the terms and conditions specified in this Agreement (including but not limited to all provisions contained in this Section 4.3), and in lieu of the shares of the Company's Common Stock purchasable upon the exercise of the Warrants, such shares of stock, securities, cash or assets which such Holder would have been entitled to receive after the happening of such Change had such Warrant been exercised immediately prior to such Change. The provisions of this Section 4.3 shall similarly apply to successive Changes. The Company shall cause a notice to be mailed to each Holder at least 20 days prior to the applicable record date for the Change covered by this Section 4.3(a) and shall provide notice of the Change and shall set forth the first and last date on which the Holder may exercise outstanding Warrants. The Company's failure to give the notice -5- required by this Section 4.3(a) or any defect therein shall not affect the validity of the Change covered by this Section 4.3(a). (b) Notwithstanding the foregoing, if as a result of such Change, holders of the Company Common Stock shall receive consideration other than solely in shares of stock or other securities in exchange for their Company Common Stock, the Company may, at its option, fulfill its obligation hereunder by causing the Notice required by Section 4.3(a) hereof to include notice to Holders of the opportunity to exercise their Warrants before the applicable record date for the Change, and thereby receive consideration in the Change, on the same basis as other previously outstanding shares of the Company Common Stock. If the notice specified in the preceding sentence is provided to Holders, Warrants not exercised in accordance with this Section 4.3(b) before consummation of the Change shall be canceled and become null and void on the effective date of the Change. The notice provided by the Warrant Agent pursuant to this Section 4.3(b) shall include a description of the terms of this Agreement providing for cancellation of the Warrants in the event that Warrants are not exercised by the prescribed date. The Company's failure to give any notice required by this Section 4.3(b) or any defect therein shall not affect the validity of any such Change. 4.4. DUTY TO MAKE FAIR ADJUSTMENTS IN CERTAIN CASES. If any event occurs as to which in the opinion of the Board of Directors of the Company the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holders in accordance with the essential intent and principles of this Agreement, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, as to protect the purchase rights of the Holders. Notwithstanding the foregoing, the issuance of Common Stock or any securities convertible into Common Stock by the Company either for cash or in a merger, consolidation, exchange or acquisition shall not, by itself, constitute a basis for requiring any adjustment in the Warrants unless specifically enumerated herein. 4.5. GOOD FAITH DETERMINATION. Any determination as to whether an adjustment or limitation of exercise is required pursuant to this Section 4 (and the amount of any adjustment), shall be binding upon the Holders and the Company if made in good faith by the Board of Directors of the Company. 4.6. NOTICE OF ADJUSTMENT. Whenever the number of shares of Common Stock purchasable upon the exercise of the Warrants or the Warrant Price is adjusted, the Company shall promptly file in the custody of its Secretary or an Assistant Secretary at its principal office and with the Warrant Agent, an officer's certificate setting forth the number of shares of Common Stock purchasable upon the exercise of the Warrants, the Warrant -6- Price after such adjustment, a statement, in reasonable detail, of the facts requiring such adjustment and the computation by which such adjustment was made. Each such officer's certificate shall be made available at all reasonable times for inspection by the Warrant Holders, and the Warrant Agent shall, forthwith after each such adjustment, promptly mail a copy of such certificate to such Holders by first class mail, postage prepaid. 4.7. NO CHANGE OF WARRANT NECESSARY. Irrespective of any adjustment in the Warrant Price or in the number or kind of shares issuable upon exercise of the Warrants, the Warrant Certificates may continue to express the same price and number and kind of shares as are stated in the Warrant Certificates as initially issued. 5.0. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees for the benefit of the Holders: 5.1. That all shares of Common Stock which may be issued upon the exercise of the rights represented by the Warrant Certificates will, upon issue and payment of the aggregate Warrant Price therefor, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all liens and encumbrances, with no personal liability attaching to the ownership thereof. 5.2. That during the period within which the rights represented by the Warrant Certificates may be exercised, the Company will at all times have authorized and reserved for the purpose of issue upon exercise of the rights evidenced by the Warrant Certificates, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by the Warrant Certificates. 5.3. That the Company will take all such action as may be necessary to ensure that the shares of Common Stock issuable upon the exercise of the Warrants may be so issued without violation of any applicable federal or state law or regulation, or of any requirements of any securities exchange upon which any capital stock of the Company may be listed, if any. 5.4. That the Company has filed a registration statement under the Securities Act of 1933 with the United States Securities and Exchange Commission and has made all appropriate state blue sky filings with state securities administrators with respect to Warrants and the Common Stock issuable thereunder and, if necessary, will use its best efforts to keep such registration statement and blue sky filings or a substitute registration statement and blue sky filings effective and current with respect to the Common Stock while any Warrants are outstanding. Notwithstanding the foregoing or anything contained in Section 5.3, the Company shall not be obligated to keep effective and current blue sky filings in any state in which there are a small number of -7- holders of Warrants in such state, such holders own an immaterial number of Warrants, and keeping such filings current and effective creates an unreasonable financial burden under the circumstances. 5.5. That prior to the issue of any shares of Common Stock, the Company shall promptly secure the listing thereof upon all securities exchanges on which the Common Stock of the Company is then listed. 6.0. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT CERTIFICATE. 6.1. EXCHANGE. The Warrants shall be exchangeable at the option of the Holder, upon presentation and surrender of the Warrant Certificate at the office of the Warrant Agent for other Warrant Certificates of different denominations. Any Warrant Certificate may be divided or combined with other Warrant Certificates into a Warrant Certificate evidencing the same aggregate number of Warrants. 6.2. TRANSFER OR ASSIGNMENT. The Warrants and all rights of Holders thereof are immediately assignable and transferable in whole or in part by the Holders thereof, in person or by duly authorized attorney, by surrender of any Warrant Certificate to the Warrant Agent at its office with the Assignment Form annexed thereto duly executed and funds sufficient to pay any applicable transfer tax. In such event, the Warrant Agent shall execute and deliver, in the case of an assignment or transfer in whole, a new Warrant Certificate in the name of the assignee or transferee, or, in the case of an assignment or transfer in part, a new Warrant Certificate in the name of such assignee or transferee representing the number of Warrants so assigned or transferred and a new Warrant Certificate in the name of the assignor or transferor representing the number of Warrants not so assigned or transferred. 6.3. LOST OR DESTROYED WARRANT CERTIFICATES. Upon receipt by the Warrant Agent of evidence satisfactory to it of the loss, theft, destruction or mutilation of a Warrant Certificate and (i) in the case of such loss, theft or destruction, of reasonably satisfactory indemnification and bonding, or (ii) if mutilated, upon surrender and cancellation of such Warrant Certificate, the Warrant Agent shall execute and deliver a new Warrant Certificate of like tenor. Any such new Warrant Certificate executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant Certificate so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. 7.0. NO ISSUANCE OF FRACTIONAL INTERESTS IN COMMON STOCK. The Company shall not be required to issue fractional shares of Common Stock on the exercise of the Warrants. If any -8- fraction of a share of Common Stock would be issuable upon the exercise of the Warrants (or any specified portion thereof), the Company shall pay an amount in cash equal to the product of (a) such fraction and (b) the closing price per share of Common Stock as quoted by the American Stock Exchange System, or on any other exchange on which the Common Stock is listed, on the trading day prior to the date the Warrant is exercised. 8.0. NO RIGHTS AS STOCKHOLDERS; CERTAIN NOTICES AND REPORTS TO HOLDERS. Except as specifically provided in this Agreement, nothing contained in this Agreement or in the Warrant Certificates shall be construed as conferring upon the Holders or any transferees the right to vote or to receive dividends or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. If, however, between the date hereof and the Expiration Date (or if earlier the occurrence of any event specified in Section 4.2 or 4.3(b) terminating the Warrants), any of the following events shall occur: (a) the Company shall declare any cash dividend upon its shares of Common Stock payable at a rate more than 50% in excess of the rate of the last cash dividend theretofore paid; or (b) the Company shall declare any dividend payable in any securities other than shares of Common Stock upon its shares of Common Stock or make any distribution (other than a regular cash dividend out of undistributed net income) to the holders of its shares of Common Stock; or (c) the Company shall distribute any rights, options or warrants to the holders of shares of Common Stock; or (d) a capital reorganization or reclassification of the Company's capital stock shall be proposed; then in any one or more of said events, the Company shall give to the Holders at least twenty (20) days' prior written notice of the date fixed as a record date or the date of closing of the transfer books for the determination of the stockholders entitled to receive such dividend or distribution. Any such notice shall also specify, in the case of any such dividend or distribution, the date on which holders of shares of Common Stock are entitled thereto. Failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of any action taken in connection with such dividend or distribution. -9- 8.1. REPORTS. The Company shall transmit by mail to all registered Holders, all reports and other documents that the Company transmits to holders of shares of Common Stock generally, at the same time and in the same manner as such reports and other documents are transmitted to holders of shares of Common Stock. 9.0. AGREEMENT OF WARRANT HOLDERS. Every Holder of a Warrant, by his acceptance thereof, consents and agrees with the Company, the Warrant Agent and every other Holder of a Warrant that: (a) The Warrants are transferable only on the registry books of the Company by the Holder thereof in person or by his attorney duly authorized in writing and only if the Warrant Certificates representing such Warrants are surrendered at the office of the Warrant Agent, duly endorsed or accompanied by a proper instrument of transfer satisfactory to the Warrant Agent and the Company in their sole discretion, together with payment of any applicable transfer taxes; and (b) The Company and the Warrant Agent may deem and treat the person in whose name the Warrant Certificate is registered as the Holder and as the absolute, true and lawful owner of the Warrants represented thereby for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice or knowledge to the contrary. 10.0. DUTIES OF WARRANT AGENT. The Warrant Agent acts hereunder as agent and in a ministerial capacity for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder be deemed to make any representations as to the validity, value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and nonassessable. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder of Warrant Certificates to make or cause to be made any adjustment of the Warrant Price provided in this Agreement, or to determine whether any fact exists which may require any such adjustment, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of facts contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in any Warrant -10- Certificate, or (iii) be liable for any act or omission in connection with this Agreement except for its own gross negligence or willful misconduct. The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the President, any Vice President, its Secretary, or Assistant Secretary (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement, instruction, request, direction, order or demand believed by it to be genuine. The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse it for its reasonable expenses hereunder and further agrees to indemnify the Warrant Agent and save it harmless against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the execution of its duties and powers hereunder except losses, expenses and liabilities arising as a result of the Warrant Agent's gross negligence or willful misconduct. The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own gross negligence or willful misconduct), after giving thirty days' prior written notice to the Company. At least fifteen days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Holder of each Warrant Certificate at the Company's expense. Upon such resignation, or any inability of the Warrant Agent to act as such hereunder, the Company shall appoint a new warrant agent in writing. The Company shall have complete discretion in the naming of a new warrant agent, who may be an affiliate, subsidiary or department of the Company, or any person used by the Company as transfer agent for the Common Stock. If the Company shall fail to make such appointment within a period of fifteen days after it has been notified in writing of such resignation by the resigning Warrant Agent, then the Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new warrant agent. The Company may, upon notice to the Holders, remove and replace the Warrant Agent if the Warrant Agent is the transfer -11- agent for the Company's Common Stock and the Warrant Agent ceases to be the transfer agent for the Company Common Stock for any reason. After acceptance in writing of an appointment by a new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed. Any former warrant agent hereby agrees to cooperate with and deliver all records and Warrant Certificates to the new warrant agent at the direction of the new agent and the Company. Not later than the effective date of an appointment of a new warrant agent by the Company, the Company shall file notice with the resigning or terminated warrant agent and shall forthwith cause a copy of such notice to be mailed to each Holder. Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged or any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party or any corporation succeeding to the trust business of the Warrant Agent shall be a successor warrant agent under this Agreement without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Company and to each Holder. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company. 11.0. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by supplemental agreement make any changes or corrections in this Agreement: (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; or (ii) that they may deem necessary or desirable and which shall not adversely affect the purchase or other material rights of the Holders of Warrant Certificates. This Agreement shall not otherwise be modified, supplemented or amended in any respect except with the consent in writing of the Holders of Warrant Certificates representing not less than 50% of the Warrants then outstanding, but no such amendment, modification or supplement which changes the number or nature of the securities purchasable upon the exercise of any Warrant, the Warrant Price or accelerates the Expiration Date, shall be made without the consent in writing of each and every Holder (but no consent shall be required for such changes as are specifically contemplated by this Agreement as originally executed). -12- 12.0. MISCELLANEOUS. 12.1. ENTIRE AGREEMENT. This Agreement and the form of Warrant Certificate annexed hereto as Exhibit A contains the entire Agreement between the parties hereto with respect to the transactions contemplated by this Agreement and supersedes all prior negotiations, arrangements or understandings with respect thereto. 12.2. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 12.3. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New Jersey, without giving effect to the principles of conflicts of laws thereof. 12.4. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 12.5. NOTICES. Any notice or other communications required hereunder to be given to a Holder shall be in writing and shall be sufficiently given, if mailed (first class, postage prepaid), or personally delivered, addressed in the name and at the address of such Holder appearing from time to time on the records of the Warrant Agent. Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or mailed to the Company at its then principal office, Attention: President, or at such other address as the Company shall have designated by written notice to the Warrant Agent. Notices or other communications to the Warrant Agent shall be deemed to have been sufficiently given if delivered by hand or mailed (first class, postage prepaid) to its then principal office. Notice by mail shall be deemed given when deposited in the mail, postage prepaid. IN WITNESS WHEREOF, the Company and the Warrant Agent have executed this Agreement by their duly authorized officers as of the date first set forth above. UNITY BANCORP, INC. By:_____________________________ Name: Title: FCTC TRANSFER SERVICES, INC. By:_____________________________ Name: -13- Title: -14- Exhibit A WARRANT CERTIFICATE Certificate Number - ------------------ Initial Issuance Dated: ____________ ____________ Warrants VOID AFTER ____________, 1998 WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK UNITY BANCORP, INC. This certifies that FOR VALUE RECEIVED _____________________________________________________________________ or his registered assigns (the "Holder") is the registered owner of _____________________________________________________________________ Warrants ("Warrants") issued by Unity Bancorp, Inc., a Delaware corporation (the "Company"). The Warrants are subject to the terms and conditions set forth in this certificate and the Warrant Agreement (as hereinafter defined). Each Warrant entitles the Holder to purchase one share of common stock, no par value ("Common Stock"), of the Company, at any time after the Initial Issuance Date of the warrants set forth above until the Expiration Date (as hereinafter defined), upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse side hereof duly executed, at the corporate office of the Warrant Agent (as hereafter defined), accompanied by payment of $_____ (the "Warrant Price") in cash, by official bank or certified check made payable to the Company or its successor. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated ___________________ , 1996 by and between the Company and FCTC Transfer Services, Inc. (the "Warrant Agent"), a copy of which may be obtained from the Company at 64 Old Highway 22, Clinton, New Jersey 08809 or the Warrant Agent at 111 Wood Avenue South, Suite 206, Iselin, New Jersey 08830 by a written request from the Holder hereof or which may be inspected by any Holder or his agent at the principal office of the Company or the Warrant Agent. -15- As provided in Section 4 of the Warrant Agreement, in certain circumstances: (i) the Warrant Price and the number of shares of Common Stock the Holder is entitled to receive upon the exercise of any Warrants shall be adjusted; (ii) the Warrants shall automatically represent the right to receive upon exercise consideration which is different from or in addition to the consideration specified on the face of this Certificate; and (iii) the Warrants, at the option of the Company under specifically defined circumstances, may expire prior to the Expiration Date. No fractional shares of Common Stock will be issued upon exercise of the Warrant. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The term "Expiration Date" shall mean 5:00 P.M. (New Jersey time) on _____________, 1998. If such date is not a Business Day as defined in the Warrant Agreement, the Expiration Date shall mean 5:00 P.M. (New Jersey time) the next following Business Day. The Expiration Date may be accelerated as provided in the Warrant Agreement under certain specifically defined circumstances upon notice to the registered holder hereof. A Registration Statement with respect to the Warrants and the Common Stock issuable thereunder has been filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Company has taken action under appropriate blue sky laws. The Company has covenanted and agreed that it will use its best efforts to keep the SEC registration statement current while any of the Warrants are outstanding. The Company is not obligated to keep current state blue sky filings in states where there are a small number of holders of Warrants, the number of Warrants held by such persons are immaterial and the cost to keep such filings current and effective creates an unreasonable financial burden under the circumstances. This Warrant shall not be exercisable by a Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants. Upon due presentment of this Warrant Certificate for registration or transfer at such office, upon payment of any tax or governmental charge imposed in connection therewith, a new Warrant Certificate or Warrant Certificates representing an equal or aggregate number of Warrants will be issued to the transferee in exchange there for. -16- The Warrants and all rights of Holders thereof are immediately assignable and transferable in whole or in part by the Holders thereof, in person or by duly authorized attorney, by surrender of any Warrant Certificate to the Warrant Agent at its office with the Assignment Form annexed thereto duly executed and funds sufficient to pay any applicable transfer tax. Prior to the exercise of any Warrant represented hereby, the Holder shall not be entitled to any rights of a stockholder of the Company by reason of such person being a Holder, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent shall treat the Holder as the absolute owner hereof and of each Warrant represented hereby for all purposes and shall not be affected by any notice to the contrary. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New Jersey. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted thereon. (SEAL) UNITY BANCORP, INC. Dated: _________________ By:_________________________ Chairman or President By:_________________________ Secretary or Treasurer FCTC TRANSFER SERVICES, INC. as Warrant Agent By:____________________ Name: Title: -17- SUBSCRIPTION FORM Dated: , 199_ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ______ shares of Common Stock and hereby makes payment of _____________ in payment of the Warrant Price thereof. ---------------- INSTRUCTIONS FOR REGISTRATION OF STOCK Name_____________________________________________________________ (please typewrite or print in block letters) Address__________________________________________________________ Signature________________________________________________________ Tax Identification Number________________________________________ ----------------- ASSIGNMENT FORM FOR VALUE RECEIVED,______________________________________________ hereby sells, assigns and transfer unto Name_____________________________________________________________ (please typewrite or print in block letters) Address__________________________________________________________ ______ Warrants and does hereby irrevocable Constitute and appoint___________________________________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Date________________, 199__ Signature______________________________ -18- EX-4.(II) 4 STOCK CERTIFICATE UNITY Bancorp, Inc. [LOGO] NUMBER SHARES UBI INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE SIDE FOR CERTAIN DEFINITIONS This is to Certify that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF UNITY BANCORP, INC. a corporation incorporated under the laws of the State of Delaware. The shares evidenced by this certificate are transferable only on the stock transfer books of Unity Bancorp, Inc. by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed. IN WITNESS WHEREOF UNITY BANCORP, INC. has caused this certificate to be executed by the signatures of its duly authorized officers and has caused its facsimile seal to be hereunto affixed. Dated: UNITY BANCORP, INC. [SEAL] [Signature} [Signature] ------------------------ ------------------------ ` Secretary Chairman of the Board Countersigned and Registered: MIDLANTIC BANK, N.A. By Transfer Agent and Registrar Authorized Officer UNITY BANCORP, INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM--as tenants in common UNIF GIFT MIN ACT--.....Custodian..... (Cust) (Minor) TEN ENT--as tenants by the entireties under Uniform Gifts to Minors JT TEN --as joint tenants with right Act......................... of survivorship and not as (State) tenants in common Additional abbreviations may also be used though not in the above list. For value received,________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________ _______________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE. _______________________________________________________________________________ _______________________________________________________________________________ _________________________________________________________________________Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint_________________________________________________________ Attorney to transfer the said Shares on the books of the within named corporation with full power of substitution in the premises. Dated:_______________ In the presence of ________________________________________________ Signature ________________________________________________ Signature NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. EX-4.(V) 5 STOCK BONUS PLAN Exhibit 4(v) UNITY BANCORP, INC. STOCK BONUS PLAN 1. PURPOSE. The Stock Bonus Plan (the "Plan") is intended to provide incentives which will attract and retain highly competent key employees and directors of Unity Bancorp, Inc. (the "Company") and any subsidiaries it may from time to time own or establish, by providing them with opportunities to acquire common stock of the Company ("Common Stock") pursuant to awards ("Awards") described herein. 2. ADMINISTRATION. The Board of Directors ("Board") of the Company shall supervise and administer the Plan. Any questions of interpretation of the Plan or of any Awards issued under it shall be determined by the Board and such determination shall be final and binding upon all persons. Any or all powers and discretion vested in the Board under the Plan (except the power to amend or terminate the Plan) may be exercised by a committee (the "Committee") authorized by the Board to do so. A majority of members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee, by a writing signed by a majority of the Committee members. 3. PARTICIPANTS. Participants shall consist of select key employees and members of the Board of Directors of the Company and its subsidiaries as the Board may select from time to time. 4. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for issuance as Awards under the Plan an aggregate of 20,000 shares of no par value common stock, which may be authorized but unissued or treasury shares. 5. AWARDS. Awards will consist of Common Stock transferred to Participants as a bonus for service rendered to the Company and in recognition of their expertise and devotion that have enabled the Company to prosper and grow. 6. SECURITIES ACT RESTRICTIONS. Unless the Plan and the Common Stock issued pursuant to Awards is registered with the Securities and Exchange Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the "Act"), the Common Stock issued pursuant to the Awards will be issued pursuant to an exemption from registration contained in SEC Rule 701. The provisions of Rule 701 are hereby incorporated into and made a part of this Plan as if restated herein. Parties receiving awards of Common Stock hereunder will therefore be required to resell their shares of Common Stock either in conformity with SEC Rule 144, pursuant to another exemption from the Act, or pursuant to an effective Registration Statement filed under Section 5 of the Act. A participant in the Plan may not transfer their shares without delivery to the Company of an opinion of counsel in form satisfactory to the Company attesting to satisfaction of one of the three conditions set forth above. The certificates representing the shares of Common Stock issued pursuant to Awards shall bear the following legend: THE SHARES OF COMMON STOCK OF THE COMPANY REPRESENTED HEREBY HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT OF 1933, AND HAVE NOT BEEN REGISTERED PURSUANT TO SECTION 5 THEREOF. THESE SHARES MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNLESS TRANSFERRED IN A TRANSACTION EXEMPT FROM THE SECURITIES ACT OF 1933. 7. TENURE. A Participant's right, if any, to continue to serve the Company as an officer, employee or otherwise, shall not be enlarged or otherwise affected by his designation as a Participant under the Plan. 8. DURATION, AMENDMENT, AND TERMINATION. No Award shall be granted more than six (6) years after the date of adoption of this Plan. The Board may amend the Plan from time to time or terminate the Plan at any time. However, no action authorized by this paragraph shall reduce the amount of any existing Award or change the terms and conditions thereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer as of this 6th day of February, 1995. ATTEST: UNITY BANCORP, INC. By:/S/ JAMES HYMAN ---------------- President -2- EX-10.(I) 6 LEASE AGREEMENT--MAIN OFFICE REVISED LEASE AGREEMENT This Lease Agreement, made this l5th day of December, 1995, between CLINTON UNITY GROUP, L.L.C., a New Jersey Limited Liability Company, having its principal place of business at Allen Center, Suite 103, 150 Allen Road, Liberty Corner, New Jersey, 07938 (hereinafter "Landlord"), and FIRST COMMUNITY BANK, a banking institution organized under the laws of the State of New Jersey, having its principal offices at Route 31 South at Beaver Brook, P. 0. Box 591, Annandale, New Jersey 08801 (hereinafter "Lessee") WITNESSETH WHEREAS, Landlord is the owner of certain lands and premises located on New Jersey Highway Route 22, in the Town of Clinton, County of Hunterdon and State of New Jersey, which said lands and premises are more specifically described as proposed Lot 22, Block 22, on a Minor Subdivision Plat prepared by Studer & McEldowney, P.A., dated April 8, 1994, (hereinafter "Property"); and WHEREAS, Landlord intends to construct on said property a commercial building to use for office, banking and retail purposes (hereinafter "Building"), together with associated site improvements; and WHEREAS, Lessee desires to rent and occupy a portion of the first floor of said Building as a retail bank facility and a portion of the second floor of said Building for administrative/office purposes. NOW, THEREFORE, in consideration of the covenants and promises herein made, the Landlord does demise, lease and let unto the Lessee, and the Lessee herein leases from the Landlord, the Leased Premises subject to the terms and conditions as hereinafter set forth. 1. LEASED PREMISES 1.1. The Leased Premises shall consist of the following portions of the Building to be constructed as more specifically set forth on a description of the Tenant Space as prepared by Kenneth Fox, Fox Architectural Design, attached hereto as Schedule A, and on a calculation of Office Space Percentages and Annual Rents, attached hereto as Schedule B. a) First Floor Space consisting of 5,012 gross rentable square feet, based upon outside dimensions to centerline of common wall, including 1,023 square feet attributable to common area and core space. b) First Floor Space consisting of 4,656 gross rentable square feet, based upon outside dimensions to centerline of common wall, including 952 square feet attributable to common area and core space. c) Second Floor Space consisting of 9,853 gross rentable square feet, based upon outside dimensions to centerline of common wall, including 2,008 square feet attributable to common area and core space. d) Three Lane Drive-Thru Teller Facility containing 1,274 gross rentable square feet, based upon outside dimensions of drive-thru canopy. 1.2 The Leased Premises shall also include the right, in common with all other lessees of the Building, to use all common areas including, but not limited to common entranceways, foyers, hallways, elevators, stairways, sidewalks, parking areas and motor vehicle accessways. 1.3 Landlord covenants and agrees with Lessee that it will provide 90 Reserved parking spaces to be used by Lessee's employees, agents, servants and invitees. 2. CONSTRUCTION OF IMPROVEMENTS 2.1 Landlord agrees to construct, at its expenses, the commercial center in accordance with a site plan to be prepared by Studer & McEldowney, P.A., and architectural plans to be prepared by A.J. O'Sullivan, P.A. a) Lessee shall approve the site and architectural plans in writing within ten (10) days of Landlord's written request. b) Lessee shall be responsible to provide, at its expense, all architectural plans as required to complete the construction of the interior of the leased premises pursuant to Lessee's obligations as set forth in paragraph 2.3. 2.2 Landlord shall make the following improvements to the premises to be leased by Lessee: a) As to the first and second floor spaces: (i) Complete the outside of all outside walls. (ii) Install required subflooring. (iii) Supply all required electrical, plumbing, heating ventilation and air conditioning (HVAC) service to interior space. (iv) Install required fire suppression sprinkler system. b) As to the three-lane drive-thru facility, Landlord shall, at its expense, install the canopy, drive-thru window, drive-thru lanes, and concrete islands. 2 2.3 Lessee shall, at its expense, complete all of the required improvements to the first and second floor portions of the premises to be leased by Lessee required for its use and occupancy not completed and/or installed by Landlord pursuant to paragraph 2.2, hereinabove, including, but not limited to: a) Install all electrical, plumbing, and mechanical, including all duct work for heating, ventilation and air conditioning (HVAC). b) Install insulation and construct inside of outside walls. c) Install all flooring, ceilings, interior walls and doors. d) Install security system. e) Install bank vault. f) Complete interior painting and decorating. g) Install all electrical, mechanicals and equipment as required to complete the three-lane drive-thru teller facility and operate the remote teller stations. 2.4 All improvements constructed and/or installed by Lessee pursuant to paragraph 2.3, with the exception of those items listed on Exhibit "A," shall become the property of Landlord and shall remain upon and be surrendered with the leased premises as part thereof at the expiration or termination of this Lease. 3. LEASE TERM 3.1 The term of this Lease shall be for a period of ten (10) years and shall commence thirty (30) days subsequent to the date Landlord installs and/or completes all of the improvements to the leased premises as set forth in paragraph 2.2. above. 4. LESSEE'S OPTION TO RENEW LEASE 4.1 Landlord herein grants Lessee an option to renew this Lease for two (2) five-year terms on the same terms and conditions as contained in this Agreement. a) This right of renewal shall expire unless Lessee provides Landlord with written notice of its intention to renew the Lease for the first 5-year renewal term at least 180 days prior to the expiration the initial term of this Lease as set forth in paragraph 3.1. 3 b) This right of renewal for the second 5-year renewal term shall expire unless Lessee provides Landlord with written notice of its intention to renew the Lease at least 180 days prior to the expiration of the first renewal term. 5. BASE RENT 5.1 The Annual Base Rent to be paid by Lessee to Landlord during the first year of this said Lease shall be Three Hundred Thirty-One Thousand Seven Hundred Twenty-One ($331,721.00) Dollars, calculated in the manner following: a) First Floor Rental Space: 5,012 square feet X $22.00 per square foot = $110,264.00 b) First Floor Rental Space: 4,656 square feet X $15.00 per square foot = $ 69,840.00 c) Second Floor Rental Space: 9,853 square feet X $15.00 per square foot = $147,795.00 d) Drive-Thru Teller Facility: 1,274 square feet X $3.00 per square foot = $ 3,822.00 5.2 The Annual Base Rent to be paid by Lessee to Landlord during the second year of this Lease shall be Three Hundred Fifty-One Thousand, Six Hundred Twenty-Four and 26/100 ($351,624.26) Dollars (Annual Base Rent for year one, plus six percent (6%). 5.3 The Annual Base Rent to be paid by Lessee to Landlord during the third year of this lease shall be Three Hundred Seventy-Two Thousand, Seven Hundred Twenty-One and 72/100 ($372,721.72) Dollars (Annual Base Rent for year two, plus six percent (6%). 5.4 The Annual Base Rent to be paid by Lessee to Landlord for years four through ten of the initial term of this Lease, and during each year of any renewals thereof, shall be a sum equal to the Annual Base Rent for the preceding year, together with an increase equivalent to the increase in the Consumer Price Index for all urban consumers (CPI-U) for that area encompassing New York City, northern New Jersey and Long Island as published by the United States Department of Labor, Bureau of Labor Statistics. This increase shall be calculated by comparing the CPI-U as it exists on the 30th day prior to the first rental payment for the year in which rent is being established with the CPI as it existed when the rent for the preceding year was established. 6. ADDITIONAL RENT 6.1 In addition to the Base Rent, as provided for in paragraph 5 hereof, Lessee agrees to pay the following to the Landlord as additional rent. 4 a) Lessee's pro rata share of all real estate taxes imposed upon the property (Block 22, Lot 22). b) Lessee's pro rata share of all maintenance expenses incurred by Landlord in maintaining the common areas, as defined in paragraph 14.1(c). c) Lessee's pro rata share of the hazard and liability insurances maintained by Landlord pursuant to paragraph 15.5 and paragraph 15.6. 7. COMMENCEMENT OF RENT 7.1 All Base and Additional Rent shall be payable annually in twelve equal monthly installments. The first said monthly payment shall be due and payable on the first day of the initial 10-year term and successive payments on the same day of each month thereafter during the entire term hereof, inclusive of all renewals. 8. SECURITY 8.1 Lessee shall pay to Landlord simultaneously with the execution of this Lease, the sum of Thirty Four Thousand Four Hundred Fifty-Nine and 33/100 ($34,459.33) Dollars (two months' rent), which said sum shall constitute a security deposit with respect to Lessee's rental obligations and with respect to damage to the premises and the full and faithful performance by the Lessee of the covenants and conditions on the part of Lessee to be performed. Landlord shall have the right to apply said security or any portion thereof with respect to any rental or other payment that is over 15 days in arrears and to cover the cost of any damages to the leased premises caused by Lessee to the leased premises. In the event of Landlord's application as aforesaid, then Lessee shall be obligated to replenish that portion of said security utilized and/or applied by Landlord for the purposes aforesaid within 15 days of written notice by Landlord to Lessee. Lessee's failure to do so shall constitute a default under the terms and conditions of this Lease. The security deposit and accumulated interest thereon shall be held in an interest-bearing account for the benefit of the Lessee. 9. USE AND OCCUPANCY OF PREMISES 9.1 It is understood and agreed that the use of the premises by Lessee shall be limited to banking and such other financial service activities which Lessee or any affiliate or subsidiary thereof is lawfully permitted to engage. It is agreed that Lessee shall not put the leased premises to any other use absent prior written consent of Landlord, which consent shall not be unreasonably withheld. 5 10. LEASE CONTINGENCIES 10.1 This Lease is herein made expressly contingent upon Landlord, at Landlord's sole cost and expense, obtaining all necessary land use and other governmental approvals and permits, including, but not limited to, approval of present minor subdivision application pending before Clinton Township Planning Board, preliminary and final site plan approval and building permits as required to erect, construct and occupy the commercial building on Block 22, Lot 22, as hereinabove described, within 270 days of the execution of this Lease or such extended date as may be agreed to in writing between the parties hereto. 10.2 This Lease is herein made expressly contingent upon Landlord obtaining all financing as required to finance the erection and construction of the hereinabove described commercial center on Block 22, Lot 22, as determined by Landlord in its sole discretion, within 270 days of the execution of this Lease or such extended date as may be agreed to in writing between the parties hereto. 10.3 This Lease is herein made expressly contingent upon Lessee obtaining all necessary regulatory approvals so as to (a) permit Lessee to be a party to this Lease; (b) establish a branch bank at the leased premises, and (c) relocate its principal offices to the leased premises, within 90 days of the execution of this Lease or such extended date as may be agreed to in writing between the parties hereto. 11. COMPLIANCE WITH LAWS 11.1 The Lessee shall promptly comply with all laws, ordinances, rules, regulations, requirements and directives of the federal, state, and municipal governments or public authorities and of all their departments, bureaus and subdivisions, applicable to and affecting the use and occupancy of said premises for the correction, prevention and abatements of nuisances, violations, and other grievances in, upon or connected with the use and occupancy of said premises, during the term hereof, and shall promptly comply with all reasonable orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering the use and occupancy of the said premises and its contents, for the prevention of fire and other casualty, damage or injury, at the Lessee's own costs and expense. 12. REPAIRS AND MAINTENANCE 12.1 Subsequent to completion of Lessee's obligations pursuant to paragraph 2.3 of the Lease, Lessee shall make no alterations, changes, additions or improvements in the leased premises without the written consent of Landlord, which consent shall not be unreasonably withheld. 6 12.2 Any alterations, additions and/or improvements made by either party upon the leased premises shall become the property of Landlord and shall remain upon and be surrendered with the leased premises as part thereof at the expiration or termination of the Lease. 13. UTILITY CHARGES 13.1 Lessee agrees to pay directly to the suppliers before delinquency all charges for water, gas, heat, electricity, power and other similar charges incurred by Lessee with respect to and during its occupancy of the leased premises. 13.2 In the event Lessee is not provided with its own sewer hookup, Lessee shall pay its pro rata share of all sewage user fees. 14. REPAIRS AND MAINTENANCE 14.1 LANDLORD'S RESPONSIBILITIES: The Landlord shall keep the following described portions of the building and premises is in good repair, provided, however, there shall be no obligation on the Landlord to make any repairs required of it unless and until there has been written notice served upon Landlord by the Lessee advising Landlord of the necessity of the repair or repairs, and there shall be no liability upon the Landlord to the Lessee for any loss or damage caused by any failure on the part of the Landlord to make any repairs required of it under this Lease, unless Landlord, after receipt of notice from Lessee, shall fail to proceed to make such repair or repairs in a commercially-reasonable manner. a) The roof and exterior walls with the exception of plate glass and glazing situate on the leased premises. The phrase "exterior waIls" shall not be construed so as to require the Landlord to make repairs to the interior surfaces of such walls. b) All structural, electrical, plumbing and mechanical systems, including the HVAC system, with the exception that Landlord shall not be obligated to repair any portion of electrical, plumbing and mechanical systems installed by Lessee. c) All interior and exterior common areas, including foyers, hallways, stairways, elevators, parking areas, access ways and landscaping (this shall include janitorial and snow plowing services). 14.2 LESSEE'S RESPONSIBILITlES: Lessee shall, at its own cost and expense, keep and maintain all of the leased premises, including, but not limited to, exterior entry and exit doors, plate glass and glazing in and on the leased premises in good condition and repair and in compliance with all applicable laws and regulations, during the entire term of this Lease. 7 15. INSURANCE 15.1 Lessee shall, at its expense, at all times during the term of this Lease maintain in full force a comprehensive general liability insurance policy with an insurance company, approved by Landlord, which will insure Lessor against liability for injury to or death of persons or loss or damage to their property occurring in or about the leased premises. The minimum policy limits shall be One Million ($1,000,000.00) Dollars combined single limit coverage for each occurrence with general aggregate limit of Two Million ($2,000,000.00) Dollars. 15.2 Lessee, at its own expense, at all times during the term of this Lease maintain in full force adequate plate glass insurance on all plate glass installed on the leased premises. Landlord to be named as insured party. 15.3 Lessee shall, at its own expense, at all times during the term of this Lease maintain in full force all employees' workmens' compensation insurance required under the laws of the State of New Jersey. 15.4 Lessee shall, at its own expense, at all times during the term of this Lease maintain in full force a policy or policies of fire insurance, with extended coverage, on all of Lessee's fixtures, equipment and inventory situate in the leased premises with an insurance company or companies approved by Landlord. Said policy or policies to provide insurance equal to the replacement value of the fixtures and equipment, together with adequate inventory insurance. 15.5 Lessor shall maintain hazard insurance on the commercial building and such associated improvements as are insurable to cover loss or damage by fire and other hazards normally included under "extended coverage" insurance. The amount of insurance coverage shall be a sum equal to the full replacement value of the building and other improvements to the extent available. 15.6 Landlord shall, at its expense, at all times during the term of this Lease maintain in full force a comprehensive general liability insurance policy with an insurance company, approved by Landlord, which will insure Lessor against liability for injury to or death of persons or loss or damage to their property occurring in or about the exterior and interior common areas. The minimum policy limits shall be One Million Dollars combined single limit coverage for each occurrence with general aggregate limit of Two Million Dollars. The Landlord shall have the right, but not the obligation, to obtain such additional general liability insurance as it deems appropriate. 15.7 All insurance policies maintain by Lessee, with the exception of workmens compensation, shall add Landlord as an additional insured (except as to contents), shall contain standard mortgagee endorsements and shall provide that the insurance carrier shall not cancel the coverage unless the carrier notifies Landlord and any mortgagee so 8 designated by Landlord at least thirty (30) days prior to the effective date of such cancellation. 15.8 In the event the leased premises shall be damaged or destroyed by fire or other casualty so insured against, Lessee agrees that it will claim no interest in any insurance settlement arising out of any such loss where premiums are paid by Lessor, or where Lessor is named as the sole beneficiary, and that it will sign any and all documents required by lessor or the insurance company or companies that may be necessary for use in connection with the settlement of any such loss 15.9 Should Lessee fail to keep in effect and pay for such insurance as required by this Section, the Lessor may do so, in which event the insurance premiums paid by Lessor shall become due and payable promptly and failure of Lessee to pay them on demand shall constitute a default of this Lease. 16. FIRE AND OTHER CASUALTY 16.1 In case of fire or other casualty, the Lessee shall give immediate notice to the Landlord. If the premises shall be partially damaged by fire, the elements or other casualty, the Landlord shall repair the same as speedily as practicable, but the Lessee's obligation to pay the rent hereunder shall not cease, but be adjusted according to the use that Lessee can make of the premises. If the premises be so extensively and substantially damaged as to render them untenantable, then the rent shall cease until such time as the premises shall be made tenantable by the Landlord. However, if in the reasonable judgment of the Landlord, the premises be totally destroyed or so extensively and substantially damaged as to require a rebuilding thereof, then, upon notice in writing, within thirty (30) days of the damage, to Lessee of such judgment, the rent shall be paid up to the time of such destruction and then and from thenceforth, this Lease shall come to an end. 17. INSPECTION AND REPAIR 17.1 The Lessee agrees that the Landlord and the Landlord's agents, employees or other representatives, shall have the right to enter into and upon the said premises and any part thereof, at all reasonable hours, upon 24 hours' notice to Lessee, for the purpose of examining the same or making such repairs, alterations or improvements therein as may be required of the Landlord under this Lease. 18. DAMAGE, REPAIRS 18.1 In the case of the destruction of or damage of any other kind to the leased premises caused by the carelessness, negligence or improper conduct on the part of Lessee or the Lessee's agents, employees, guests, licensees, invitees, sublessees, 9 assignees or successors, the Lessee shall repair the said damage or replace or restore any destroyed parts of the premises, as speedily as possible, at the Lessee's own cost and expense. 19. ASSIGNMENT AND SUBLET 19.1 Lessee shall not assign this Lease or any interest in this Lease, or sublet the leased premises or any part of the premises, or license the use of all or any portion of the leased premises or business conducted there, or encumber or hypothecate this Lease, without first obtaining the written consent of Landlord; and any assignment, subletting, licensing, encumbering or hypothecating of this Lease without such prior written consent shall, at the option of Lessor, terminate this Lease. 20. MORTGAGE PRIORITY SUBORDINATION 20.1 This Lease shall not be a lien against the said premises in respect to any mortgages that may hereafter be placed upon said premises, so long as the total of all such mortgages do not exceed 90% of the market value of the premises. The recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien to this Lease, irrespective of the date of recording, and the Lessee agrees to execute any instruments, without cost, which may be deemed necessary or desirable, to further effect the subordination of this Lease to any such mortgage or mortgages. A refusal by the Lessee to execute such instruments shall entitle the Landlord to the option of cancelling this Lease, upon ten (10) days' notice in writing to Lessee, and the term hereof is hereby expressly limited accordingly. 21. ENVIRONMENTAL COVENANTS 21.1 Lessee shall, at Lessee's cost and expense, comply with all applicable environmental laws and regulations pertaining to Lessee's use and occupancy of the leased premises. Lessee covenants to indemnify and hold Landlord harmless from any damages sustained by Landlord, including legal fees and costs of suit, proximately related to alleged environmental contamination or environmental damage resulting from Lessee's use and occupancy of the leased premises. 22. LESSEE REGULATIONS 22.1 Any reasonable rules and regulations with regard to the use and occupancy of the building or the leased premises by Lessee as attached hereto or as adopted at any time during the term of this Lease and of which Lessee is notified in writing, shall in all things be observed and performed by lessee, its servants, agents and invitees, provided 10 that such rule shall not be inconsistent with the Lessee's rights or the Landlord's obligations as herein expressed. 23. NON-LIABILITY OF LANDLORD 23.1 The Landlord shall not be liable for any damage or injury which may be sustained by the Lessee or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, overhead doors, drains, leaders, gutters, downspouts or the like or of the electrical, gas, power, conveyor, refrigeration, sprinkler, air-conditioning or heating systems, elevators, or by reason of the elements. 24. RIGHT TO EXHIBIT 24.1 The Lessee agrees to permit the Landlord and the Landlord's agents, employees or other representative to show the premises to persons wishing to purchase the same, and Lessee agrees that on and after six (6) months preceding the expiration of the term hereof, or any extension term, the Landlord of the Landlord's agents, employees or other representatives shall have the right to show the premises to prospective lessees and to place notices on the front of said premises or any part thereof, offering the premise for rent or for sale. All such showings of the premises shall be made at reasonable hours, upon reasonable notice to Lessee. 25. CONDEMNATION, EMINENT DOMAIN 25.1 If the land and premises leased herein, or of which the leased premises are a part, or a major portion thereof, shall be taken under eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the taking or condemnation thereof, of or in lieu of any formal condemnation proceedings or actions, the Landlord shall sell and convey the said premises of such portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land and premises or such portion thereof, then this Lease, at the option of the Landlord, shall terminate, and the term hereof shall end as of such date of transfer of title; and the Lessee shall have no claim or right to claim or be entitled to any portion of any amount which may be awarded as damages to Landlord or paid to Landlord as the result of such condemnation proceedings or paid to Landlord as the purchase price for such sale or conveyance in lieu of formal condemnation proceedings. The Lessee agrees to execute and deliver any instruments, at the expense of the Landlord, as may be deemed necessary or required to expedite any condemnation proceedings or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the said lands and premises or such portion 11 thereof. The Lessee covenants and agrees to vacate the said premises, remove all of Lessee's property therefrom and deliver up peaceable possession thereof to the said purchaser. Failure by the Lessee to comply with any provisions in this clause shall subject the Lessee to such costs, expenses, damages and losses as the Landlord may incur by reason of the Lessee's default thereof. The Lessee shall be entitled to receive any relocation expenses awarded by a court in condemnation or paid in any negotiated acquisition in lieu of condemnation. 26. REMEDIES UPON LESSEE'S DEFAULT 26.1 If there should occur any default on the part of the Lessee in the performance of any conditions and covenants herein contained, or should the Lessee be evicted by summary proceedings or otherwise, the Landlord, in addition to any other remedies herein contained or as may be permitted by law, may re-enter the said premises and the same have and again possess and enjoy; and as agent for the Lessee or otherwise, relet the premises and received the rents therefore and apply the same, first, to the payment of such expenses, reasonable attorneys' fees and costs, as the Landlord may have been put to in re-entering and repossessing the same and, second, to the payment of the rents due hereunder. The Lessee shall remain liable for such rents as may be in arrears and also the rents as may accrue subsequent to the re-entry by the Landlord, to the extent of the difference between the rents reserved hereunder and the rents, if any, received by the Landlord during the remainder of the unexpired term hereof, after deducting the aforementioned expenses, fees and costs; the same to be paid as such deficiencies arise and are ascertained each month. 27. TERMINATION ON DEFAULT 27.1 Upon the occurrence of any of the contingencies set forth in the preceding clauses, or should the Lessee be adjudicated or bankrupt, insolvent, or placed in receivership, or should proceedings be instituted by or against the Lessee for bankruptcy, insolvency, receivership, agreement of composition, or assignment for the benefit of creditors, and the Lessee shall fail to have said proceeding terminated within sixty (60) days, or if this Lease or the estate of the Lessee hereunder shall pass to another by virtue of any court proceedings, writ of execution, levy, sale or by operation of law, the Landlord may, if the Landlord so elects, at any time thereafter, terminate this Lease, and the term hereof upon giving to the Lessee or to any trustee, receiver, assignee or other person in charge of or acting as custodian of the assets or property of the Lessee, five (5) days' notice in writing of the Landlord's intention so to do. Upon giving of such notice, this Lease and the term hereof shall end on the date fixed in such notice as if the said date was the date originally fixed in this Lease for the expiration hereof. 12 28. REMOVAL OF LESSEE'S PROPERTY 28.1 Any equipment, fixtures, goods or other property of the Lessee, not removed by the Lessee upon the termination of this Lease, or upon the Lessee's eviction, shall be considered as abandoned after ten (10) days, and the Landlord shall have the right thereafter, upon five (5) days' notice in writing to the Lessee, to sell or otherwise dispose of the same, and shall not be accountable to the Lessee for any part of the proceeds of such sale, if any. All costs associated with removal of abandoned property should be at the expense of the Lessee. 29. REIMBURSEMENT OF LANDLORD 29.1 If the Lessee shall fail or refuse to comply with and perform any conditions and covenants of the written Lease, the Landlord may, upon twenty (20) days' notice in writing to the Lessee, if Landlord so elects, carry out and perform such conditions and covenants, at the cost and expense of the Lessee, and the said cost and expense shall be payable on demand, or at the option of the Landlord, shall be added to the installment of rent due immediately thereafter, but in no cause later than one (1) month after such demand, whichever occurs sooner, and shall be due and payable as such. This remedy shall be in addition to such other remedies as the Landlord may have hereunder by reason of the default of the Lessee of any of the covenants and conditions in this Lease contained. 30. LESSEE PURCHASE OPTION 30.1 Landlord herein grants Lessee an option to purchase the Property (proposed Block 22, Lot 22 and all improvements constructed thereon) from Landlord pursuant to the following terms and conditions: a) Method of Exercising Option. Lessee shall exercise this option by providing Landlord with written notice of its intention to do so at any time during the periods as set forth hereinafter. b) Time Periods Within Which Options May Be Exercised. Lessee must exercise this option within the following time frames: (1) Within the ninety (90) day period immediately preceding the termination date for the initial ten (10) year term of this Lease. (2) Within the ninety (90) day period immediately preceding the termination date for the first five (5) year renewal term of this Lease. 13 (3) Within the ninety (90) day period immediately preceding the termination date for the second five (5) year renewal term of this Lease. (c) Right of Exercise Contingency. Lessee's right to exercise this option is herein expressly made contingent upon Lessee not being in default of any of its obligations pursuant to this said lease. (d) Purchase Price. The purchase price to be paid by Lessee to Landlord shall be established in the manner following: (1) Lessee's notice to Landlord of Lessee's intention to exercise the purchase option pursuant to 30(a) shall include the purchase price that Lessee is proposing to pay. (2) Landlord shall have fifteen (15) business days from receipt of Lessee's notice to advise Lessee as to whether the proposed purchase price as set forth in Lessee's notice is acceptable to Landlord. (3) In the event that Landlord does not accept the purchase price as proposed by Lessee then, in that event, Landlord and Lessee shall both obtain and exchange written appraisals from qualified independent appraisers within forty-five (45) days of Landlord's receipt of Lessee's notice to exercise the purchase option. (4) If the value established by the independent appraisals obtained by Landlord and Lessee do not vary by more than five (5) percent then, in that event, the purchase price shall be the higher of the two appraisals. (5) In the event that the independent appraisals obtained by Landlord and Lessee vary by more than five (5) percent, then the appraisers selected by Landlord and Lessee shall jointly select a third appraiser who shall prepare, at Landlord and Lessee's joint expense, a third appraisal. The purchase price shall be the average of the three appraisals provided, however, in no event shall Landlord be required to convey the Property to Lessee for a purchase price of less than: (i) $4,967,000.00 in the event the option is exercised during the initial ten (10) year term. (ii) $6,965,000.00 in the event the option is exercised during the first five (5) year renewal term of this Lease. 14 (iii) $9,769,000.00 in the event the option is exercised during the second five (5) year renewal term of this Lease. (e) Closing of Title. Landlord shall convey by Bargain and Sale Deed CVG at closing of title which shall take place at Landlord's principal place of business on or about the 90th day subsequent to the purchase price having been established. At closing, Landlord shall pay the purchase price by way of certified check. (f) Quality of Title. The title to be conveyed by Landlord shall be good and marketable title and such title as will be insurable by a reputable title insurance company subject to easements and restrictions of record, applicable zoning regulations and such facts as shall be demonstrated by accurate survey. 31. NON-PERFORMANCE BY LANDLORD 31.1 This Lease and the obligation of the Lessee to pay the rent hereunder and to comply with the covenants and conditions hereof, shall not be affected, curtailed, impaired or excused because of the Landlord's inability to supply any service or material called for herein, or by reason of any rule, order, regulation or pre-emption by any governmental entity, authority, department, agency or subdivision or for any delay which may arise by reason of negotiations for the adjustment of any fire or other casualty loss or because of strikes or other labor trouble or for any cause beyond the control of the Landlord. 32. VALIDITY OF LEASE 32.1 The terms, conditions, covenants and provisions of this Lease shall be deemed to be severable. If any clause of provisions herein contained shall be adjudged to be invalid of unenforceable by a Court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. 33. NON-WAIVER BY LANDLORD 33.1 The various rights, remedies, option and elections of the Landlord, expressed herein, are cumulative and the failure of the Landlord to enforce strict performance by the Lessee of the conditions and covenants of this Lease or to exercise any election or option or to resort or have recourse to any remedy herein conferred or the acceptance by the Landlord of any installment or rent after any default by the Lessee, in any or more instances shall not be construed or deemed to be a waiver or a 15 relinquishment for the future by the Landlord or any such condition and covenants, options, elections or remedies, but the same shall continue in full force and effect. 34. NOTICES 34.1 All notices required under the terms of this Lease shall be given and shall be complete by mailing such notices by certified mail, return receipt requested, to the address of the party to be noticed or to such other address as may be designated in writing, which change of address shall be given in the same manner, as follows: For Landlord: Attn: Robert Van Volkenburgh Clinton Unity Group, LLC 24 County Line Road Branchburg Somerville, NJ 08876 For the Lessee: Attn: James Hyman First Community Bank 64 Old Highway 22 Clinton, NJ 08801 35. COVENANT OF QUIET ENJOYMENT 35.1 The Lessee, upon payment of the rent herein reserved and upon the performance of all the terms of the Lease, shall at all times during the Lease term and during any extension term, peaceably and quietly enjoy the leased premises without any disturbance from the Landlord or from any other person claiming through the Landlord. The Landlord shall comply with all the terms of and make all payments due on mortgages placed by the Landlord on the premises, and shall pay all real estate taxes on the premises before they become delinquent. 36. LATE PAYMENTS 36.1 A late charge of 5% of all amounts due shall be assessed against any payment not received within fifteen (15) days after such payment is due. 37. ENTIRE CONTRACT 37.1 This Lease contains the entire contract between the parties. No representative, agent or employee of the Landlord has been authorized to make any representations or promises with reference to the within letting or to vary, alter or modify the terms hereof. No additions, changes or modifications, renewals or extensions hereof, shall be binding unless reduced to writing and signed by the Landlord and Lessee. 37.2 The respective parties hereto agree that this Revised Lease Agreement replaces and supersedes an original Lease Agreement dated July 13, 1994, along with a First Amendment to Lease dated April 28, 1995 and a Second Amendment to Lease dated December 1, 1995. 16 ALL THE TERMS, COVENANTS AND CONDITIONS herein contained shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assignees. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, or caused these presents to be signed by their proper corporate officers and caused their proper corporate seal to be affixed hereto. LANDLORD: CLINTON UNITY GROUP, L.L.C. a New Jersey Limited Liability Company WITNESS: /s/ LINDA B. McDERMOTT By: /s/ ROBERT VAN VOLKENBURGH - ------------------------ ----------------------------------- Linda B. McDermott Robert Van Volkenburgh LESSEE: FIRST COMMUNITY BANK WITNESS: /s/ LINDA B. Mc DERMOTT By: /s/ JAMES HYMAN - ------------------------ ----------------------------------- Linda B. Mc Dermott James Hyman, President/CEO 17 FOX ARCHITECTURAL DESIGN 17 Robert Street -- Wharton, New Jersey 07885 -- (201) 989-7772 Facsimile (201) 989-7795 SCHEDULE A CLINTON UNITY GROUP Agway Site, Route 173 Clinton, NJ TENANT SPACES First Floor: Retail Bank 3989 sq.ft. Drive Thru Canopy 1274 sq.ft. Bank Offices 1829 sq.ft. Tenant Space 1875 sq.ft. Common Space 1975 sq.ft. TOTAL FLOOR AREA 9668 sq.ft. Second Floor: Bank Space 7845 sq.ft. Common Space 1802 sq.ft. TOTAL FLOOR AREA 9647 sq.ft. Third Floor: Tenant Space 4669 sq.ft. Common Space 1391 sq.ft. TOTAL FLOOR AREA 6060 sq.ft. [Signature] ------------------------------ Sheet 1 SCHEDULE B CLINTON UNITY GROUP LLC 1st Community Bldg. NET % OF NET COMMON GROSS LEASE ANNUAL TENANT USABLE S.F. USABLE S.F. RENTABLE S.F. RATE $ REVENUE - -------------------------------------------------------------------------------- 1st Floor Retail 3,989 19.7 1,023 5,012 22.00 110,264 1st Floor S.E. Corner 1,829 9.1 470 2,299 15.00 34,485 1st Floor S.W. Corner 1,875 9.3 482 2,357 15.00 35,355 2nd Floor 7,845 38.8 2,008 9,853 15.00 147,795 3rd Floor 4,669 23.1 1,189 5,858 17.50 102,515 - -------------------------------------------------------------------------------- TOTAL 20,207 100 5,172 25,379 17.50 $430,414 BANK CANOPY 1,274 3.00 3,822 - -------------------------------------------------------------------------------- GRAND TOTAL $434,236 DDCUSF EX-10.(II) 7 LEASE AGREEMENT - FLEMINGTON Parties This Lease, dated the 22ND day of DECEMBER 1994 between 110 Main Street Associates hereinafter referred to as the Landlord, and First Community Bank hereinafter referred to as the Tenant, WITNESSETH: That the Landlord hereby demises and leases unto the Tenant, and the Tenant hereby hires and takes from the Landlord for the term and upon the rentals hereinafter specified, the premises described as follows, situated in the Borough of Flemington County of Hunterdon Premises and State of New Jersey 2,670 square feet of first floor space located at 110 Main Street, Flemington, NJ as more fully described in Schedule A floor plan attached hereto. Term The term of this demise shall be for Three Years beginning April 1, 1995 and ending March 31, 1998. Rent The rent for the demised term shall be One Hundred Twenty Thousand - One Hundred Fifty and No Cents ($120,150.00), which shall accrue at the yearly rate of Forty Thousand and Fifty Dollars ($40,050.00) The said rent is to be payable monthly in advance on the first day of each calendar month for the term hereof, in installments as follows: Payment of Three Thousand Three Hundred Thirty Seven and Fifty Rent Cents. ($3,337.50) at the office of 110 Main Street Associates, Cust, Dori & Benick CPA 110 Main St., Flemington, NJ 08822 or as may be otherwise directed by the Landlord in writing. THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS: Peaceful First.--The Landlord covenants that the Tenant, on Possession paying the said rental and performing the covenants and conditions in this Lease contained, shall and may peaceably and quietly have, hold and enjoy the demised premises for the term aforesaid. Second.--The Tenant covenants and agrees to use the demised premises as a Purpose financial institution. and agrees not to use or permit the premises to be used for any other purpose without the prior written consent of the Landlord endorsed hereon. Default, in Pay- Third.--The Tenant shall, without any previous demand ment of Rent therefor, pay to the Landlord, or its agent, the said rent at the times and in the manner above provided. In the event Abandonment of the non-payment of said rent, or any instalment thereof, of Premises at the times and in the manner above provided, and if the same shall remain in default for 30 days after becoming due, Re-entry and or if the Tenant shall be dispossessed for non-payment of Reletting by rent, or if the leased premises shall be deserted or Landlord vacated, the Landlord or its agents shall have the right to and may enter the said premises as the agent of the Tenant, Tenant Liable either by force or otherwise, without being liable for any for Deficiency prosecution or damages therefor, and may relet the premises as the agent of the Tenant, and receive the rent therefor, Lien of upon such terms as shall be satisfactory to the Landlord, Landlord to and all rights of the Tenant to repossess the premises under Secure this lease shall be forfeited. Such re-entry by the Landlord shall not operate to release the Tenant from any rent to be Performance paid or covenants to be performed hereunder during the full Attorney's Fees term of this lease. For the purpose of reletting, the Landlord shall be authorized to make such repairs or alterations in or to the leased premises as may be necessary to place the same in good order and condition. The Tenant shall be liable to the Landlord for the cost of such repairs or alterations, and all expenses of such reletting. If the sum realized or to be realized from the reletting is insufficient to satisfy the monthly or term rent provided in this lease, the Landlord, at its option, may require the Tenant to pay such deficiency month by month, or may hold the Tenant in advance for the entire deficiency to be realized during the term of the reletting. The Tenant shall not be entitled to any surplus accruing as a result of the reletting. The Landlord is hereby granted a lien, in addition to any statutory lien or right to distrain that may exist, on all personal property of the Tenant in or upon the demised premises, to secure payment of the rent and performance of the covenants and conditions of this lease. The Landlord shall have the right, as agent of the Tenant, to take possession of any furniture, fixtures or other personal property of the Tenant found in or about the premises, and sell the same at public or private sale and to apply the proceeds thereof to the payment of any monies becoming due under this lease, the Tenant hereby waiving the benefit off all laws exempting property from execution, levy and sale on distress or judgment. The Tenant agrees to pay, as additional rent, all attorney's fees and other expenses incurred by the Landlord in enforcing any of the obligations under this lease. Sub-letting and Fourth.--The Tenant shall not sub-let the demised Assignment premises nor any portion thereof, nor shall this lease be assigned by the Tenant without the prior written consent of the Landlord endorsed hereon. Condition of Fifth.--The Tenant has examined the demised premises, Premises, and accepts them in their present condition (except as Repairs otherwise expressly provided herein) and without any representations on the part of the Landlord or its agents as to the present or future condition of the said premises. The Tenant shall keep the demised premises in good condition, and shall redecorate, paint and renovate the said premises as may be to necessary to keep them in repair and good appearance. The Tenant shall quit and surrender the premises at the end of the demised term in as good condition as the reasonable use thereof will permit. The Tenant shall not make any alterations, additions, or improvements to said premises without the Alterations and prior written consent of the Landlord. All erections, Improvements alterations, additions and improvements, whether temporary or permanent in character, which may be made upon the Sanitation, premises either by the Landlord or the Tenant, except Inflammable furniture or movable trade fixtures installed at the expense Materials of the Tenant, shall be the property of the Landlord and shall remain upon and be surrendered with the premises as a Sidewalks part thereof at the termination of this Lease, without compensation to the Tenant. The Tenant further agrees to keep said premises and all parts thereof in a clean and sanitary condition and free from trash, inflammable material and other objectionable matter. If this lease covers premises, all or a part of which are on the ground floor, the Tenant further agrees to keep the sidewalks in front of such ground floor portion of the demised premises clean and free of obstructions, snow and ice. Mechanics' Sixth.--In the event that any mechanics' lien is filed Liens against the premises as a result of alterations, additions or improvements made by the Tenant, the Landlord, at its option, after thirty days' notice to the Tenant, may terminate this lease and may pay the said lien, without inquiring into the validity thereof, and the Tenant shall forthwith reimburse the Landlord the total expense incurred by the Landlord in discharging the said lien, as additional rent hereunder. Glass Seventh.--The Tenant agrees to replace at the Tenant's expense any and all glass which may become broken in and on the demised premises. Plate glass and mirrors, if any, shall be insured by the Tenant at their full insurable value in a company satisfactory to the Landlord. Said policy shall be of the full premium type, and shall be deposited with the Landlord or its agent. Liability of Eighth.--The Landlord shall not be responsible for the Landlord loss of or damage to property, or injury to persons, occurring in or about the demised premises, by reason of any existing or future condition, defect, matter or thing in said demised premises or the property of which the premises are a part, or for the acts, omissions or negligence of other persons or tenants in and about the said property. The Tenant agrees to indemnify and save the Landlord harmless from all claims and liability for losses of or damage to property, or injuries to persons occurring in or about the demised premises. Services and Ninth.--Utilities and services furnished to the demised Utilities premises for the benefit of the Tenant shall be provided and paid for as follows: water by the Tenant; gas by the Tenant N/A; electricity by the Tenant; heat by the Tenant; refrigeration by the Tenant; hot water by the Tenant. The Landlord shall not be liable for any interruption or delay to any of the above services for any reason. Right to Inspect Tenth.--The Landlord, or its agents, shall have the and Exhibit right to enter the demised premises at reasonable hours in the day or night to examine the same, or to run telephone or other wires, or to make such repairs, additions or alterations as it shall deem necessary for the safety, preservation or restoration of the improvements, or for the safety or convenience of the occupants or users thereof (there being no obligation, however, on the part of the Landlord to make any such repairs, additions or alterations), or to exhibit the same to prospective purchasers and put upon the premises a suitable "For Sale" sign. For three months prior to the expiration of the demised term, the Landlord, or its agents, may similarly exhibit the premises to prospective tenants, and may place the usual "To Let" signs thereon. Damage by Fire, Eleventh.--In the event of the destruction of the Explosion, demised premises or the building containing the said The Elements or premises by fire, explosion, the elements or otherwise Otherwise during the term hereby created, or previous thereto, or such partial destruction thereof as to render the premises wholly untenantable or unfit for occupancy, or should the demised premises be so badly injured that the same cannot be repaired within ninety days from the happening of such injury, then and in such case the term hereby created shall, at the option of the Landlord, cease and become null and void from the date of such damage or destruction, and the Tenant shall immediately surrender said premises and all the Tenant's interest therein to the Landlord, and shall pay rent only to the time of such surrender, in which event the Landlord may re-enter and re-possess the premises thus discharged from this lease and may remove all parties therefrom. Should the demised premises be rendered untenantable and unfit for occupancy, but yet be repairable within ninety days from the happening of said injury, the Landlord may enter and repair the same with reasonable speed, and the rent shall not accrue after said injury or while repairs are being made, but shall recommence immediately after said repairs shall be completed. But if the premises shall be so slightly injured as not to be rendered untenantable and unfit for occupancy, then the Landlord agrees to repair the same with reasonable promptness and in that case the rent accrued and accruing shall not cease or determine. The Tenant shall immediately notify the Landlord in case of fire or other damage to the premises. Observation Twelfth.--The Tenant agrees to observe and comply with of Laws, all laws, ordinances, rules and regulations of the Federal, Ordinances, State, County and Municipal authorities applicable to the Rules and business to be conducted by the Tenant in the demised Regulations premises. The Tenant agrees not to do or permit anything to be done in said premises, or keep anything therein which will increase the rate of fire insurance premiums on the improvements or any part thereof, or on property kept therein, or which will obstruct or interfere with the rights of other tenants, or conflict with the regulations of the Fire Department or with any insurance policy upon said improvements or any part thereof. In the event of any increase in insurance premiums resulting from the Tenant's occupancy of the premises, or from any act or omission on the part of the Tenant, the Tenant agrees to pay said increase in insurance premiums on the improvements or contents thereof as additional rent. Signs Thirteenth.--No sign, advertisement or notice shall be affixed to or placed upon any part of the demised premises by the Tenant, except in such manner, and of such size, design and color as shall be approved in advance in writing by the Landlord. Subordination Fourteenth.--This lease is subject and is hereby to Mortgages subordinated to all present and future mortgages, deeds of and Deeds trust and other encumbrances affecting the demised premises of Trust or the property of which said premises are a part. The Tenant agrees to execute, at no expense to the Landlord, any instrument which may be deemed necessary or desirable by the Landlord to further effect the subordination of this lease to any such mortgage, deed of trust or encumbrance. Sale of Premises Rules and Sixteenth.--The rules and regulations regarding the Regulations of demised premises, affixed to this lease, if any, as well as Landlord any other and further reasonable rules and regulations which shall be made by the Landlord, shall be observed by the Tenant and by the Tenant's employees, agents and customers. The Landlord reserves the right to rescind any presently existing rules applicable to the demised premises, and to make such other and further reasonable rules and regulations as, in its judgment, may from time to time be desirable for the safety, care and cleanliness of the premises, and for the preservation of good order therein, which rules, when so made and notice thereof given to the Tenant, shall have the same force and effect as if originally made a part of this lease. Such other and further rules shall not, however, be inconsistent with the proper and rightful enjoyment by the Tenant of the demised premises. Violation of Seventeenth.--In case of violation by the Tenant of any Covenants, of the covenants, agreements and conditions of this lease, Forfeiture of or of the rules and regulations now or hereafter to be Lease, Re-entry reasonably established by the Landlord, and upon failure to by Landlord discontinue such violation within ten days after notice thereof given to the Tenant, this lease shall thenceforth, Non-waiver at the option of the Landlord, become null and void, and the of Breach Landlord may re-enter without further notice or demand. The rent in such case shall become due, be apportioned and paid on and up to the day of such re-entry, and the Tenant shall be liable for all loss or damage resulting from such violation as aforesaid. No waiver by the Landlord of any violation or breach of condition by the Tenant shall constitute or be construed as a waiver of any other violation or breach of condition, nor shall lapse of time after breach of condition by the Tenant before the Landlord shall exercise its option under this paragraph operate to defeat the right of the Landlord to declare this lease null and void and to re-enter upon the demised premises after the said breach or violation. Notices Eighteenth.--All notices and demands, legal or otherwise, incidental to the lease, or the occupation of the demised premises, shall be in writing. If the Landlord or its agent desires to give or serve upon the Tenant any notice or demand, it shall be sufficient to send a copy thereof by registered mail, addressed to the Tenant at the demised premises, or to leave a copy thereof with a person of suitable age found on the premises, or to post a copy thereof upon the door to said premises. Notices from the Tenant to the Landlord shall be sent by registered mail or delivered to the Landlord at the place hereinbefore designated for the payment of rent, or to such party or place as the Landlord may from time to time designate in writing. Bankruptcy, Nineteenth.--It is further agreed that if at any time Insolvency, during the term of this lease the Tenant shall make any Assignment for assignment for the benefit of creditors, or be decreed Benefit of insolvent or bankrupt according to law, or if a receiver Creditors shall be appointed for the Tenant, then the Landlord may, at its option, terminate this lease, exercise of such option to be evidenced by notice to that effect served upon the assignee, receiver, trustee or other person in charge of the Liquidation of the property of the Tenant or the Tenant's estate, but such termination shall not release or discharge any payment of rent payable hereunder and then accrued, or any liability then accrued by reason of any agreement or covenant herein contained on the part of the Tenant, or the Tenant's legal representatives. Holding Over Twentieth.--In the event that the Tenant shall remain by Tenant in the demised premises after the expiration of the term of this lease without having executed a new written lease with the Landlord, such holding over shall not constitute a renewal or extension of this lease. The Landlord may, at its option, elect to treat the Tenant as one who has not removed at the end of his term, and thereupon be entitled to all the remedies against the Tenant provided by law in that situation, or the Landlord may elect, at its option, to construe such holding over as a tenancy from month to month subject to all the terms and conditions of this lease, except as to duration thereof, and in that event the Tenant shall pay monthly rent in advance at the rate provided herein as effective during the last month of the demised term. Eminent Twenty-first.--If the property or any part thereof Domain, wherein the demised premises are located shall be taken by Condemnation public or quasi-public authority under any power of eminent domain or condemnation, this lease, at the option of the Landlord, shall forthwith terminate and the Tenant shall have no claim or interest in or to any award of damages for such taking. Security Twenty-second.--The Tenant has this day deposited with the Landlord the sum of $______ as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease upon the Tenant's part to be performed, which said sum shall be returned to the Tenant after the time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant and the Landlord shall be considered released by the Tenant from all liability for the return of such security; and the Tenant agrees to look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply in every transfer or assignment made of the security to a new Landlord. The security deposited under this lease shall not be mortgaged, assigned or encumbered by the Tenant without the written consent of the Landlord. Arbitration Twenty-third.--Any dispute arising under this lease shall be settled by arbitration. Then Landlord and Tenant shall each choose an arbitrator, and the two arbitrators thus chosen shall select a third arbitrator. The findings and award of the three arbitrators thus chosen shall be final and binding on the parties hereto. Delivery of Twenty-fourth.--No rights are to be conferred upon the Lease Tenant until this lease has been signed by the Landlord, and executed copy of the lease has been delivered to the Tenant. Lease Twenty-fifth.--The foregoing rights and remedies are Provisions Not not intended to be exclusive but as additional to all rights Exclusive and remedies the Landlord would otherwise have by law. Lease Binding Twenty-sixth.--All of the terms, covenants and on Heirs, conditions of this lease shall inure to the benefit of and Successors, Etc. be binding upon the respective heirs, executors, administrators, successors and assigns of the parties herein. However, in the event of the death of the Tenant, if an individual, the Landlord may, at its option, terminate this lease by notifying the executor or administrator of the Tenant at the demised premises. Twenty-seventh.--This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in nowise be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of governmental preemption in connection with the National Emergency declared by the President of the United States or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by the war. Twenty-eighth.--This instrument may not be changed orally. Twenty-ninth.--Tenant shall pay pro-rata share of the following costs: Real Estate Taxes Water and Sewer Insurance Refuse Disposal Repairs and Maintenance 2,670 (-------) Tenants pro-rate share is 28.10%. 9,500 Bills will be submitted quarterly. Thirty.--Tenant has an option to renew this lease under the same terms and conditions subject to the following: (180 days notice must be given) 1st Option - 5 years commencing April 1, 1998 ending March 31, 2003 at $46,725.00 per annum. 2nd Option - 5 years commencing April 1, 2003 ending March 31, 2008 at $46,725.00 plus the cumulative increase in the consumer price index from April 1, 2003 through March 31, 2008. IN WITNESS WHEREOF, the said Parties have hereunto set their hands and seals the day and year first above written. Witness: ____________________________(SEAL) Landlord 110 Main Street Associates /s/[Illegible] By /s/ John J. Cast, Jr. ----------------------- ------------------------- John J. Cust, Jr. ----------------------- -------------------------(SEAL) Tenant First Community Bank By /s/ [Illegible] ----------------------- ------------------------ GUARANTY In consideration of the execution of the within lease by the Landlord, at the request of the undersigned and in reliance of this guaranty, the undersigned hereby guarantees unto the Landlord, its successors and assigns, the prompt payment of all rent and the performance of all of the terms, covenants and conditions provided in said lease, hereby waiving all notice of default, and consenting to any extensions of time or changes in the manner of payment or performance of any of the terms and conditions of the said lease the Landlord may grant the Tenant, and further consenting to the assignment and the successive assignments of the said lease, and any modifications thereof, including the sub-letting and changing of the use of the demised premises,all without notice to the undersigned. The undersigned agrees to pay the Landlord all expenses incurred in enforcing the obligations of the Tenant under the within lease and in enforcing this guaranty. Witness:_________________________ ____________________________(SEAL) _________________________ ____________________________(SEAL) Date:____________________________ LEASE ==================================== Landlord to Tenant ==================================== Premises leased: From:_______________________________ To:_________________________________ ASSIGNMENT AND ACCEPTANCE OF ASSIGNMENT For value received the undersigned Tenant hereby assigns all of said Tenant's right, title and interest in and to the within lease from and after _________________ unto _______________ heirs, successors, and assigns, the demised premises to be used and occupied for ___________________ and for no other purpose, it being expressly agreed that this assignment shall not in any manner relieve the undersigned assignor from liability upon any of the covenants of this lease. Witness:_________________________ ____________________________(SEAL) _________________________ ____________________________(SEAL) Date:____________________________ In consideration of the above assignment and the written consent of the Landlord thereto, the undersigned assignee, hereby assumes and agrees from and after ___________________ to make all payments and to perform all covenants and conditions provided in the within lease by the Tenant therein to be made and performed. Witness:_________________________ ____________________________(SEAL) _________________________ ____________________________(SEAL) Date:____________________________ CONSENT TO ASSIGNMENT The undersigned Landlord hereby consents to the assignment of the within lease to ___________________ on the express conditions that the original Tenant ___________________, the assignor, herein, shall remain liable for the prompt payment of the rent and the performance of the covenants provided in the said lease by the Tenant to be made and performed, and that no further assignment of said lease or sub-letting of any part of the premises thereby demised shall be made without the prior written consent of the undersigned Landlord. ____________________________ Landlord Date:____________________________ By__________________________ EXHIBIT A -2- 3. Except as set forth hereinafter, upon vacating the premises, NatWest shall remove all equipment and personal property, but shall not remove or damage any alterations, additions or improvements made by it to the premises. (a) The Automatic Teller Machine (ATM) shall remain on the premises and become the property of 110. NatWest shall arrange for the termination and disconnection of the said ATM from any appropriate service and connecting lines. (b) The Wells Fargo security system in the premises is leased by NatWest. NatWest will make arrangements and cooperate fully with Wells Fargo and the new tenant at the premises to (i) transfer the service to the new tenant, or (ii) arrange for the removal of the security system at the option of the new tenant. 4. NatWest hereby represents that it owns said Automatic Teller Machine referred to above free and clear of any and all liens, claims and encumbrances, and agrees to execute a Bill of Sale or other documents to effectuate the transfer of the said ATM on an "as is" basis to 110 for no additional consideration. The conveyance of the ATM is made without warranty or representation. 5. NatWest shall pay simultaneously with the execution hereof the sum of $--- INTENTIONALLY DELETED AS EXHIBIT TO ADDENDUM 6. Until cessation of occupancy, NatWest shall pay and be responsible for its pro-rata share of real estate taxes, maintenance and insurance (triple-net expenses) based on its pro-rata share of 26.04% as recited in Paragraph 33 of the original Lease. 7. The use and occupancy of the premises by NatWest after March 31, 1995, shall not be considered a tenancy and the parties agree that they are not in a landlord-tenant arrangement. 8. There shall be no grace period for the failure of NatWest to perform pursuant to the terms and conditions hereof. 9. In the event of any default or breach on the part of NatWest in the performance of any terms, conditions and covenants [FLOOR PLAN OF 110 MAIN STREET, FLEMINGTON, NJ] December 22, 1994 ADDENDUM TO LEASE BETWEEN 110 MAIN STREET ASSOCIATES AND FIRST COMMUNITY BANK DATED: DECEMBER 22, 1994 Thirty-One: Tenant's responsibility under the Lease is subject to its obtaining all necessary approvals from governmental agencies to open and maintain a full-service banking branch at the demised premises. Tenant agrees to take all steps necessary to apply for and obtain such approvals. Tenant: Landlord FIRST COMMUNITY BANK 110 MAIN STREET ASSOCIATES By: /s/ [Illegible] By: /s/ [Illegible] ------------------------ -------------------------- SECOND ADDENDUM TO LEASE DATED DECEMBER 22, 1994 BETWEEN 110 MAIN STREET ASSOCIATES, LANDLORD, AND FIRST COMMUNITY BANK, TENANT Date of Amendment:_________________, 1995 - -------------------------------------------------------------------------------- WHEREAS, the parties hereto having entered into an Agreement dated December 22, 1994, and desiring to amend same at this time, and in consideration of their mutual promises, covenants and undertakings hereinafter set forth, and the mutual benefits to be gained by the performance hereof, intending to be legally bound, the parties hereto, for themselves, their heirs, executors, administrators, successors and assigns, AGREE AS FOLLOWS: 1. Said lease is subject to a certain Termination Agreement dated February 21, 1995, by and between Landlord, 110 Main Street Associates, and NatWest Bank N.A., the present occupant of the premises to be leased, a copy of which is attached hereto and made a part hereof as Exhibit A. 2. The term of this Lease shall commence on the date of the delivery of possession to the Tenant and shall run for the balance of that month plus three (3) years. All option periods shall be adjusted accordingly. As used in this Lease the term "date of delivery of possession" shall mean May 16, 1995 or five (5) days after the Landlord has given Tenant written notice that the occupant has vacated pursuant to the Termination Agreement, which ever occurs first. 3. In the event Tenant shall take possession of the premises on a date other than the first day of the month, it shall pay on or before the date of possession the pro-rata portion of the rent for that partial month and shall thereafter pay said rent monthly on the first day of each calendar month for the term hereof. All other payments required under the Lease shall be adjusted for this initial period. There shall be no rent charged for the period May 15th 1995 through May 31st, 1995. 4. Tenant shall lease from Landlord the Automatic Teller Machine (ATM) referred to in Paragraph 3(a) of the attached Termination Agreement for the sum of $115.00 per month. The lease of this ATM is made on an "as is" basis without warranty or representation and all costs of maintenance and upkeep of the machine together with any third-party service contract shall be the sole responsibility of the Tenant. The term of the lease of the ATM shall be for the initial term of the Lease of the premises. At the expiration of the original lease term, the ATM will become the property of the tenant. 5. The Tenant hereby assumes all responsibility for transferring the service of the Wells Fargo Security System or the removal thereof pursuant to Paragraph 3(b) of the attached Termination Agreement. Landlord assumes no responsibility therefor and makes no representations or warranties as to the condition of the Security System. 6. In all other respects, the terms and conditions of the Agreement date December 22, 1994, not inconsistent herewith shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. LANDLORD: 110 MAIN STREET ASSOCIATES WITNESS: DATE BY: /s/ [Illegible] __/__/95 /s/ John J. Cust, Jr. - ------------------------- -------- ----------------------------- John J. Cust, Jr. TENANT: FIRST COMMUNITY BANK ATTEST: DATE BY: /s/ [Illegible] 3/24/95 /s/ [Illegible] - ------------------------- -------- ----------------------------- EXHIBIT A TERMINATION AGREEMENT This AGREEMENT is made this 21 day of February, 1995, by and between 110 MAIN STREET ASSOCIATES, whose mailing address is c/o John J. Cust, Jr., CPA, P.O. Box 372, Flemington, N.J. 08822 (hereinafter referred to as "110") and NatWest Bank N.A., which has a place of business at 10 Exchange Place, Jersey City, N.J. 07302 (hereinafter referred to as "NatWest"). WITNESSETH: WHEREAS, 110 and First National Bank of Central Jersey, predecessor to NatWest, entered into a certain Lease on or about January 20, 1987; and, WHEREAS, said Lease and subsequent extensions thereto shall expire on March 31, 1995; and, WHEREAS, NatWest relinquishes any right it has to renew the said Lease or modifications thereto; and, WHEREAS, 110 has committed the premises to a new tenant and any delay in securing possession of the premises will cause irreparable damage to 110 and the new tenant; and, WHEREAS, NatWest has requested additional time within which to vacate said premises; and, WHEREAS, 110 has made arrangements with the new tenant for the delay in occupancy provided the terms and conditions hereof are strictly adhered to; NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and of the mutual benefits to be gained by the performance hereof, intending to be legally bound, the parties hereby agree as follows: 1. Said Lease between 110 and NatWest shall terminate on March 31, 1995. 2. NatWest shall be permitted to occupy the premises subject to the terms and conditions hereof until the earlier of the following: (a) May 15, 1995, or (b) five (5) business days following NatWest's cessation of its operation in the premises as a full-service banking facility. EXHIBIT A -2- 3. Except as set forth hereinafter, upon vacating the premises, NatWest shall remove all equipment and personal property, but shall not remove or damage any alterations, additions or improvements made by it to the premises. (a) The Automatic Teller Machine (ATM) shall remain on the premises and become the property of 110. NatWest shall arrange for the termination and disconnection of the said ATM from any appropriate service and connecting lines. (b) The Wells Fargo security system in the premises is leased by NatWest. NatWest will cooperate with 110 to make arrangements and cooperate fully with Wells Fargo and the new tenant at the premises to (i) transfer the service to the new tenant, or (ii) arrange for the removal of the security system at the option of the new tenant. 4. NatWest hereby represents that it owns said Automatic Teller Machine referred to above free and clear of any and all liens, claims and encumbrances, and agrees to execute a Bill of Sale or other documents to effectuate the transfer of the said ATM on an "as is" basis to 110 for no additional consideration. The conveyance of the ATM is made without warranty or representation. 5. NatWest shall pay simultaneously with the execution hereof the sum of $--- INTENTIONALLY DELETED AS EXHIBIT TO ADDENDUM 6. Until cessation of occupancy, NatWest shall pay and be responsible for its pro-rata share of real estate taxes, maintenance and insurance (triple-net expenses) based on its pro-rata share of 26.04% as recited in Paragraph 33 of the original Lease. 7. The use and occupancy of the premises by NatWest after March 31, 1995, shall not be considered a tenancy and the parties agree that they are not in a landlord-tenant arrangement. 8. There shall be no grace period for the failure of NatWest to perform pursuant to the terms and conditions hereof. 9. In the event of any default or breach on the part of NatWest in the performance of any terms, conditions and covenants EXHIBIT A -3- contained herein, 110, in addition to any remedies which they may have either in law or equity, may by force or otherwise, without being liable for prosecution therefor, or for damage, take possession of the premises. In addition, 110 shall be entitled to reimbursement for any and all expenses, reasonable attorney fees and costs in connection with its retaking of the premises. It is agreed by the parties that such action is deemed commercially reasonable under the terms and conditions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. 110 MAIN STREET ASSOCIATES Witness: By: /s/ [Illegible] /s/ [Illegible] - ------------------------ ------------------------------- NatWest Bank N.A. (formerly known as NATIONAL WESTMINSTER BANK, NJ) Attest: By: /s/ [Illegible] /s/ [Illegible] - ------------------------ ------------------------------- Asst. Vice President LEASE (FOR PARKING) Lease agreement is made on July 1, 1995 between G&S Holdings of 100 Main Street, Borough of Flemington, County of Hunterdon, State of New Jersey, herein referred to as "Lessor", and First Community Bank with offices at Main Street in the Borough of Flemington, County of Hunterdon, State of New Jersey, herein referred to as "Lessee". SECTION ONE RENTAL Lessor hereby rents and leases to Lessee and Lessee hereby hires and leases from Lessor six (6) parking spaces numbered 10, 11, 54, 54-A (compact cars only), 55 and 56 together with the nonexclusive right to use the "visitors" parking area (for twenty minute intervals) located at the premises of Lessor at 90-100 Main Street, Borough of Flemington, County of Hunterdon, State of New Jersey, for the term and at the rental provided for under this lease. SECTION TWO AMOUNT OF RENT The monthly rental for the spaces hired by Lessee shall be $750. payable monthly in advance, with the first payment, on a prorated basis to the first day of the following month, made concurrently with the execution of this lease agreement, receipt of which is hereby acknowledged. There shall be no refund on any monthly rental should the lease be terminated by Lessee before the end of the month. SECTION THREE SECURITY DEPOSIT In addition to the rental provided for in this lease, Lessor acknowledges receipt of the sum of ($750.) which constitutes a security deposit for the faithful performance of the lease, which shall be returned to Lessee upon faithful performance of this agreement or termination of the tenancy under this lease. SECTION FOUR TERM This lease agreement shall be for an initial term of thirty (30) days, and thereafter, unless Lessor or Lessee gives thirty (30) days written notice of their intention to terminate this lease agreement, this lease agreement shall continue on a month-to-month basis until terminated by thirty (30) days written notice by either Lessor or Lessee or by the mutual agreement of the parties to this agreement or by failure of Lessee to pay the rent when due and payable. It is expressly understood by Lessee that it has no vested right to the spaces being rented under this lease beyond the term of the lease. -1- SECTION FIVE USE OF THE SPACES Lessee shall use the spaces only for the parking of its employees, or other Lessee personnel. SECTION SIX DEFAULT Rental payments shall be due and payable on the first day of each calendar month in advance. In the event that rental payment is not received by the 5th day of the month in which the same has become due and payable, such rental payments shall be considered as delinquent. Failure to pay the rental payment by the 5th day of each calendar month shall also constitute a basis for termination of this lease agreement. SECTION SEVEN DELINQUENT PAYMENT Rental payments shall be due and payable on the first day of each calendar month in advance. In the event that rental payment is not received by the 5th day of the month in which the same has become due and payable, such rental payments shall be considered as delinquent. Failure to pay the rental payment by the 5th day of each calendar month shall also constitute a basis for termination of this lease agreement. SECTION EIGHT COMPLIANCE WITH RULES AND REGULATIONS The rules and regulations attached to this lease, as well as such rules and regulations may be adopted in the future by Lessor for the safety, care and cleanliness of the premises and the preservation of good order on the premises, are hereby expressly made a part of this lease, and Lessee agrees to obey all such rules and regulations. Dated: July 1, 1995 First Community Bank, Lessee by:/s/[Illegible] attest:/s/[Illegible] -------------------------- ------------------------- G&S Holdings, Lessor by:/s/[Illegible] -------------------------- ,GP -2- EX-10.(III) 8 LEASE AGREEMENT--SPRINGFIELD LEASE This Lease made this 7 day of August, 1995 by and between Sumas Realty Corp., having its offices at 733 Mountain Avenue, Springfield, NJ 07081, (hereinafter referred to as "Landlord") and First Community Bank, a New Jersey Corporation, having its office at Route 31 South at Beaver Brook, Annadale, NJ 08801, (hereinafter referred to as "Tenant"). ARTICLE 1 DEMISED PREMISES AND QUIET ENJOYMENT SECTION 1.01 The Property and the Demised Premises A. The "Property" consists of the entire office building commonly known as 733 Mountain Avenue, also known as Block 147, Lot 14 on the tax map of the Township of Springfield, consisting of an office building containing two floors and a basement area, together with all parking areas, driveways, entrances, exits, landscaped area and sidewalks which serve the Property. The "Building" is the office building located on the Property. Landlord leases most of the Building to Village Super Market, Inc. The "Demised Premises" is a portion of the Building and consists of approximately 1,200 square feet of first floor space that had been leased by Landlord to Crestmont Savings Bank (which has been acquired by Summit Bank). The Lease between Landlord and Crestmont ends on December 31, 1995. The Demised Premises previously had been used by Crestmont as a bank but Crestmont has vacated the Demised Premises. The Demised Premises shall include the existing drive-up window that had been used by Crestmont. The Demised Premises shall not include the remainder of the Building that Landlord leases to Village Super Market, Inc. As noted elsewhere in this Lease, Tenant shall have the right to use portions of the Building and Property together with Village. B. This lease is contingent upon Tenant satisfying the following conditions within the time periods set forth below: 1. Tenant obtaining approval to execute this Lease from its Board of Directors on or before July 31, 1995; 2. Tenant obtaining all governmental approvals on or before October 1, 1995 from all state and federal agencies that are required for Tenant to open and operate a full service bank branch in the Demised Premises. Tenant agrees to take all steps necessary to apply for these approvals as soon as possible and Tenant agrees to diligently pursue such approvals. 3. Within thirty (30) days of the date hereof, Tenant performing whatever due diligence Tenant believes is necessary to determine whether Tenant will be able to obtain a Building Permit to make the improvements to the Demised Premises that Tenant deems necessary and to obtain a Certificate of Occupancy for the Demised Premises to operate Tenant's banking facility; and 4. Tenant obtaining a building permit on or before October 1, 1995. 5. Landlord obtaining a Lease Termination Agreement on or before September 1, 1995 from Crestmont/Summit ending the existing lease on the Demised Premises. In the event that Landlord is unable to obtain this Lease Termination Agreement, then Tenant may terminate this Lease and this Lease shall be null and void and of no force and effect and neither party shall have any further obligation to the other party. In the event that Tenant or Landlord do not satisfy or waive these conditions within the time periods set forth above, then either party may terminate this Lease by providing written notice to the other party of such termination. If either party terminates this agreement Lease because Tenant or Landlord have not satisfied or waived the conditions set forth above, then this Lease shall be null and void and of no force and effect and neither party shall have any further obligation to the other party. SECTION 1.02 Landlord's Status A. When the term "Landlord" is used in this Lease, it shall mean and include only the then current fee or leasehold owner of the Demised Premises. Upon any transfer of title, Landlord shall give notice to Tenant of the name of Landlord's transferee, whereupon the transferor Landlord shall automatically be released from all liability hereunder. ARTICLE II INTERIM LEASE TERM SECTION 2.01 Interim Lease Term A. The "Rent Commencement Date" shall begin on the earlier of the following to occur: (i) the first day upon which the Tenant is given possession of the Demised Premises; or (ii) October 1, 1995. Tenant shall pay rent to Landlord beginning on the Rent Commencement Date. If Tenant takes possession before October 1, 1995, then the "Interim Lease Term" shall begin on the date that Tenant takes possession on the Demised Premises and shall end on September 30, 1995. The Lease Term shall begin on October 1, 1995 and shall end three years later on September 30, 1998. If the Rent Commencement Date occurs on a day other than the first day of a month, Tenant shall pay to Landlord a prorated Rent. 2 ARTICLE III POSSESSION, GOVERNMENTAL APPROVALS AND CONSTRUCTION Section 3.01 Possession, Governmental Approvals and Construction A. The Landlord delivers the Demised Premises to Tenant, and Tenant accepts the same, in "as is" conditions without any further obligation on the part of the Landlord and without any representation with respect to the Demised Premises or the use which may be made thereof. Crestmont Savings Bank previously utilized the Demised Premises as a bank. Tenant proposes to use the Demised Premises for a full service bank branch ("Tenant's Use"). B. After Tenant's due diligence condition has been satisfied or waived, Tenant shall apply for and diligently pursue all governmental approvals required to obtain a building permit and certificate of occupancy to use the Demised Premises for Tenant's Use. Tenant shall give a copy of Tenant's construction drawings and all other plans to Landlord at least ten (10) days before Tenant applies for its building permit. Landlord shall not unreasonably withhold its approval for these plans. C. Tenant's applications shall cover whatever work Tenant wishes to do inside the Demised Premises. In addition, the applications shall seek the following: 1) To install an unisex bathroom in the Demised Premises (Tenant acknowledges that Tenant shall have no right to use the bathrooms in the rest of the Building); 2) Tenant shall perform all work required so that Tenant's employees and customers can enter the Demised Premises from the existing driveways and sidewalks and install whatever ramps may be necessary so that its employees and customers can enter the Demised Premises from the driveways and sidewalk that lead into the sidewalk directly in front of the entrance to the Demised Premises. In addition, Tenant will do whatever work is necessary to the entrance of the Demised Premises so that its customers and employees can enter the Demised Premises and so that Village may lock the door that separates the Demises Premises from the portion of the Building leased to Village; and 3) During all hours that Village is open for business, Tenant may utilize the portions of the Building leased to Village. Village may lock the door that separates the Demised Premises from the rest of the Building when Village's office is closed. Village shall have exclusive control over the door that separates Village's portion of a Building from the Demised Premises. 3 SECTION 3.02 Alterations Other than Tenant's initial improvement, Tenant shall not make alterations costing more than $10,000.00 without Landlord's consent, which consent shall not be unreasonably withheld. Tenant shall not make structural alterations or additions without Landlord's consent. All alterations shall be performed in a good and workmanlike manner and shall become part of the realty upon completion. SECTION 3.03 Trade Fixtures and Signs A. At least thirty (30) days prior to the termination of this Lease, Tenant shall give Landlord written notice of all trade fixtures and other items that Tenant will remove from the Demised Premises and all items that Tenant proposes to leave in the Demised Premises. Landlord and Tenant agree that Tenant's automatic teller machine, sign, furniture, desk and other equipment are Tenant's trade fixtures which Tenant shall remove when this lease terminates. All other alterations, improvements and additions to the Demised Premises shall be deemed to have attached to the realty and to have become the property of Landlord and shall remain for the benefit of the Landlord at the end of the Lease Term in as good order and condition as they were when installed, reasonable wear and tear excepted; provided, however, that within fifteen (15) days of receiving Tenant's notice, Landlord may send a notice to Tenant directing Tenant to remove non-structural improvements, fixtures and installations which were placed in the Demised Premises by Tenant and which are designated in said notice and Tenant shall repair any damage occasioned by such removal and, in default thereof, Landlord may effect said removals and repairs at Tenant's expense. B. Landlord and Tenant recognizes that Village has existing signage on the Property. Village shall have the right to maintain or replace that signage provided that such replacement sign does not contain more square feet than the existing sign. Provided that Tenant obtains all necessary governmental approvals, Tenant shall have the right to install, maintain and place on the Demised Premises such signs as Tenant may desire, subject to the approval of the Landlord, which Landlord agrees not to unreasonably withhold, so long as the signs relate to a bank. Tenant shall maintain its signs in good order and condition and in conformity with applicable governmental laws and requirements. Landlord shall be permitted to remove any sign temporarily to perform repair or work and shall replace same as soon as practicable. C. If Landlord chooses to remove the existing bank vault or vault door at the end of Tenant's lease, Tenant agrees to pay a maximum of $2,500.00 towards the cost of the money Landlord actually spends to remove the vault or door from the Demises Premises and to restore any damage caused as a part of this removal. If Tenant chooses to remove the existing bank vault or vault door at 4 the end of Tenant's lease, Tenant agrees to restore any damage cause by this removal. ARTICLE IV RENT SECTION 4.01 Net Rent A. Tenant covenants and agrees to pay rent to Landlord, without prior demand and without any deduction or set-off, the sum of $24,000 per year for the Interim Lease Term, if applicable, and the Initial Lease Term of the Lease in equal monthly installments of $2,000.00 on the first day of each month of the Interim and Initial Lease Terms. The Initial Lease Term shall be three years from October 1, 1995 to September 30, 1998. The First Lease Year shall be the twelve (12) month period beginning on the Rent Commencement Date. If Tenant is not in default under this Lease, then Tenant may elect to renew this Lease for a First Option Period of five years provided that Tenant gives written notice to Landlord on or before April 1, 1998 that Tenant is exercising this First Option Period. The First Option Period shall begin on October 1, 1998, after the Initial Lease Term has ended, and it shall terminate five years thereafter on September 30, 2003. If Tenant does not provide such written notification to Landlord or if Tenant is in default, then Tenant shall have no right to exercise this First Option Period and this Lease shall terminate at the end of the Third Lease Year, or sooner if Tenant has defaulted. If Tenant has timely exercised its First Option Period and if Tenant is not in default under this Lease, then Tenant may elect to renew this Lease for a Second Option Period of five years provided that Tenant gives written notice to Landlord on or before April 1, 2003 that Tenant is exercising this Second Option Period. The Second Option Period shall begin on October 1, 2003, after the First Option Period has ended, and it shall terminate five years later on September 30, 2008. If Tenant does not provide such written notification to Landlord or if Tenant is in default, then Tenant shall have no right to exercise this Second Option Period and this Lease shall terminate at the end of the First Option Period, or sooner if Tenant has defaulted. Beginning with the first month of the First Option Period, October 1, 1998, the Rent shall be increased by the percentage increase in the cost of living as determined by the Consumer Price Index for all Urban Consumer's (CPI-U) - US city average (1982 - 1984 = 100) as issued by the Bureau of Labor Statistics for New York, Northern New Jersey and Long Island between April 1, 1995 and April 1, 1998. Tenant shall pay this increased Rent for each of the sixty (60) months during the First Option Period. 5 If the aforesaid Index is no longer being published, the rent increase shall be based upon a successor or substitute comparable price index appropriately adjusted. In no event shall the Rent decrease, even if the CPI decreases. For example, assume that the CPI is 165 on April 1, 1995 and it is 180 by April of 1998. If so, Tenant's rent would increase by 9.09% from $24,000 per year to $26,181.80 per year for the First Option Period. Beginning with the first month of the Second Option Period, October 1, 2003, the Rent shall increase by the percentage increase in the cost of living as determined by the increase in the CPI between April 1, 1995 and April 1, 2003. Tenant shall pay this increased Rent for each of the sixty (60) months during the Second Option Period. If the aforesaid Index is no longer being published, the rent increase shall be based upon a successor or substitute comparable price index appropriately adjusted. In no event shall the Rent decrease, even if the CPI decreases. B. Landlord shall provide and pay for the costs of providing heat, air conditioning, electricity, water and sewer. In addition, Landlord shall pay the costs of the snow plowing and maintenance of the Property. Tenant shall pay for and provide its own telephone and insurance, as set forth in this Lease. Parking on the Property shall be on a first come, first serve basis between Tenant and Village. There will be no reserved parking spaces for either Tenant or Village. SECTION 4.02 Definition of Rent A. All payment obligations of Tenant under this Lease, other than Rent, including, without limitation, late payment charges, and all costs and expenses which Landlord incurs by reason of Tenant's Default, are hereby deemed "Additional Rent" whether or not designated as such, and shall be due and payable on demand. B. Rent shall be paid at the office of Landlord or such other place that the Landlord may designate in writing. SECTION 4.03 Late Payment Charges If Rent, or any portion thereof, or Additional Rent, is unpaid for more than five (5) days after the date on which it was due, Tenant shall immediately pay, for each and every late payment, a late payment charge equal to one and one half (1 1/2%) percent per month (eighteen percent (18%) per year) of the amount in arrears for each month the arrears remains unpaid. 6 ARTICLE V TAXES SECTION 5.01 Tax Expense Landlord shall pay the real estate taxes on the Demised Premises. ARTICLE VI USE OF THE DEMISED PREMISES AND TRADE NAME SECTION 6.01 Limitation of Use and Trade Name A. The Demised Premises shall be used and operated by the Tenant during the Lease Term as a bank and for no other use or purpose whatsoever. For the purposes of this paragraph, Tenant's Use shall mean any business or commercial activity that a bank is permitted to engage in. B. Tenant shall conduct its business in a high class and reputable manner. C. Tenant will not permit any act to be done or any condition to exist on the Demised Premises or any part thereof or any article to be brought thereon which is or may be deemed to be dangerous unless same shall be safeguarded as required by law, or which shall, in law, constitute a public or private nuisance, or which may make void or voidable any insurance required by this Lease to be carried by Tenant with respect to the Demised Premises. SECTION 6.02 Repairs A. Tenant shall keep and maintain the Demised Premises in good order and condition. Tenant shall make all repairs necessary to keep the Demised Premises in good order and condition. In addition, notwithstanding the preceding sentence, if Tenant is required to make a repair, alteration or improvement to comply with such laws or regulations that costs more than $5,000.00, then Tenant may provide written notice to Landlord stating that: 1) a law or regulation obligates Tenant to make a repair, alteration or improvement to the Demised Premises; 2) that such repair will cost more than $5,000.00; and 3) that Tenant will terminate this lease unless Landlord agrees to make such repair on Tenant's behalf. Landlord shall have thirty (30) days from the date that the Landlord receives Tenant's notice to notify Tenant whether Landlord will make the repair or whether Tenant may terminate this Lease. If Landlord elects to make this repair, then Tenant shall have no right to terminate this Lease and Tenant shall pay to Landlord the sum of $5,000.00 within thirty (30) days of the date that the repair is completed. Landlord shall pay for the costs of the repairs above $5,000.00. If Landlord makes the repairs, Landlord shall select the contractor who shall make said repairs. Tenant agrees that this provision does not apply to 7 repairs or improvements that pertain to Tenant's Use or to Tenant's obligation to make all repairs to the Demised Premises but only shall pertain to repairs or improvements needed due to future laws, codes, orders or regulations. B. Tenant shall indemnify, defend and hold the Landlord harmless from fines, claims, losses and expenses (including legal and consultant's fees) of every kind arising out of or in connection with the Tenant's failure to comply with such laws and regulations. C. If Tenant fails to comply with the requirements of the foregoing Paragraph A, Landlord or its agents may enter the Demised Premises after ten (10) days' notice in order to effectuate compliance at Tenant's expense, whereupon Tenant shall reimburse Landlord for all costs incurred. The notice required in this Paragraph shall not apply in an emergency. D. Landlord agrees to repair approximately 100 feet of curbing along the driveup window to the Demised Premises and to secure or replace the two "grids" that exist in the driveway in front of the driveup window. If Landlord fails to accomplish said improvements by September 7, 1995, the Tenant reserves the right to complete said improvements and charge back the Landlord for said costs. ARTICLE VII ASSIGNMENT AND SUBLETTING SECTION 7.01 Assignment or Sublease Tenant may assign this Lease or sublet the Demised Premises to any entity provided that the Demised Premises are used for Tenant's Use. In addition, Tenant may sell this bank branch to another bank or Tenant may merge with another bank provided that Tenant or Tenant's successor does not violate the permitted use clause. ARTICLE VIII UTILITIES AND MAINTENANCE SECTION 8.01 Utilities Landlord shall provide and pay for heat, air conditioning, electricity, water service and sewer service to the Demised Premises. Tenant shall pay for its own phone service. Landlord shall not be liable in anyway for any damage suffered by Tenant as a result of the cessation or interruption of the utilities to the Demised Premises caused by fire, accidents, strikes, necessary maintenance, power failure, other casualties or other causes beyond Landlord's control. 8 ARTICLE IX INSURANCE SECTION 9.01 Insurance A. Tenant shall, at its expense, at all times during the term of this Lease, maintain in full force a comprehensive general liability insurance policy with an insurance company, approved by Landlord, which will insure Landlord against liability for injury to or death of persons or loss or damage to their property occurring in or about the Demised Premises. The minimum policy limits shall be One Million ($1,000,000.00) Dollars combined single limit coverage for each occurrence with general aggregate limit of Two Million ($2,000,000.00) Dollars. The minimum limit shall be increased periodically during the Lease Term and the Option Periods as may be required by Landlord in accordance with the then current industry standards. B. Tenant shall, at its own expense, at all times during the term of this Lease, maintain in full force adequate plate glass insurance on all plate glass installed on the Demised Premises. C. Tenant shall, at its own expense, at all times during the term of this Lease, maintain in full force all employees' workmen's compensation insurance required under the laws of the State of New Jersey. D. Tenant shall, at its own expense, at all times during the term of this Lease, maintain in full force a policy or policies of fire and other hazard insurance with extended coverage on all of Tenant's fixtures, equipment and inventory situated in the Demised Premises with an insurance company or companies approved by Landlord. Said policy or policies to provide insurance equal to the replacement value of the fixtures and equipment, together with adequate inventory insurance. E. Landlord shall, at its own expense, maintain hazard insurance on the Building and such associated improvements as are insurable to cover loss or damage by fire and other hazards normally included under "extended coverage" insurance. The amount of insurance coverage shall be a sum equal to the full replacement value of the Building and other improvements to the extent available. F. Landlord shall, at its expense, at all times during the term of this Lease, maintain in full force a comprehensive general liability insurance policy with an insurance company, which will insure Landlord against liability for injury to or death of persons or loss or damage to their property occurring in or about the exterior and interior common areas. The minimum policy limits shall be One Million ($1,000,000.00) Dollars combined single limit coverage for each occurrence with general aggregate limit of Two Million ($2,000,000.00) Dollars. The Landlord shall 9 have the right, but not the obligation, to obtain such additional general liability insurance as it deems appropriate. G. All insurance policies maintained by Tenant under this lease, with the exception of workmen's compensation, shall add Landlord as an additional insured (except as to contents), shall contain standard mortgagee endorsements and shall provide that the insurance carrier shall not cancel the coverage unless the carrier notifies Landlord and any mortgagee so designated by Landlord at least thirty (30) days prior to the effective date of such cancellation. H. In the event the Demised Premises shall be damaged or destroyed by fire or other casualty so insured against, Tenant agrees that it will claim no interest in any insurance settlement arising out of any such loss where premiums are paid by Landlord, or where Landlord is named as the sole beneficiary, and that it will sign any and all documents required by Landlord or the insurance company or companies that may be necessary for use in connection with the settlement of any such loss. I. Should Tenant fail to keep in effect and pay for such insurance as required by this Section, the Landlord may do so, in which event the insurance premiums paid by Landlord shall become due and payable promptly and failure of Tenant to pay them on demand shall constitute a default of this Lease. ARTICLE X INDEMNIFICATION SECTION 10.01 Indemnification A. Landlord shall indemnify, protect, defend and hold Tenant and Tenant's agents and employees harmless from all claims, losses and expenses (including, without limitation, attorney's fees) arising out of or in connection with any occurrence inside, outside or about the Demised Premises, Building or Property resulting from the act or omission of Landlord, its agents, employees, or contractors, or from any breach or default in the performance of any obligation of Landlord under this Lease. B. Tenant shall indemnify, protect, defend and hold, Landlord and Landlord's agents, employees and mortgagees harmless from all claims, losses and expenses (including, without limitation, attorney's fees) arising out of or in connection with any occurrence inside, outside or about the Demised Premises, Building or Property resulting; from the act or omission of Tenant, its agents, employees, or contractors, or from any breach or default in the performance of any obligation of Tenant under this Lease. 10 ARTICLE XI CONDEMNATION SECTION 11.01 Condemnation A. If the entire Demised Premises, or a substantial part of the Demised Premises which renders the balance unusable, shall be taken under power of eminent domain, this Lease shall terminate as of the date possession is taken by the condemning authority. ARTICLE XII DEFAULT AND REMEDIES SECTION 12.01 Events of Default Each of the following shall constitute a "Default" by Tenant under this Lease: A. if Tenant fails to pay Rent or fails to deliver, as and when required by this Lease, any instrument of subordination, estoppel certificate or insurance certificate; B. if Tenant's due diligence contingency has been satisfied or waived and Tenant fails to diligently pursue its building permit, Certificate of Occupancy or Approvals; C. if Tenant mortgages or encumbers Tenant's interest in this Lease, or if Tenant assigns, sublets or grants a right to a third party to use or occupy all or a portion of the Demised Premises for a use other than Tenant's Use; D. if Tenant or any guarantor of Tenant makes an assignment for the benefit of creditors, files a petition in bankruptcy or applies for the appointment of a trustee or receiver; E. if a bankruptcy petition is filed against Tenant or any guarantor of Tenant and is not dismissed or vacated within sixty (60) days; F. if a receiver or trustee is appointed for Tenant or any guarantor of Tenant, for all or any portion of the assets of either of them, and such receivership or trusteeship is not vacated or dismissed with sixty (60) days; G. if Tenant fails to perform or observe any other material condition, covenant or obligation in this Lease required of Tenant. SECTION 12.02 Landlord's Remedies A. In the event of a Default involving the payment of Rent or Additional Rent, Landlord shall have the right to terminate this Lease if Landlord does not receive payment within fifteen (15) 11 days of the date that such payment was due. In the event of a Default, other than a Default in payment of Rent or Additional Rent, Landlord shall have the right to terminate this Lease by giving Tenant fifteen (15) days' written notice, and at the expiration of such fifteen (15) day period, Tenant shall immediately surrender possession of the Demised Premises; however, Tenant shall be permitted, within the aforesaid fifteen (15) day period, to cure any Default and thereby vitiate Landlord's notice of termination, and the fifteen (15) day period shall be extended if such Default cannot be cured within fifteen (15) days, provided Tenant has commenced and diligently continues to cure same to completion. B. If this Lease is terminated for Default, or if Tenant vacates the Demised Premises prior to the expiration of the Lease Term, Tenant shall remain liable to the extent legally permissible for Rent, Additional Rent and all other charges Tenant would have been required to pay until the date this Lease would have expired had such Default or vacation not occurred. Tenant's liability shall continue notwithstanding reentry or repossession of the Demised Premises by Landlord. C. If this Lease is terminated for Default or if Tenant vacates, Tenant shall pay "Damages" to Landlord. Damages shall mean the difference between (a) the sum of all Rent and Additional Rent that would be owed under the remainder of the Lease, and all other expenses which Landlord incurs in reentering the Demised Premises; repossessing the Demised Premises; making good any Default of the Tenant; painting, altering or dividing the Demises Premises; putting the Demised Premises in proper repair; protecting and preserving the Demised Premises; reletting the Demised Premises (including attorney's fees and brokerage fees); and any expenses which Landlord may incur during the occupancy of any new tenant; minus (b) the proceeds of any reletting. In addition, Tenant shall pay to Landlord all costs of suit and attorney's fees that Landlord incurs with regard to any successful lawsuit or action instituted by Landlord to enforce the provisions of this Lease. Landlord may relet all or any part of the Demised Premises for all or any part of the unexpired portion of the term of this Lease or for any longer period. Landlord may accept any rental then obtainable; grant any concession of rent; and agree to paint or make any special repairs, alterations or decorations for the new tenant as Landlord may deem advisable in its sole and absolute discretion. D. Landlord shall make reasonable attempts to relet the Demised Premises. E. If Tenant shall fail to pay Rent when due, for two consecutive months, or three or more times in any period of twelve (12) consecutive months, or if Tenant fails to pay Additional Rent when due three or more times in twelve consecutive months, 12 Landlord may in addition to all other remedies: (1) declare all Rent reserved under this Lease for the next six months to be immediately due and payable; or (2) require a Security Deposit of not more than six months' Rent. Notwithstanding the preceding sentence, Landlord shall first provide written notice to Tenant that Tenant has failed to pay rent when due for one month or two or more times in any period of eleven (11) consecutive months or that Tenant has failed to pay Additional Rent two or more times during eleven (11) consecutive months before Landlord may declare six months Rent to be immediately due and payable or require a security deposit of six months Rent. F. In the event of a breach by Tenant of any of its obligations under this Lease, Landlord shall be permitted all equitable remedies in addition to those provided herein. G. The rights and remedies of Landlord set forth herein shall be in addition to any other right and remedy in law or in equity now or hereinafter available, and all such rights and remedies shall be cumulative. Any action or failure to act by Landlord shall not constitute a waiver of Default and any waiver of Default shall be effective only if in writing and signed by the Landlord. Any failure of Landlord to insist upon the strict performance of any of Tenant's obligations under this lease or to exercise any right or remedy available upon a breach thereof by Tenant, or the acceptance of Rent during the continuance of such breach, shall not constitute a waiver thereof. H. Any payment by Tenant of a lesser amount than the Rent provided for in this Lease shall not be deemed to be other than a payment on account of the earliest stipulated Rent, and any endorsement or statement on any check or any letter accompanying any check or payment as Rent shall not be an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy provided in this Lease. SECTION 12.03 Waiver of Jury Trial Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim on any matters whatsoever arising out of or in any way connected with this Lease. SECTION 12.04 Waiver of Redemption If Landlord recovers possession of the Demised Premises by reason of Tenant's Default, Tenant waives its right of redemption granted under any present or future laws and Tenant further waives Notice of Default, Notice to Quit and Notice of Landlord's Intention to Re-enter except as otherwise provided in this Lease. 13 ARTICLE XIII END OF TERM SECTION 13.01 End of Term Upon expiration or other termination of the Lease Term, Tenant shall peaceably and quietly quit and surrender the Demised Premises broom clean, in good order and condition, ordinary wear-and-tear excepted. If the Demised Premises are not surrendered as and when aforesaid, or if Tenant shall fail to remove its trade fixtures and equipment within fifteen (15) days after receiving written notice from Landlord to do so, Tenant shall indemnify Landlord against loss or liability resulting from the failure by Tenant to so do, including without limitation, any claims made by any succeeding occupant founded on and directly attributable to such failure. All property not removed by Tenant shall be deemed abandoned and Landlord shall have the right to dispose of same without accountability to Tenant and charge the cost of removal to Tenant, together with the cost to repair and restore as aforesaid, and this obligation shall survive the expiration of the Lease Term and surrender of the Demised Premises, and acceptance thereof by Landlord. SECTION 13.02 Holding Over Should Tenant remain in possession of the Demised Premises after the expiration of the Lease Term (or any renewal term hereof) without the execution of a new lease, such holding over, in the absence of a written agreement to the contrary, shall be deemed to have created and be construed to be a tenancy from month-to-month terminable on thirty (30) days notice by either party to the other, at a monthly rental equal to two times the sum of the monthly installment of Net Rent and Additional Rent during the last month of the Lease term; subject to all the other terms, covenants and conditions, provisions and obligations of the Lease insofar as the same are applicable to a month-to-month tenancy. ARTICLE XIV MISCELLANEOUS SECTION 14.01 Subordination This Lease shall be subordinate to the lien of any mortgage or the lien resulting from any other method of financing or refinancing now or hereafter in force against the Demised Premises, or any portion thereof, and to any and all advances to be made under such mortgages, and all renewals, modifications, extensions, consolidations and replacements thereof, provided that any such Mortgagee will honor this Lease. These provisions shall be self-operative and shall require no further writing as evidence thereof. Nevertheless, Tenant shall execute and deliver within fifteen (15) days after request, an instrument in recordable form subordinating this Lease or evidencing such subordination as required by Landlord or any mortgagee, prospective mortgagee, purchaser or prospective purchaser. In 14 addition to Landlord's other remedies, upon Tenant's failure to execute and deliver such instrument, Tenant hereby appoints Landlord as Tenant's attorney-in-fact to execute and deliver such instrument or instruments, and acknowledges that said agency is coupled with an interest and therefore irrevocable. SECTION 14.02 Notices All notices required under this Lease shall be in writing and shall have been properly served only if sent by Certified or Registered Mail, Return Receipt Requested, postage prepaid, to the Tenant c/o James Hyman, President, First Community Bank, Route 31 South at Beaver Brook, Annadale, NJ 08801 and a copy to Robert Benbrook, Esq., Benbrook & Benbrook, Route 31 N., Box 5300, Clinton, NJ 08809 and to the Landlord c/o Perry Sumas, President, Village Super Market, Inc., 733 Mountain Avenue, Springfield, NJ 07081 with a copy to Frank Sauro, Esq., General Counsel, Village Super Markets, Inc., 733 Mountain Avenue, Springfield, NJ 07081. Date of service shall be two days after the date the notice is deposited in a facility under the exclusive control of the United States Postal Service. Either party may designate a change of address by serving notice as provided herein. SECTION 14.03 Estoppel Certificate Within fifteen (15) days after request by Landlord, Tenant agrees to deliver to Landlord or to any prospective mortgagee or purchaser, a Certificate in recordable form certifying: (1) that the Lease has not been modified and is in full force and effect or, if there have been modifications, certifying that same is in full force and effect as modified, and stating the modification; (2) there are no defenses or offsets against the enforcement of any right or remedy of Landlord (or if so, specifying same); (3) the dates to which Rent and Additional Rent have been paid; (4) whether Tenant is in possession of the Demised Premises; and (5) whether Tenant contends that Landlord is in default under this Lease, and if so, specifying in detail the nature of the default. SECTION 14.04 Lease Interest Rate Defined The Lease Interest Rate is eighteen percent (18%) per year or one and one half percent (1.5%) per month. SECTION 14.05 Showing of Demised Premises Landlord shall have the right during the Lease Term to enter the Demised Premises to show the Demised Premises to prospective purchasers. Landlord shall have the further right during the last six (6) months of the Lease Term to enter the Demised Premises to show the Demised Premises to prospective tenants and to place therein "For Rent" or other offering signs, as Landlord may deem appropriate. Any such showing shall be by appointment only, shall be accompanied by 15 Tenant's personnel and shall be during Tenant's business hours. Tenant shall have the right during the Lease Term to enter the Demised Premises to show the Demised Premises to prospective purchasers. Tenant shall have the further right during the last six (6) months of the Lease Term to enter the Demised Premises to show the Demised Premises to prospective tenants and to place therein "For Rent" or other offering signs, as Landlord may deem appropriate. Any such showing shall be by appointment only, shall be accompanied by Landlord's personnel and shall be during Landlords's business hours. SECTION 14.06 Applicable Law The laws of the State of New Jersey shall govern the validity, performance and enforcement of this Lease. SECTION 14.07 Titles and Section Numbers The titles, article numbers, section numbers and table of contents appearing in this Lease are inserted for convenience only, and shall not define or limit the scope or intent of same or in any way affect this Lease. SECTION 14.08 Tenant Defined; Use of Pronoun The word "Tenant" shall mean every person or party named as a Tenant herein. Whenever used in this Lease the singular includes the plural and the plural includes the singular. SECTION 14.09 Successors and Assigns This Lease shall be binding upon and inure to the benefit of, and be enforceable by and against the parties hereto and their respective heirs, personal representatives and executors. SECTION 14.10 Partial Invalidity If any provision of this Lease shall be invalid, unenforceable or inapplicable with respect to any party, the remainder of this Lease, or the application of such provision to persons other than those as to which it is held invalid of unenforceable, shall not be affected and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. SECTION 14.11 Survival of Obligations Tenant's obligations to pay Rent, to indemnify Landlord and to reimburse Landlord for costs to perform any obligation that Tenant has failed to perform shall survive the expiration or earlier termination of the Lease Term. 16 SECTION 14.12 Transmittal This Lease is transmitted for examination only and does not constitute an offer to lease. This Lease shall become effective only upon execution and unconditional delivery by Landlord and Tenant. SECTION 14.13 Remedies Cumulative No reference to any specific right or remedy in this Lease shall preclude Landlord from exercising any other right, having any other remedy, or from maintaining any action to which it may otherwise be entitled under this Lease, at law or in equity. SECTION 14.14 Broker's Commission Tenant warrants and represents it has not dealt with any real estate broker or agent in connection with this Lease and agrees to indemnify, defend and hold Landlord harmless from liability to any real estate broker or agent with respect to this Lease or the negotiation thereof including costs and attorney's fees incurred in the defense of any claim for compensation. Landlord warrants and represents it has not dealt with any real estate broker or agent in connection with this Lease and agrees to indemnify, defend and hold Tenant harmless from liability to any real estate broker or agent with respect to this Lease or the negotiation thereof including costs and attorney's fees incurred in the defense of any claim for compensation. SECTION 14.15 Entire Agreement This Lease made a part hereof and itemized below, set forth the entire lease between Landlord and Tenant with respect to the Demised Premises. No amendment to this Lease shall be binding unless in writing and signed by Landlord and Tenant. IN WITNESS WHEREOF, the parties have executed this Lease on the date set forth above. Witness: SUMAS REALTY CORP., Landlord /s/ FRANK SAURO By: /s/ PERRY SUMAS - --------------------------- --------------------------------- Frank Sauro Perry Sumas, President Witness: FIRST COMMUNITY BANK, Tenant /s/ LINDA B. McDERMOTT By: /s/ PETE SCHOBERL - --------------------------- --------------------------------- Linda B. McDermott Pete Schoberl, Executive Vice President 17 EX-10.(IV) 9 LEASE AGREEMENT--SCOTCH PLAINS LEASE AGREEMENT This Lease Agreement made this 12th day of April, 1996 between Premiere Development, L.L.C. a New Jersey Limited Liability Company, having its principal place of business at Allen Center, Suite 103, 150 Allen Road, Liberty Corner, New Jersey 07938 (hereinafter "Lessor"), and FIRST COMMUNITY BANK, a banking institution organized under the laws of the State of New Jersey, having its principal offices at 64 Old Highway 22, Clinton, New Jersey 08809 (hereinafter "Lessee"). W I T N E S S E T H WHEREAS, Lessor is the owner of certain lands and premises located on 2222 South Avenue, in the Township of Scotch Plains, County of Union and State of New Jersey, which said lands and premises are more specifically described as Lot No. 1, in Block 8401 as shown on a map entitled, "New York Suburban Lanco, Map Section No. 1," which map was filed in the Union County Registers office on June 22, 1908 as map #127E (hereinafter "Property") ; and WHEREAS, Lessee desires to rent and occupy the entire property. NOW THEREFORE, in consideration of the covenants and promises herein made, the Lessor does demise, lease and let unto the Lessee, and the Lessee herein leases from the Lessor, the Leased Premises subject to the terms and conditions as hereinafter set forth. 1. LEASED PREMISES 1.1 The Leased Premises shall consist of the premises as more specifically set forth on the description attached hereto and made a part hereof as Schedule A, and further described as follows: a) First Floor Space consisting of approximately 1,947 square feet; b) Basement space of approximately 1,947 square feet; and 1.2 The Lease Premises shall also include the right to use all common areas including, but not limited to common entranceways, foyers, hallways, elevators, stairways, sidewalks, parking areas and motor vehicle accessways. 1.3 Lessor covenants and agrees with Lessee that Lessee may utilize all parking spaces on the property to be used Lessee's employees, agents, servants and invitees. 2. INTENTIONALLY OMITTED 3. LEASE TERM 3.1 The term of this Lease shall be for a period of ten (10) years and shall commence on May 1, 1996, and end on April 30, 2006. 4. LESSEE'S OPTION TO RENEW LEASE 4.1 Lessor herein grants Lessee an option to renew this Lease for two (2) five-year terms on the same terms and conditions as contained in this Agreement. a) This right of renewal shall expire unless Lessee provides Lessor with written notice of its intention to renew the Lease for the first 5-year renewal term at least 180 days prior to the expiration of the initial term of this Lease as set forth in 3.1. b) This right of renewal for the second 5-year renewal term shall expire unless Lessee provides Lessor with written notice of its intention to renew the Lease at least 180 days prior to the expiration of the first renewal term. 5. BASE RENT 5.1 The Annual Base Rent to be paid by Lessee to Lessor during the first year of this said Lease shall be ($59,987.07) calculated in the manner following: a) First Floor Rental Space: 1,947 square feet x $20.54 per square foot = $39,991.38 b) Basement Floor Rental Space: 1,947 square feet x $10.27 per square foot = $19,995.69 5.2 The Annual Base Rent to be paid by Lessee to Lessor during the second year of this Lease shall be ($63,586.29) (Annual Base Rent for year one, plus six (6%) percent). 5.3 The Annual Base Rent to be paid by Lessee to Lessor during the third year of this lease shall be ($67,401.47) (Annual Base Rent for year two, plus six (6%) percent). 5.4 The Annual Base Rent to be paid by Lessee to Lessor for years four through ten of the initial term of this Lease, and during each year of any renewals thereof, shall be a sum equal to the Annual Base Rent for the preceding year, together with an increase equivalent to the increase in the Consumer Price Index for all urban consumers (CPI-U) for that area encompassing New York City, northern New Jersey and Long Island as published by the - 2 - United States Department of Labor, Bureau of Labor Statistics. This increase shall be calculated by comparing the CPI-U as it exists on the 30th day prior to the first rental payment for the year in which rent is being established with the CPI as it existed when the rent for the preceding year was established. Notwithstanding the foregoing, in the event any such adjustment results in an increase of less than three percent (3%) in any given year, then the amount of the increase for such year shall be three percent (3%). 6. ADDITIONAL RENT 6.1 In addition to the Base Rent, as provided for in paragraph 5 hereof, Lessee agrees to pay the following to the Lessor as additional rent: a) All real estate taxes imposed upon the property. 7. COMMENCEMENT OF RENT 7.1 All Base and Additional Rent shall be payable annually in twelve equal monthly installments. However, the first said monthly payment shall be due and payable on May 15, 1996 and pro-rated for two (2) weeks. The next rent payment will be due on June 1, 1996 and successive payments of rent shall be due on the same day of each month thereafter during the entire term hereof, inclusive of all renewals. 8. SECURITY 8.1 Lessee shall pay to Lessor simultaneously with the execution of this Lease, the sum of ($9,997.84) (two months' rent), which said sum shall constitute a security deposit with respect to Lessee's rental obligations and with respect to damage to the premises and the full and faithful performance by the Lessee of the covenants and conditions on the part of Lessee to be performed. Lessor shall have the right to apply said security or any portion thereof with respect to any rental or other payment that is over 15 days in arrears and to cover the cost of any damages to the leased premises caused by Lessee to the leased premises. In the event of Lessor's application as aforesaid, then Lessee shall be obligated to replenish that portion of said security utilized and/or applied by Lessor for the purposes aforesaid within is days of written notice by Lessor to Lessee. Lessee's failure to do so shall constitute default under the terms and conditions of this Lease. The security deposit and accumulated interest thereon shall be held in an interest-bearing account for the benefit of the Lessee. 9. USE AND OCCUPANCY OF PREMISES 9.1 It is understood and agreed that the use of the premises by Lessee shall be limited to banking and such other financial - 3 - services activities which Lessee or any affiliate or subsidiary thereof is lawfully permitted to engage. It is agreed that Lessee shall not put the leased premises to any other use absent prior written consent of Lessor, which consent may be unreasonably withheld. 10. LEASE AND CONTINGENCIES 10.1 This Lease is herein made expressly contingent upon Lessor obtaining title to the property on or before the commencement date of the lease, which commencement date may be extended as agreed in writing between the parties hereto. 10.2 This Lease is herein made expressly contingent upon Lessee obtaining all necessary regulatory approvals so as to (a) permit Lessee to be a party to this Lease; and (b) establish a branch bank at the leased premises. 11. COMPLIANCE WITH LAWS 11.1 The Lessee shall promptly comply with all laws, ordinances, rules, regulations, requirements and directives of the federal, state, and municipal governments or public authorities and of all their departments, bureaus and subdivisions, applicable to and affecting the use and occupancy of said premises for the correction, prevention and abatements of nuisances, violations, and other grievances in, upon or connected with the use and occupancy of said premises, during the term hereof, and shall promptly comply with all reasonable orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering the use and occupancy of the said premises and its contents, for the prevention of fire and other casualty, damage or injury, at the Lessee's own costs and expense. 12. REPAIRS AND MAINTENANCE 12.1 Lessee shall make no alterations, changes, additions or improvements in the leased premises without the prior written consent of Lessor. It is recognized that Lessee seeks to construct a drive through canopy. Such construction shall occur only after written consent of Lessor, and shall be at the sole cost of Lessee. 12.2 Any alterations, additions and/or improvements made by either party upon the leased premises shall become the property of Lessor and shall remain upon and be surrendered with the leased premises as part thereof at the expiration or termination of the Lease. - 4 - 13. UTILITY CHARGES 13.1 Lessee agrees to pay directly to the suppliers before delinquency all charges for water, gas, heat, electricity, power and other similar charges incurred by Lessee with respect to and during its occupancy of the leased premises. 14. REPAIRS AND MAINTENANCE 14.1 LESSOR'S RESPONSIBILITIES: As Lessee shall occupy one hundred percent of the property during the term of the Lease, and any extensions thereto, Lessor shall not have any responsibilities regarding any repairs or replacements which repairs and replacements shall be the responsibility of the Lessee as set forth in Paragraph 14.2. Additionally, Lessee recognizes that Lessor shall not be responsible for any loss or damage with respect to repairs or replacements, or the lack of repairs or replacements. 14.2 LESSEE'S RESPONSIBILITIES: The Lessee shall keep the property in good repair, at its own cost and expense, including but not limited to the roof, all structural, electrical, plumbing and mechanical systems (including the HVAC system), elevators, landscaping and parking areas. Lessee shall also comply with all applicable laws and regulations respecting the property during the entire term of this Lease. 15. INSURANCE 15.1 Lessee shall, at its own expense, at all times during the term of this Lease maintain in full force a comprehensive general liability insurance policy with an insurance company, approved by Lessor, which will insure Lessor against liability for injury to or death of persons or loss or damage to their property occurring in or about the leased premises. The minimum policy limits shall be One Million ($1,000,000.00) Dollars combined single limit coverage for each occurrence with general aggregate limit of Two Million ($2,000,000.00) Dollars. 15.2 Lessee, at its own expense, at all times during the term of this Lease shall maintain in full force adequate plate glass insurance on all plate glass installed on the leased premises. 15.3 Lessee shall, at its own expense, at all times during the term of this Lease maintain in full force all employees' workmen's, compensation insurance required under the laws of the State of New Jersey. 15.4 Lessee shall, at its own expense, at all times during the term of this Lease maintain in full force a policy or policies of fire insurance, with extended coverage, on all of Lessee's fixtures, equipment and inventory situate in the leased premises - 5 - with an insurance company or companies approved by Lessor. Said policy or policies to provide insurance equal to the replacement value of the fixtures and equipment, together with adequate inventory insurance. 15.5 Lessee shall, at its own expense, maintain hazard insurance on the commercial building and such associated improvements as are insurable to cover loss or damage by fire and other hazards normally included under "extended coverage" insurance. The amount of insurance coverage shall be a sum equal to the full replacement value of the building and other improvements to the extent available. 15.6 All insurance policies maintain by Lessee, with the exception of workmen's compensation, shall add Lessor as an additional insured (except as to contents), shall contain standard mortgagee endorsements and shall provide that the insurance carrier shall not cancel the coverage unless the carrier notifies Lessor and any mortgagee so designated by Lessor at least thirty (30) days prior to the effective date of such cancellation. 15.7 In the event the leased premises shall be damaged or destroyed by fire or other casualty so insured against, Lessee agrees that it will claim no interest in any insurance settlement arising out of any such loss, and it will sign any and all documents required by Lessor or the insurance company or companies that may be necessary for use in connection with the settlement of any such loss. 15.8 Should Lessee fail to keep in effect and pay for such insurance as required by this Section, the Lessor may do so, in which event the insurance premiums paid by Lessor shall become due and payable promptly and failure of Lessee to pay them on demand shall constitute a default of this Lease. 16. FIRE AND OTHER CASUALTY 16.1 In case of fire or other casualty, the Lessee shall give immediate notice to the Lessor. Rent shall not abate for the property unless and until Lessor provides written notice to Lessee that the Lease is terminated as a result of fire or other casualty. 17. INSPECTION AND REPAIR 17.1 The Lessee agrees that the Lessor and the Lessor's agents, employees or other representatives, shall have the right to enter into and upon the said premises and any part thereof, at all reasonable hours, upon 24 hours' notice to Lessee (except in the event of an emergency), for the purpose of examining the same or making such repairs alterations or improvements therein as may be required of the Lessor under this Lease. - 6 - 18. DAMAGE, REPAIRS 18.1 In the case of the destruction of or damage of any other kind to the leased premises caused by the carelessness, negligence or improper conduct on the part of Lessee or the Lessee's agents, employees, guests, licensees, invitees, sublessees, assignees or successors, the Lessee shall repair said damage or replace or restore any destroyed parts of the premises, as speedily as possible, at the Lessee's own cost and expense. 19. ASSIGNMENT AND SUBLET 19.1 Lessee shall not assign this Lease or any interest in this Lease, or sublet the leased premises or any part of the premises, or license the use of all or any portion of the leased premises or business conducted there, or encumber or hypothecate this Lease, without first obtaining the written consent of Lessor; and any assignment, subletting, licensing, encumbering or hypothecating of this Lease without such prior written consent shall, at the option of Lessor, terminate this Lease. 20. MORTGAGE PRIORITY/SUBORDINATION 20.1 This Lease shall not be a lien against the said premises in respect to any mortgages that may hereafter be placed upon said premises, so long as the total of all such mortgages do not exceed 9% of the market value of the premises. The recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien to this Lease, irrespective of the date of recording, and the Lessee agrees to execute any instruments, without cost, which may be deemed necessary or desirable, to further effect the subordination of this Lease to any such mortgage or mortgages. A refusal by the Lessee to execute such instruments shall entitle the Lessor to the option of cancelling this Lease, upon ten (10) days' notice in writing to lessee, and the term hereof is hereby expressly limited accordingly. 21. ENVIRONMENTAL COVENANTS 21.1 Lessee shall, at Lessee's cost and expense, comply with all applicable environmental laws and regulations pertaining to Lessee's use and occupancy of the leased premises. Lessee covenants to indemnify and hold Lessor harmless from any damages sustained by Lessor, including legal fees and costs of suit, proximately related to alleged environmental contamination or environmental damage resulting from Lessee's use and occupancy of the leased premises. 22. LESSEE REGULATIONS 22.1 Any reasonable rules and regulations with regard to the use and occupancy of the building or the leased premises by Lessee - 7 - adopted at any time during the term of this Lease and of which Lessee is notified in writing, shall in all things be observed and performed by Lessee, its servants, agents and invitees, provided that such rule shall not be inconsistent with the Lessee's rights or the Lessor's obligations as herein expressed. 23. NON-LIABILITY OF LESSOR 23.1 The Lessor shall not be liable for any damage or injury (of any nature or of any kind) which may be sustained by the Lessee or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, overhead doors, drains, leaders, gutters, downspouts or the like or of the electrical, gas, power, conveyor, refrigeration, sprinkler, air-conditioning or heating systems, elevators, or by reason of the elements, or by the acts or negligence of any person or entity not within the sole control of Lessor. 24. RIGHT TO EXHIBIT 24.1 The Lessee agrees to permit the Lessor and the Lessor's agents, employees or other representative to show the premises to persons wishing to purchase the same, and Lessee agrees that on and after six (6) months preceding the expiration of the term hereof, or any extension term, the Lessor of the Lessor's agents, employees or other representatives shall have the right to show the premises to prospective lessees and to place notices on the front of said premises or any part thereof, offering the premise for rent or for sale. All such showings of the premises shall be made at reasonable hours, upon reasonable notice to Lessee. 25. CONDEMNATION, EMINENT DOMAIN 25.1 If the land and premises leased herein, or of which the leased premises are a part, or a major portion thereof, shall be taken under eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the taking or condemnation thereof, of or in lieu of any formal condemnation proceedings or actions, the Lessor shall sell and convey the said premises of such portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land and premises or such portion thereof, then this Lease, at the option of the Lessor, shall terminate, and the term hereof shall end as of such date of transfer of title; and the Lessee shall have no claim or right to claim or be entitled to any portion of any amount which may be awarded as damages to landlord or paid to Lessor as the result of such condemnation proceedings or paid to landlord as the purchase price for such sale or conveyance in lieu of formal condemnation proceedings. The Lessee agrees to execute and deliver any instruments, at the expense of the Lessor, as may be deemed necessary or required to expedite any condemnation proceedings or - 8 - to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the said lands and premises or such portion thereof. The Lessee covenants and agrees to vacate the said premises, remove all of Lessee's property therefrom and deliver up peaceable possession thereof to and said purchaser. Failure by the Lessee to comply with any provisions in this clause shall subject the Lessee to such costs, expenses, damages and losses as the Lessor may incur by reason of the Lessee's default thereof. The Lessee shall be entitled to receive any relocation expenses awarded by a court in condemnation or paid in any negotiated acquisition in lieu of condemnation. 26. REMEDIES UPON LESSEE'S DEFAULT 26.1 If there should occur any default on the part of the Lessee in the performance of any conditions and covenants herein contained, or should the Lessee be evicted by summary proceedings or otherwise, the Lessor, in addition to any other remedies herein contained or as may be permitted by law, may re-enter the said premises and the same have and again possess and enjoy; and as agent for the Lessee or otherwise, relet the premises and received the rents therefore and apply the same, first, to the payment of such expenses, reasonable attorneys' fees and costs, as the Lessor may have been put to in re-entering and repossessing the same and, second, to the payment of the rents due hereunder. The Lessee shall remain liable for such rents as may be in arrears and also the rents as may accrue subsequent to the re-entry by the Lessor, to the extent of the difference between the rents reserved hereunder and the rents, if any, received by the Lessor during the remainder of the unexpired term hereof, after deducting the aforementioned expenses, fees and costs; the same to be paid as such deficiencies arise and are ascertained each month. 27. TERMINATION ON DEFAULT 27. 1 Upon the occurrence of any of the contingencies set forth in the preceding clauses, or should the Lessee be adjudicated bankrupt, insolvent, or placed in receivership, or should proceedings be instituted by or against the Lessee for bankruptcy, insolvency, receivership, agreement of composition, or assignment for the benefit of creditors, and the Lessee shall fail to have said proceeding terminated within sixty (60) days, or if this Lease or the estate of the Lessee hereunder shall pass to another by virtue of any court proceedings, writ of execution, levy, sale or by operation of law, the Lessor may, if the Lessor so elects, at any time thereafter, terminate this Lease, and the term hereof upon giving to the Lessee or to any trustee, receiver, assignee or other person in charge of or acting as custodian of the assets or property of the Lessee, five (5) days' notice in writing of the Lessor's intention so to do. Upon giving of such notice, this Lease and the term hereof shall end on the date fixed in such - 9 - notice as if the said date was the date originally fixed in this Lease for the expiration hereof. 28. REMOVAL OF LESSEE'S PROPERTY 28.1 Any equipment, fixtures, goods or other property of the Lessee, not removed by the Lessee upon the termination of this Lease, or upon the Lessee's eviction, shall be considered as abandoned after ten (10) days, and the Lessor shall have the right thereafter, upon five (5) days, notice in writing to the Lessee, to sell or otherwise dispose of the same, and shall not be accountable to the Lessee for any part of the proceeds of such sale, if any. All costs associated with removal of abandoned property should be at the expense of the Lessee. 29. REIMBURSEMENT OF LESSOR 29.1 If the Lessee shall fail or refuse to comply with and perform any conditions and covenants of the written Lease, the Lessor may, upon twenty (20) days' notice in writing to the Lessee, if Lessor so elects, carry out and perform such conditions and covenants, at the costs and expense of the Lessee, and the said cost and expense shall be payable on demand, or at the option of the Lessor, shall be added to the installment of rent due immediately thereafter, but in no case later than one (1) month after such demand, whichever occurs sooner, and shall be due and payable as such. This remedy shall be in addition to such other remedies as the Lessor may have hereunder by reason of the default of the Lessee of any of the covenants and conditions in this Lease contained. 30. LESSEE PURCHASE OPTION 30.1 Lessor herein grants Lessee an option to purchase the Property (Block 8401, Lot 1 and all improvements constructed thereon) from Lessor pursuant to the following terms and conditions: (a) Method of Exercising Option. Lessee shall exercise this option by providing Lessor with written notice of its intention to do so at any time during the periods as set forth hereinafter. (b) Time Periods Within Which Options May Be Exercised. Lessee must exercise this option within the following time frames: 1) Within the one hundred eighty (180) day period immediately preceding the termination date for the initial ten (10) year term of this Lease. - 10 - 2) Within the one hundred eighty (180) day period immediately preceding the termination date for the first five (5) year renewal term of this Lease. 3) Within the one hundred eighty (180) day period immediately preceding the termination date for the second five (5) year renewal term of this Lease. (c) Right to Exercise Contingency. Lessee's right to exercise this option is herein expressly made contingent upon Lessee not being in default of any of its obligations pursuant to this said Lease. (d) Purchase Price. The purchase price to be paid by Lessee to Lessor shall be established in the manner following: 1) Lessee's notice to Lessor of Lessee's intention to exercise the purchase option pursuant to 30.1(a) shall include the purchase price that Lessee is proposing to pay. 2) Lessor shall have fifteen (15) business days from receipt of Lessee's notice to advise Lessee as to whether the proposed purchase price as set forth in Lessee's notice is acceptable to Lessor. 3) In the event that Lessor does not accept the purchase price as proposed by Lessee then, in that event, Lessor and Lessee shall both obtain and exchange written appraisals from qualified independent appraisers within forty-five (45) days of landlord's receipt of Lessee's notice to exercise the purchase option. 4) If the value established by the independent appraisals obtained by Lessor and Lessee do not vary by more than five (5) percent then, in that event, the purchase price shall be the higher of the two appraisals. 5) In the event that the independent appraisals obtained by Lessor and Lessee vary by more than five (5) percent, then the appraisers selected by Lessor and Lessee shall jointly select a third appraiser who shall prepare, at Lessor and Lessee's joint expense, a third appraisal. The purchase price shall be the average of the three appraisals provided, however, in no event shall Lessor be required to convey the Property to Lessee for a purchase price of less than: - 11 - (i) $675,000 in the event the option is exercised during the initial ten (10) year term. (ii) $904,000 in the event the option is exercised during the initial five (5) year renewal term. (iii) $1,210,000 in the event the option is exercised during the second five (5) year renewal term. (e) Closing of Title. Lessor shall convey by Bargain and Sale Deed with Covenants Against Grantor's Acts at closing of title which shall take place at Lessor's principal place of business on or about the 90th day subsequent to the purchase price having been established. At closing, Lessor shall be paid the purchase price by way of certified check. (f) Quality of Title. The title to be conveyed by Lessor shall be good and marketable title and such title as will be insurable by a reputable title insurance company subject to easements and restrictions of record, applicable zoning regulations and such facts as shall be demonstrated by accurate survey. 31. NON-PERFORMANCE BY LESSOR 31.1 This Lease and the obligation of the Lessee to pay the rent hereunder and to comply with the covenants and conditions hereof, shall not be affected, curtailed, impaired or excused because of the Lessor's inability to supply any service or material called for herein, or by reason of any rule, order, regulation or pre-emption by any governmental entity, authority, department, agency or subdivision or to any delay which may arise by reason of negotiations for the adjustment of any fire or other casualty loss or because of strikes or other labor trouble or for any cause beyond the control of the Lessor. 32. VALIDITY OF LEASE 32.1 The terms, conditions, covenants and provisions of this Lease shall be deemed to be severable. If any clause of provisions herein contained shall be adjudged to be invalid of unenforceable by a Court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. - 12 - 33. NON-WAIVER BY LESSOR 33.1 The various rights, remedies, option and elections of the Lessor, expressed herein, are cumulative and the failure of the Lessor to enforce strict performance by the Lessee of the conditions and covenants of this Lease or to exercise any election or option or to resort or have recourse to any remedy herein conferred or the acceptance by the Lessor of any installment or rent after any default by the Lessee, in any or more instances shall not be construed or deemed to be a waiver or a relinquishment for the future by the Lessor or any such condition and covenants, options, elections or remedies, but the same shall continue in full force and effect. 34. NOTICES 34.1 All notices required under the terms of this Lease shall be given and shall be complete by mailing such notices by certified mail, return receipt requested, to the address of the party to be noticed or to such other address as may be designated in writing, which change of address shall be given in the same manner, as follows: For Lessor: Attn: Robert Van Volkenburgh PREMIERE DEVELOPMENT, L.L.C. Allen Center, Suite 103 150 Allen Road Liberty Corner, NJ 07938 For the Lessee: Attn: James Hyman FIRST COMMUNITY BANK 64 Old Highway 22 Clinton, New Jersey 08809 35. COVENANT OF QUIET ENJOYMENT 35.1 The Lessee, upon payment of the rent herein reserved and upon the performance of all the terms of the Lease, shall at all times during the Lease term and during any extension term, peaceably and quietly enjoy the leased premises without any disturbance from the Lessor or from any other person claiming through the Lessor. The Lessor shall comply with all the terms of and make all payments due on mortgages placed by the Lessor on the premises, and shall pay all real estate taxes on the premises before they become delinquent. 36. LATE PAYMENTS 36.1 A late charge of 5% of all amounts due shall be assessed against any payment not received within fifteen (15) days after such payment is due. - 13 - 37. SPECIAL CONDITIONS TERMINATION 37.1 Notwithstanding any other provisions contained in this Lease, in the event (a) Lessee or its successors or assignees shall become insolvent or bankrupt, or if it or their interests under this Lease shall be levied upon or sold under execution or other legal process, or (b) the depository institution then operating on the Premises is closed, or is taken over by any depository institution supervisory authority ("Authority") , Lessor may, in either such event, terminate this Lease only with the concurrence of any Receiver or Liquidator appointed by such Authority; provided, that in the event this Lease is terminated by the Receiver or Liquidator, the maximum claim of Lessor for rent, damages, or indemnity for injury resulting from the termination, rejection, or abandonment of the unexpired Lease shall by law in no event be in an amount equal to all accrued and unpaid rent to the date of termination. 38. ENTIRE CONTRACT 38.1 This Lease contains the entire contract between the parties. No representative, agent or employee of the Lessor has been authorized to make any representations or promises with reference to the within letting or to vary, alter or modify the terms hereof. No additions, changes or modifications, renewals or extensions hereof, shall be binding unless reduced to writing and signed by the Lessor and Lessee. [BALANCE OF THIS PAGE INTENTIONALLY OMITTED] - 14 - ALL THE TERMS, COVENANTS AND CONDITIONS herein contained shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assignees. PREMIERE DEVELOPMENT, L.L.C., as Lessor By: /S/ [SIGNATURE] ------------------------------------ FIRST COMMUNITY BANK, as Lessee By: /S/ [SIGNATURE] ------------------------------------ - 15 - EX-10.(VI) 10 CHANGE IN CONTROL AGREEMENT Exhibit 10(vi) UNITY BANCORP, INC. CHANGE IN CONTROL AGREEMENT This Agreement is made as of the ___ day of ____________, 1995 by and between UNITY BANCORP INC., a Delaware corporation, having its principal place of business at 219 Concourse Drive, Annandale, New Jersey 08801 ("Company") and PETER SCHOBERL, an individual having his place of residence at __________________ (the "Executive"). PURPOSE. Executive is presently employed by the Company's banking subsidiary, First Community Bank (the "Bank"), as its Executive Vice President. The purpose of this Agreement is to protect Executive from any financial hardship in the event there is a Change in Control (as defined herein) of the Company. NOW, THEREFORE, it is agreed as follows: Section 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings assigned to them below: (a) The terms "Base Salary" shall mean the Executive's annual salary as of January, 1995. The Executive's current Base Salary is $_____________. (b) The term "Change in Control" means a merger or consolidation of the Bank or the Company into another corporation as a result of which the shareholders of the Company prior to such merger or consolidation have less than 50% of the voting power of the surviving or resulting corporation. (c) "Date of Termination" means the last day the Executive is employed by the Company or its successor. (d) "Notice of Termination" means the notice required to be given pursuant to Section 2. (e) The term "for Cause" shall mean: (i) Any willful and continued failure to perform the material terms of this Agreement required to be performed by the Executive after demand for performance is delivered by the Company in a writing that specifically identifies the manner in which the Company believes the Executive has not performed such material duty; or (ii) Any deliberate disobedience, willful neglect or refusal by the Executive to comply with any lawful and reasonable directions of the Board of Directors the Company or any member of senior management to whom the Executive reports; or (iii) The conviction of Executive for a felony, with the willful commission by Executive of a criminal or other act that in the judgment of the Board of Directors of the Company causes or will probably cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; or (iv) The order of any federal or state regulatory agency or court of competent jurisdiction requiring the termination or suspension of Executive's employment. No act or failure to act on the Executive's part shall be considered willful unless done or omitted to be done by him both in bad faith and without reasonable belief that his action or omission -2- was in the best interests of the Company. The Executive shall be entitled to reasonable notice and shall be entitled to an opportunity to be heard and in all cases the Company shall act reasonably and in good faith in asserting that Executive has been terminated "for Cause." In no event shall any failure, disobedience or neglect be deemed to be willful in the event the Executive reasonably (even though it is later determined incorrectly) believed that such performance or compliance was either not unlawful or was not required by him. Section 2. RIGHTS OF THE EXECUTIVE ON A CHANGE IN CONTROL. (a) Upon the occurrence of a Change In Control during the term hereof, in the event Executive's employment is terminated other than for "cause", the Executive shall be entitled to receive the following payments from the Company or its successors: (i) 100% of his Base Salary through December 31,1995; thereafter, (ii) 75% of his Base Salary from January 1, 1996 through December 31, 1996; thereafter, (iii) 50% of his Base Salary from January 1, 1997 through December 31, 1997; and thereafter, (iv) 25% of his Base Salary from January 1, 1998 through December 31, 1998. -3- (b) After December 31, 1998, the Executive will not be entitled to any compensation from the Company or the Bank, or their successors, under this Agreement. (c) Upon the occurrence of any Change in Control during the term of this Agreement, Executive shall be entitled to resign from his employment with the Company, the Bank or their successors, and have such resignation treated as a termination without "cause" for purposes of paragraph (a) above, in the event that within eighteen (18) months of the occurrence of a Change In Control, the Company, the Bank or their successors (i) reassigns the Executive to a position of lesser rank or status than that which he held prior to the Change In Control, (ii) relocates the Executive's principal place of employment by more than thirty miles from its location prior to the Change In Control, or (iii) reduces the Executive's compensation or other benefits. Upon the occurrence of any of these events, the Executive shall have thirty days to resign from his employment with the Company, the Bank or their successors. Section 3. OTHER TERMINATION. In the event the Executive's employment is terminated and there has been no Change in Control and no Change in Control is being negotiated, the Company and the Bank shall have no further obligations to Executive hereunder. Section 4. TERM. -4- The term of this Agreement shall be deemed to have commenced as of January 1, 1995 and shall continue until December 31, 1998, unless a Change Of Control shall have occurred. Section 5. SUCCESSORS; BINDING AGREEMENT. The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company or the Bank, expressly and unconditionally to assume and agree to perform the Company's obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. Section 6. NOTICE. For the purpose of this Agreement, notices, demands and all other communications provided for in the Agreement shall be in writing and shall be deemed sufficient if sent by registered mail, return receipt requested, to the Executive's residence as last known to the Company in the case of the Executive, or to the Company's principal office in the case of the Company. Section 7. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed -5- by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey. Section 8. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in force and effect. Section 9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original agreement. Section 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted by a single arbitrator in Newark, New Jersey, in accordance with the rules of the American Arbitration Association then in effect. Such arbitrator shall be mutually agreed upon by the Company and the Executive and shall be a person who is familiar with Executive practices in the banking industry. In the event the parties are unable to agree upon a single arbitrator, arbitration shall be made by a three member panel with each party selecting one member and such two members agreeing on a third. Each party shall act reasonably in attempting -6- to agree on an arbitrator. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The expense of such arbitration, including the Executive's reasonable legal fee, shall be borne by the Company, unless it is found that the Executive was discharged for Cause, or that the Executive did not act in good faith in challenging the Company's position, in which event the Company and the Executive shall each pay one-half of the cost of the arbitration and each shall bear the cost of its case. IN WITNESS WHEREOF, the parties hereto have signed, or cause their duly authorized agents to sign this Agreement as of the date first above written. UNITY BANCORP, INC. By:_____________________ Name Position EXECUTIVE By:/S/ PETER SCHOBERL ------------------ -7- EX-21 11 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of the Registrant First Community Bank EX-23.(II) 12 ACCOUNTANTS CONSENT Exhibit 23(ii) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Unity Bancorp, Inc. As independent public accountants, we hereby consent to the use of our report and to all references to our firm included in this Registration Statement on Form SB-2. ARTHUR ANDERSEN LLP Roseland, New Jersey September 23, 1996 EX-24 13 POWER OF ATTORNEY EXHIBIT 24 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints any one of Robert Van Volkenburgh or James Hyman, his true and lawful attorn6y-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Name Title Date ---- ----- ---- /s/ ROBERT VAN VOLKENBURGH - -------------------------- Robert Van Volkenburgh Chairman of the Board, Chief Executive Officer and Director (Principal September 20, 1996 Executive Officer) /s/ JAMES HYMAN - -------------------------- James Hyman President, Chief Operating Officer and Director September 20, 1996 /s/ DAVID DALLAS - -------------------------- David Dallas Director, Vice Chairman of September 20, 1996 the Board and Secretary /s/ THOMAS MARESCA - -------------------------- Thomas Maresca Chief Financial officer (Principal Financial and Accounting Officer) September 20, 1996
EX-27 14 ARTICLE 9 FDS FOR SB-2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED JUNE 30, 1996 INTERIM FINANCIAL STATEMENTS AND AUDITED DECEMBER 31, 1995 YEAR END FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS YEAR DEC-31-1996 DEC-31-1995 JUN-30-1996 DEC-31-1995 3,683,048 1,147,764 10,927,449 15,917,094 1,925,000 7,625,000 0 0 13,854,797 16,304,282 20,353,571 19,856,743 19,515,086 19,264,315 84,064,412 59,108,042 774,417 561,931 138,447,897 121,804,040 125,623,250 110,997,624 0 0 558,400 820,007 2,010,000 1,510,000 0 0 0 0 9,462,444 7,371,889 793,803 1,104,520 138,447,897 121,804,040 3,486,678 4,781,664 1,288,877 2,696,182 173,844 291,638 4,949,399 7,769,484 2,076,929 3,210,623 2,136,140 3,333,866 2,813,259 4,435,618 257,288 228,560 31,850 (18,999) 2,791,262 3,978,270 814,913 1,613,966 814,913 1,613,966 0 0 0 0 502,618 1,004,935 0.47 1.04 0.47 1.04 4.55 4.70 166,129 77,977 151,385 261,704 0 0 0 0 561,931 380,191 44,802 50,257 0 3,437 774,417 561,931 774,417 561,931 0 0 0 0
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