<PAGE>
As filed with the Securities and Exchange Commission on May 8, 1996
Registration No. 33-80123
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
OCEAN FINANCIAL CORP.
Retirement Plan for Ocean Federal Savings Bank
(exact name of registrant as specified in its certificate of incorporation)
DELAWARE 6035 22-3412577
(state or other jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
74 Brick Boulevard
Brick, New Jersey 08723
(908) 477-5200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
John R. Garbarino
President and Chief Executive Officer
Ocean Federal Savings Bank
74 Brick Boulevard
Brick, New Jersey 08723
(908) 477-5200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Joseph G. Passaic, Jr., Esquire
Ann E. Cox, Esquire
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / X /
----
<TABLE>
<CAPTION>
============================================================================================================
Proposed
Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stock 9,059,125
$.01 par Value Shares $20.00 $181,182,500(1) (2)
- ------------------------------------------------------------------------------------------------------------
Participation Interests 180,000 Shares -- -- (3)
============================================================================================================
</TABLE>
(1) Represents 8,388,078 shares which are to be offered for sale in the
Offerings at a price of $20 per share, and 671,047 shares which will be
contributed to a charitable foundation.
(2) The registration fee of $70,686 was previously paid upon the initial filing
of the Form S-1.
(3) The securities of Ocean Financial Corp. to be purchased by the Ocean
Federal Savings Bank Retirement Plan were included in the amount shown for
Common Stock. Accordingly, no separate fee is required for the
participation interests. In accordance with Rule 457(h) of the Securities
Act of 1933, as amended, the registration fee has been calculated on the
basis of the number of shares of Common Stock that may be purchased with
the current assets of such Plan.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
OCEAN FINANCIAL CORP.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of
Form S-l/1/:
<TABLE>
<CAPTION>
Registration Statement Item and Caption Prospectus Headings
--------------------------------------- -------------------
<S> <C> <C>
l. Forepart of the Registration Statement and Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Conversion-- Stock Pricing
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The Conversion --
Subscription Offering and Subscription
Rights; --Community Offering; --Syndicated
Community Offering
9. Description of Securities to be Registered The Conversion -- Certain Restrictions on
Purchases or Transfer of Shares After
Conversion; Restrictions on Acquisition of
the Company and the Bank; Description of the
Capital Stock of the Company; Description of
the Capital Stock of the Bank
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Front Cover Page; Ocean Financial Corp.;
Ocean Federal Savings Bank; Dividend Policy;
Consolidated Statements of Income;
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of the Bank; Business of the Bank;
Regulation; Management of the Company;
Management of the Bank; The Conversion;
Description of the Capital Stock of the
Company; Description of the Capital Stock of
the Bank; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
________________________
/1/ Prospectus Supplement precedes the prospectus.
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
OCEAN FINANCIAL CORP.
(Proposed Holding Company for Ocean Federal Savings Bank)
__________ Shares of Common Stock
Ocean Financial Corp. (the "Company"), a Delaware corporation, is offering
for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $20.00, of its common
stock, par value $.01 per share (the "Common Stock"), to be issued upon the
conversion of Ocean Federal Savings Bank, Brick, New Jersey (the "Bank") from a
federally chartered mutual savings bank to a federally chartered stock savings
bank and the issuance of the Bank's outstanding capital stock to the Company
pursuant to a plan of conversion, as amended, (the "Plan of Conversion"). The
remaining __________ shares of the Common Stock have been subscribed for in
subscription and community offerings (the "Subscription and Community
Offerings") by the Bank's holders of deposit accounts with the Bank with a
balance of $50 or more as of July 31, 1994, by the Ocean Federal Savings Bank
Employee Stock Ownership Plan, a tax-qualified employee benefit plan, and
related trust (the "ESOP"), by holders of deposit accounts with a balance of $50
or more as of March 31, 1996, by certain other account holders and borrowers of
the Bank and then by certain members of the general public. See "The Conversion
- - General." Contained herein is the Prospectus in the form used in the
Subscription and Community Offerings. The purchase price for all shares
purchased in the Syndicated Community Offering will be the same as the price
paid by subscribers in the Subscription and Community Offerings (the "Purchase
Price"). The Purchase Price of $20.00 per share is the amount to be paid for
each share at the time a purchase order is submitted. See the cover page of the
Prospectus and the table below for information as to the method by which the
range within which the number of shares offered may vary and the method of
subscribing for shares of the Common Stock.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1996, unless extended by the Bank and the Company
with the approval of the Office of Thrift Supervision (the "OTS"). Such
extensions may not go beyond _______________, 1998. If an extension of time has
been granted, all subscribers will be notified of such extension, and of their
rights to confirm their subscriptions, or to modify or rescind their
subscriptions and have their funds returned promptly with interest, and of the
time period within which the subscriber must notify the Bank of his intention to
confirm, modify or rescind his subscription. If an affirmative response to any
resolicitation is not received by the Bank and the Company from subscribers,
such orders will be rescinded and all funds will be returned promptly with
interest. The minimum number of shares which may be purchased is 25 shares.
Except for the ESOP, which may purchase up to 10% of the total number of shares
of Common Stock issued in the
<PAGE>
Conversion, no person, together with associates of and persons acting in concert
with such person, may purchase more than the total number of shares offered in
the Community Offering and the Syndicated Community Offering that could be
purchased for $200,000 at the Purchase Price and no person, together with
associates of and persons acting in concert with such person, may purchase more
than 1.0% of the total number of shares issued in the Conversion. See "Plan of
Conversion - Subscription Rights and Limitations on Common Stock Purchases."
The Company reserves the right, in its absolute discretion, to accept or reject,
in whole or in part, any or all subscriptions in the Syndicated Community
Offering.
The Company and the Bank have engaged Sandler, O'Neill & Partners, L.P.
("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering. It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected
Dealers will be 1.75% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Sandler O'Neill nor any Selected Dealer
shall have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.
The Company has received conditional approval from the National Association
of Securities Dealers to have its Common Stock listed on the Nasdaq National
Market ("Nasdaq") under the symbol "OCFC." Prior to this offering, there has
not been a public market for the Common Stock, and there can be no assurance
that an active and liquid trading market for the Common Stock will develop. The
absence or discontinuance of a market may have an adverse impact on both the
price and liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE
TREASURY, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
=======================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $20.00 $ $ $
Midpoint Per Share $20.00 $ $ $
Maximum Per Share $20.00 $ $ $
Total Minimum(5) $ $ $ $
Total Midpoint $ $ $ $
Total Maximum(5) $ $ $ $
Total Maximum, As Adjusted(6) $ $ $ $
===================================================================================================
</TABLE>
______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and the
Company in connection with the Conversion (other than estimated fees to be
paid to Sandler O'Neill for services in connection with the Subscription and
Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________
million and $__________ million at the minimum and the maximum of the
estimated price range and may be deemed to be underwriting fees. The
information under "Pro Forma Data" in the Prospectus was based on the
assumptions stated therein, which may differ from the estimates used for
this table. See "The Conversion - Marketing and Underwriting Arrangements"
for a more detailed discussion of fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
sale of the __________ shares subscribed for at a price of $20.00 per share
and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $20.00
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $20.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
an increase in the Estimated Price Range of up to 15% to reflect changes in
market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1996.
3
<PAGE>
PROSPECTUS SUPPLEMENT
- ---------------------
OCEAN FINANCIAL CORP.
RETIREMENT PLAN FOR
OCEAN FEDERAL SAVINGS BANK
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the Retirement Plan for Ocean Federal Savings Bank (the
"Plan" or the "401(k) Plan") of participation interests and shares of Ocean
Financial Corp. common stock, par value $.01 per share (the "Common Stock"), as
set forth herein.
In connection with the proposed conversion of Ocean Federal Savings Bank
(the "Bank" or "Employer") from a mutual savings bank to a stock savings bank, a
holding company, Ocean Financial Corp. (the "Company"), has been formed. The
simultaneous conversion of the Bank to the stock form, the issuance of the
Bank's common stock to the Company and the offer and sale of the Company's
Common Stock to the public are herein referred to as the "Conversion." The
Board of Directors of the Bank has amended the Diversified Investment Advisors,
Inc. Plan to permit the investment of Plan assets in Common Stock of Ocean
Financial Corp. The Plan will permit Participants to direct the trustee of the
Plan to purchase Common Stock with amounts in the Plan attributable to such
Participants. This Prospectus Supplement relates to the initial election of a
Participant to direct the purchase of Common Stock in connection with the
Conversion and also to elections to purchase Common Stock after the Conversion.
The Prospectus dated [________________] of the Company (the "Prospectus")
which is attached to this Prospectus Supplement, includes detailed information
with respect to the Conversion, the Common Stock and the financial condition,
results of operation and business of the Bank and the Company. This Prospectus
Supplement, which provides detailed information with respect to the Plan, should
be read only in conjunction with the Prospectus. Terms not otherwise defined in
this Prospectus Supplement are defined in the Plan or the Prospectus.
A Participant's eligibility to purchase Common Stock in the Conversion
through the Plan is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion and the maximum and minimum purchase
limitations set forth in the Plan of Conversion. See "The Conversion" and
"Limitations on Common Stock Purchases" in the Prospectus.
For a discussion of certain special risks that should be considered by each
Participant, see "Special Considerations" in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER AGENCY,
NOR HAS SUCH COMMISSION, DEPARTMENT, CORPORATION OR ANY STATE SECURITIES
COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is [____________________].
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, Bank or the Plan. This Prospectus Supplement does
not constitute an offer to sell or solicitation of an offer to buy any
securities in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus Supplement and the Prospectus nor any sale made hereunder shall under
any circumstances create any implication that there has been no change in the
affairs of the Bank or the Plan since the date hereof, or that the information
herein contained or incorporated by reference is correct as of any time
subsequent to the date hereof. This Prospectus Supplement should be read only
in conjunction with the Prospectus that is attached hereto and should be
retained for future reference.
2
<PAGE>
TABLE OF CONTENTS
Page
----
The Offering......................................... 4
Securities Offered.............................. 4
Election to Purchase Common Stock in the
Conversion.................................... 4
Value of Participation Interests................ 4
Method of Directing Transfer.................... 4
Time for Directing Transfer..................... 5
Irrevocability of Transfer Direction............ 5
Direction to Purchase Common Stock
After the Conversion.......................... 5
Purchase Price of Common Stock.................. 5
Nature of a Participant's Interest in the
Common Stock.................................. 6
Voting and Tender Rights of Common Stock........ 6
Description of the Plan.............................. 7
Introduction.................................... 7
Eligibility and Participation................... 8
Contributions Under the Plan.................... 8
Limitations on Contributions.................... 9
Investment of Contributions..................... 11
Benefits Under the Plan......................... 14
Withdrawals and Distributions From the Plan..... 14
Administration of the Plan...................... 15
Reports to Plan Participants.................... 16
Plan Administrator.............................. 16
Amendment and Termination....................... 16
Merger, Consolidation or Transfer............... 17
Federal Income Tax Consequences................. 17
ERISA and Other Qualifications.................. 20
Restrictions on Resale.......................... 20
SEC Reporting and Short-Swing Profit Liability.. 21
Legal Opinions....................................... 22
Investment Form
3
<PAGE>
THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the Plan
and up to 180,000 shares, at the actual purchase price of $20.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Company is the issuer of the Common Stock. Only
employees of the Bank may participate in the Plan. Information with regard to
the Plan is contained in this Prospectus Supplement and information with regard
to the Conversion and the financial condition, results of operations and
business of the Bank and the Company is contained in the attached Prospectus.
The address of the executive office of the Bank is 74 Brick Boulevard, Brick,
New Jersey 08723. The Bank's telephone number is (908) 477-5200.
Election to Purchase Common Stock in the Conversion
In connection with the Bank's Conversion, the Bank has amended the
Ocean Federal Savings Bank Profit Sharing Plan and Trust so as to permit each
Participant to direct the trustee of the Plan ("Trustee") to transfer all or
part of the funds which represent his or her beneficial interest in the assets
of the Plan to an employer stock fund ("Employer Stock Fund") and to use such
funds to purchase Common Stock issued in connection with the Conversion.
Amounts transferred will include salary deferral, Bank Matching Contributions,
(as defined in the Plan) and rollover contributions, if any. The Employer Stock
Fund will consist of investments in the Common Stock made on or after the
effective date of the Conversion. Funds not transferred to the Employer Stock
Fund will remain in the other investment funds of the Plan as directed by the
Participant. A Participant's ability to transfer funds to the Employer Stock
Fund in the Conversion is subject to the Participant's general eligibility to
purchase shares of Common Stock in the Conversion. For general information as
to the ability of Participants to purchase shares in the Conversion, see "The
Conversion--Subscription Offering and Subscription Rights" in the attached
Prospectus.
Value of Participation Interests
The assets of the Plan are valued on an ongoing basis and each
Participant is informed of the value of his or her beneficial interest in the
Plan on a quarterly basis. This value represents the market value of past
contributions to the Plan by the Bank and by the Participants and earnings
thereon, less previous withdrawals.
Method of Directing Transfer
The last page of this Prospectus Supplement is an investment form to
direct a transfer to the Employer Stock Fund (the "Investment Form"). If a
Participant wishes to transfer all or part of his or her beneficial interest in
the assets of the Plan to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, he or she should indicate that
decision
4
<PAGE>
in Part 2 of the Investment Form. If a Participant does not wish to make such
an election, he or she does not need to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Common Stock issued in connection with
the Conversion is [____________]. The Investment Form should be returned to the
Bank's Human Resources Department by 12:00 noon, Brick, New Jersey Time, on such
date.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable up to the closing of the Conversion. Participants, however, will be
able to direct the reinvestment of their accounts ("Accounts") including their
interest in the Employer Stock Fund under the Plan as explained below.
Direction to Purchase Common Stock After the Conversion
After the Conversion, a Participant will be able to direct that a
certain percentage of such Participant's interests in the trust assets ("Trust")
be transferred to the Employer Stock Fund and invested in Common Stock, or to
the other investment funds available under the Plan. Alternatively, a
Participant may direct that a certain percentage of such Participant's interest
in the Employer Stock Fund be transferred from the Employer Stock Fund to the
other investment funds available under the Plan. Participants will be permitted
to direct that future contributions made to the Plan by or on their behalf be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed by the
Participant, with each change generally becoming effective at the close of
business on the day the change is received by the Plan Administrator. Special
restrictions apply to transfers directed by those Participants who are executive
officers, directors and principal shareholders of the Company who are subject to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of Common Stock. The price paid for such shares of Common Stock
will be the same price as is paid by all other persons who purchase shares of
Common Stock in the Conversion.
Any shares of Common Stock purchased by the Trustee after the
Conversion will be acquired in open market transactions. The prices paid by the
Trustee for shares of Common Stock will not exceed "adequate consideration" as
defined in Section 3(18) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
5
<PAGE>
Nature of a Participant's Interest in the Common Stock
The Common Stock will be held in the name of the Trustee for the Plan,
as trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of shares of Common Stock will not be directly attributable to
the account of any Participant. Net earnings, e.g., gains and losses, are
----
allocated to the Account of a Participant based on the particular investment
designations of the Participants. Therefore, earnings with respect to a
Participant's Account should not be affected by the investment designations
(including investments in Common Stock) of other Participants.
Voting and Tender Rights of Common Stock
The Trustee generally will exercise voting and tender rights
attributable to all Common Stock held by the Trust as directed by Participants
with interests in the Employer Stock Fund. With respect to each matter as to
which holders of Common Stock have a right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively. In the event of a tender offer for the Common Stock,
the Plan provides that each Participant will be allotted a number of tender
instruction rights reflecting such Participant's proportionate interest in the
Employer Stock Fund. The percentage of shares of Common Stock held in the
Employer Stock Fund that will be tendered will be the same as the percentage of
the total number of tender instruction rights that are exercised in favor of
tendering. The remaining shares of Common Stock held in the Employer Stock Fund
will not be tendered. The Plan makes provision for Participants to exercise
their voting instruction rights and tender instruction rights on a confidential
basis.
DESCRIPTION OF THE PLAN
Introduction
Effective as of September 1, 1988, the Bank adopted the Plan. The
Plan is a cash or deferred arrangement established in accordance with the
requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code").
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable Treasury Regulations. The Plan
has from the Internal Revenue Service ("IRS") a determination that the Plan, as
amended, is qualified under Section 401(a) of the Code and that it satisfies
the requirements for a qualified cash or deferred arrangement under Section
401(k) of the Code.
6
<PAGE>
Employee Retirement Income Security Act. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS
MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, UNLESS A PARTICIPANT
RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL
OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are
summaries of certain provisions of the Plan. They are not complete and are
qualified in their entirety by the full text of the Plan, which is filed as an
exhibit to the registration statement filed with the Securities and Exchange
Commission ("SEC"). Copies of the Plan are available to all employees by filing
a request with the Plan Administrator. Each employee is urged to read carefully
the full text of the Plan.
Eligibility and Participation
Any employee of the Bank is eligible to participate and will become a
Participant in the Plan on the first day of the month immediately following
completion of six months of service with the Bank within a twelve month period
of employment and attaining age 21 years. The Plan's fiscal year is the
calendar year ("Plan Year"). Directors who are not employees of the Bank are
not eligible to participate in the Plan.
As of December 31, 1995, there were approximately 209 employees
eligible to participate in the Plan, and approximately 177 employees had elected
to contribute to the Plan.
Contributions Under the Plan
Participant Contributions. Each Participant in the Plan is permitted
to elect to reduce such Participant's Compensation (as defined below) pursuant
to a salary reduction agreement by an amount not more than 15% and have that
amount contributed to the Plan on such Participant's behalf. Such amounts are
credited to the Participant's "401(k) Account." For purposes of the Plan,
"Compensation" means a Participant's base salary, bonuses and commissions. Due
to a
7
<PAGE>
statutory change, effective January 1, 1994, the annual Compensation of each
Participant taken into account under the Plan shall be limited to $150,000
(adjusted for cost of living as permitted by the Code). A Participant may elect
to modify the amount contributed to the Plan under such Participant's salary
reduction agreement, which changes generally become effective for the next
payroll period processed through the Bank's named procedures. Deferred
contributions are generally transferred by the Bank to the Trustee of the Plan
at each payroll.
Employer Contributions. The Bank currently makes a bi-weekly
contribution to the Plan of an amount equal to 75% of each Participant's bi-
weekly contributions to his or her 401(k) Account, up to a maximum of 4.5% of
each Participant's bi-weekly compensation. Effective on or about April 1, 1996,
and contingent upon the consummation of the Conversion, the Employer
Contribution will be limited to a maximum of 50% of each Participant's
contributions and 3% of such Participant's compensation. Such amounts are
credited to the Participant's Regular Account.
When an Employer Contribution is made, it will be made in the form of
a cash contribution into the Employer Stock Fund. Twenty-five percent (measured
on the first day of each plan year) of the amount attributable to the Employer
Contribution may be reallocated once per year.
Rollover Amount from Other Plans. An employee eligible to participate
in the Plan, who has satisfied the service requirements, and who, as a result of
a plan termination, termination of employment, disability, or attainment of age
59 1/2, has had distributed to such employee the entire interest in another plan
which meets the requirements of Section 401(a) of the Code (the "Other Plan")
may, in accordance with Section 402(a)(5) of the Code and procedures approved at
the discretion of the Trustee, transfer the distribution received from the Other
Plan to the Trustee. Any amounts rolled over from an Other Plan will be
contributed to the employee's "Rollover Account."
Voluntary Employee Contributions. A Participant may make voluntary
contributions each plan year in increments of 1% of salary. These voluntary
contributions will not reduce the amount of earnings on which the Participant
pays taxes since they will be made on an after-tax basis. These contributions
are eligible for matching Employer contributions subject to the limitations set
out above.
Limitations on Contributions
Limitations on Annual Additions and Benefits. Pursuant to the
requirements of the Code, the Plan provides that the amount of contributions
allocated to each Participant's 401(k) Contribution Account during any Plan Year
may not exceed the lesser of 25% of the Participant's "Section 415 Compensation"
for the Plan Year or $30,000 (adjusted for increases in the cost of living as
permitted by the Code). A Participant's "Section 415 Compensation" is a
Participant's Compensation, excluding any amount contributed to the Plan under a
compensation reduction agreement or any employer contribution to the Plan or to
any other plan of deferred compensation or any distributions from a plan of
deferred compensation. In addition, annual additions shall be
8
<PAGE>
limited to the extent necessary to prevent the limitations for the combined
plans of the Bank from being exceeded. To the extent that these limitations
would be exceeded by reason of excess annual additions to the Plan with respect
to a Participant, such excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to
reduce the Bank's contributions for such Participant in the next
Limitation Year, which is the same as the plan year, and each
succeeding Limitation Year if necessary;
(ii) If an excess amount still exists, and the Participant is not covered
---
by the Plan at the end of the Limitation Year, the excess amount
will be held unallocated in a suspense account which will then be
applied to reduce future Bank contributions for all remaining
Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of
investment gains and losses.
However, if the annual addition limitations are exceeded with respect to a
Participant in both the Plan and the defined benefit pension plan maintained by
the Bank, the Participant's annual benefit under the pension plan will be
reduced.
$7,000 Limitation on 401(k) Plan Contributions. The annual amount of
deferred compensation of a Participant (when aggregated with any elective
deferrals of the Participant under any other employer plan, a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000, adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1996 is $9,500). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15th following the close of the taxable year in which the excess deferral
is made. Any income on the excess deferral that is distributed not later than
such date shall be treated, for federal income tax purposes, as earned and
received by the Participant in the taxable year in which the excess deferral is
made.
Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a plan year (i.e.,
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of Deferred Compensation credited to the
401(k) Account of such eligible employee by such eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual deferral percentage of all other
eligible employees,
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<PAGE>
or (b) the lesser of (i) 200% of the actual deferral percentage of all other
eligible employees, or (ii) the actual deferral percentage of all other eligible
employees plus two percentage points. In addition, the actual contribution
percentage for a Plan Year (i.e., the average of the ratios calculated
separately for each eligible employee in each group, by dividing the amount of
employer contributions credited to the Regular Account of such eligible employee
by such eligible employee's compensation for the Plan Year) of the Highly
Compensated Employees may not exceed the greater of (a) 125% of the actual
contribution percentage of all other eligible employees, or (b) the lesser of
(i) 200% of the actual contribution percentage of all other eligible employees,
or (ii) the actual contribution percentage of all other eligible employees plus
two percentage points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer), (2) received compensation from the Employer in excess of $100,000,
(3) received compensation from the Employer in excess of $66,000 and was in the
group consisting of the top 20% of employees when ranked on the basis of
compensation paid during the Plan Year, or (4) was at any time an officer of the
Employer and received compensation in excess of $60,000 (a "Highly Compensated
Employee"). The dollar amounts in the foregoing sentence are for 1995. Such
amounts are adjusted annually to reflect increases in the cost of living. If
the Employer does not have at least one officer whose annual compensation is in
excess of $60,000, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
In order to prevent the disqualification of the Plan, any amounts
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Bank will be subject
to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2-1/2 months
following the Plan Year to which such excess contributions relate. In addition,
in order to avoid disqualification of the Plan, any contributions by Highly
Compensated Employees that exceed the average contribution limitation in any
Plan Year ("excess aggregate contributions") together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the 10% excise tax will be imposed
on the Bank with respect to any excess aggregate contributions, unless such
amounts, plus any income allocable thereto, are distributed within 2-1/2 months
following the close of the Plan Year in which they arose.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees, and (ii)
certain additional restrictions would apply with respect to the combination of
annual additions to the Plan and projected annual benefits under any defined
benefit plan maintained by the Bank.
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<PAGE>
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees exceeds 60% of the aggregate
balance of the Accounts of all Participants. "Key Employees" generally include
any employee who, at any time during the Plan Year or any of the four preceding
Plan Years, is (1) an officer of the Bank having annual compensation in excess
of $60,000 who is in an administrative or policy-making capacity, (2) one of the
ten employees having annual compensation in excess of $30,000 and owning,
directly or indirectly, the largest interests in the Bank or the Company, (3) a
5% owner of the Bank or the Company, (i.e., owns directly or indirectly more
than 5% of the stock of the Bank or the Company, or stock possessing more than
5% of the total combined voting power of all stock of the Bank or the Company)
or (4) a 1% owner of the Bank or the Company having annual compensation in
excess of $150,000.
Investment of Contributions
All amounts credited to Participants' Accounts under the Plan are held in
the Trust which is administered by the Trustee. The Trustee is appointed by the
Bank's Board of Directors. The Plan provides that a Participant may direct the
Trustee to invest all or a portion of his Accounts in various managed investment
portfolios, described below. A Participant may elect to change his investment
directions with respect to both past contributions and for more additions to the
Participant's accounts invested in these investment alternatives. These
elections generally become effective on the next business day following the day
Diversified receives the Participant's written notice of the elections.
Participants may make elections using a "Voice Response System" by calling 1-
800-755-5801. Any amounts credited to a Participant's Accounts for which
investment directions are not given will be invested by the Trustee in the Money
Market Fund.
Prior to the effective date of the Conversion, the Accounts of a
Participant held in the Trust have been invested at the direction of the
Participant in the following managed portfolios:
Money Market Fund - This fund seeks to obtain maximum income consistent with
high liquidity and the maintenance of a quality portfolio
of short-term market instruments. This fund is most
suitable for highly risk adverse investors or as a holding
vehicle for diversification strategies.
Equity Income Fund - This fund seeks long-term capital appreciation through
investment primarily in common stocks that have relatively
high current yields. This fund is most suitable for
investors who want long-term growth with lower risk than
the overall equity market.
Growth-Income Fund - This fund seeks long term capital appreciation as its
primary objective and income as its secondary objective.
This fund is most suitable for investors who seek broad
stock market participation.
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<PAGE>
Special Equity Fund - This fund seeks capital appreciation through investment
in the securities of small-to-medium-sized growth-
oriented companies. This fund is suitable for investors
who desire high growth potential and are able to
tolerate significant short-term volatility.
Intermediate Government This fund is designed to provide guaranteed positive
Bond - returns in all market environments through investments
in obligations issued by the U. S. Government or its
Agencies. The fund is suitable for individuals who
desire a high level of safety and rates of return that
are more competitive than Certificates of Deposit.
Conservative Fund - This fund seeks consistent returns with less volatility
through investment primarily in fixed income
securities. This fund is suitable for investors who
desire a diversified portfolio with minimum risk and
returns consistent with fixed income funds.
Moderate Fund - This fund seeks moderate returns and less volatility
through investment in a combination of stocks, bonds
and short-term instruments. This fund is suitable for
investors who desire a diversified portfolio with
moderate risk and greater potential for increased
returns.
Aggressive Fund - This fund seeks to maximize returns while limiting
volatility through investment primarily in stocks. This
fund is suitable for investors who desire a diversified
portfolio and can withstand short-term volatility in
favor of long-term investment results.
Effective upon the Conversion, a Participant may invest all or a portion of
his Accounts in the portfolios described above and in the Employer Stock Fund,
described below:
Employer Stock Fund - Invests in common stock of the parent holding company,
Ocean Financial Corp.
A Participant may elect in whole percentages to have both past and future
contributions and additions to the Participant's Accounts invested either in the
Employer Stock Fund or in such other managed portfolios listed above. These
elections will generally be effective the business day coinciding with or next
following the day of Diversified's receipt of such investment directions. Any
amounts credited to a Participant's Accounts for which investment directions are
not given will be invested in the Money Market Fund. Because investment
allocations only are required to be made in increments, Participants can invest
their Accounts in each of the nine available investment funds. Lack of
diversification with respect to the investment of a Participant's Account is not
a significant risk given the nine investment options available to Participants
and the ability of Participants to make investment designations daily (subject
to the limitations on certain executives as described below).
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<PAGE>
The net gain (or loss) in the Accounts from investments including the
Employer Stock Fund (including interest payments, dividends, realized and
unrealized gains and losses on securities, and expenses paid from the Trust) are
determined daily during the Plan Year. For purposes of such allocations, all
assets of the Trust are valued at their fair market value.
A. Previous Funds.
Prior to the Conversion, contributions under the Plan were invested in the
eight Funds listed below. The annual percentage of returns on these funds,
calculated net of any fees being charged to the portfolio for 1995 and 1994 was:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C> <C>
A. Money Market Fund 5.34% 3.85%
B. Equity Income Fund 33.79 -2.71
C. Growth Income Fund 31.53 -3.38
D. Special Equity Fund 40.35 -4.62
E. Intermediate Government Bond 13.35 -1.50
F. Conservative Fund 15.76 -0.79
G. Moderate Fund 18.88 -1.10
H. Aggressive Fund 23.44 -1.06
</TABLE>
B. The Employer Stock Fund.
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion. In connection with the
Conversion, pursuant to the attached Investment Form, Participants will be able
to change their investments. Any cash dividends paid on Common Stock held in
the Employer Stock Fund will be credited to a cash dividend subaccount for each
Participant investing in the Employer Stock Fund. The Trustee will, to the
extent practicable, use all amounts held by it in the Employer Stock Fund
(except the amounts credited to cash dividend subaccounts) to purchase shares of
Common Stock. It is expected that all purchases will be made at prevailing
market prices. Under certain circumstances, the Trustee may be required to
limit the daily volume of shares purchased. Pending investment in Common Stock,
assets held in the Employer Stock Fund will be placed in bank deposits and other
short-term investments.
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<PAGE>
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. The Bank expects to pay any brokerage commissions, transfer fees and
other expenses incurred in the sale and purchase of Common Stock for the
Employer Stock Fund. A Participant's Account will be adjusted to reflect
changes in the value of shares of Common Stock resulting from stock dividends,
stock splits and similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Following the Conversion, the Board of the Company may consider a
policy of paying dividends on the Common Stock, however, no decision has been
made by the Board of the Company regarding the amount or timing of dividends, if
any.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
Investments in the Employer Stock Fund may involve certain special risks
associated with investments in Common Stock of the Company. For a discussion of
these risk factors, see "Risk Factors" in the Prospectus.
Benefits Under the Plan
Vesting. A Participant has at all times a fully vested, nonforfeitable
interest in all of his Contributions to his 401(k) Account pre-tax or after-tax
and Rollover Account and the earnings thereon under the Plan. A Participant is
100% vested in the portion of his account attributable to matching contributions
after the completion of six years of service under the Plan's six-year graded
vesting schedule (20% per year beginning after two years of service).
Withdrawals and Distributions From the Plan
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2 UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK
Withdrawals Prior to Termination of Employment. In certain circumstances,
a Participant may make a withdrawal from his Accounts under the Plan pursuant to
the hardship distribution rules under the Plan. These requirements insure that
Participants have a true financial need before a withdrawal may be made. A
Participant may make a withdrawal from his 401(k) Contribution Account after the
age of 59 1/2.
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<PAGE>
No more than once each calendar year, a Participant may borrow from the
vested portion of his Regular Account, 401(k) Account and/or Rollover Account
any amount between $1,000 and the lesser of (i) $50,000, reduced by the
Participant's highest outstanding loan balance from the 401 (k) Plan during the
preceding 12 months or (ii) 50% of the Participant's vested account balance,
subject to certain limitations. Loans have an interest rate comparable to
current interest rates offered by major banking institutions. Repayments are
made through salary deductions. If a Participant who is not an employee takes
out a loan there may be terms offered different than those offered to
Participants who are still employed. There is a loan set-up charge of $75.
Distribution of Voluntary Contributions. A Participant may withdraw all or
part of that portion of his account attributable to Voluntary Contributions
(including earnings thereon) at any time. If you elect to make a withdrawal of
your matched voluntary contributions, you may not make Voluntary Contributions
for a period of 3 months after the date of such a withdrawal
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an in-
kind distribution of Common Stock of the Company credited to the Participant's
Account. A Participant whose total vested account balance equals or exceeds
$3,500 at the time of termination, may elect, in lieu of a lump sum payment, to
be paid (i) a life annuity with payments certain to be made in annual
installments over a period of 5, 10, or 15 years, or (ii) as a lump sum or (iii)
as a contingent annuity. Benefit payments ordinarily shall be made not later
than 60 days following the end of the Plan Year in which occurs the later of the
Participant's: (i) termination of employment; (ii) attainment of age 65; (iii)
10th anniversary of commencement of participation in the Plan; but in no event
later than the April 1 following the calendar year in which the Participant
attains age 70 1/2. However, if the vested portion of the Participant's Account
balances exceeds $3,500, no distribution shall be made from the Plan prior to
the Participant's attaining age 65 unless the Participant consents to an earlier
distribution. Special restrictions apply to the distribution of Common Stock of
the Company to those Participants who are executive officers, directors and
principal shareholders of the Company who are subject to the provisions of
Section 16(b) of the Exchange Act.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in an annuity over the life of the spouse, or if the payment of his benefit had
commenced before his death, in accordance with the distribution method in effect
at death. With respect to an unmarried Participant, and in the case of a
married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock, or,
if the payment of his benefit had commenced before his death, in accordance with
the distribution method in effect at death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale,
15
<PAGE>
transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or
levy of any kind, either voluntary or involuntary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any rights to benefits payable under the Plan shall be
void.
Administration of the Plan
Trustees. The Trustee with respect to the Plan is the named fiduciary of
the Plan for purposes of Section 402 of ERISA. The Trustee of the Plan is to be
Investor's Bank and Trust Co., Boston, Massachusetts.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust and income therefrom. The Trustee has
the authority to invest and reinvest the Trust and may sell or otherwise dispose
of Trust investments at any time and may hold trust funds uninvested. The
Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the Trust in
person or by proxy, provided, however, that the Plan Administrator shall direct
the Trustee as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustee is entitled to reasonable compensation for its services and is
also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Bank.
The Trustee must render at least annual reports to the Bank and to the
Participants in such form and containing such information that the Trustee deems
necessary.
Reports to Plan Participants
The Administrator will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
Plan Administrator
Pursuant to the terms of the Plan, the Plan Administrator is the Bank. A
committee of the Bank has been designated by the Board of Directors of the Bank
to act on the Bank's behalf as the Plan Administrator. The name, address and
telephone number of the current Plan Administrator is Ocean Federal Savings
Bank, 74 Brick Boulevard, Brick, New Jersey 08723. The Bank's telephone number
is (908) 477-5200. The Administrator is responsible for the
16
<PAGE>
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants, beneficiaries
and others under Sections 104 and 105 of ERISA.
Amendment and Termination
The Bank may terminate the Plan at any time. If the Plan is terminated in
whole or in part, then regardless of other provisions in the Plan, each employee
who ceases to be a Participant shall have a fully vested interest in his
Account. The Bank reserves the right to make, from time to time, any amendment
or amendments to the Plan which do not cause any part of the Trust to be used
for, or diverted to, any purpose other than the exclusive benefit of the
Participants or their beneficiaries.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
Federal Income Tax Consequences
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan may be submitted to the IRS for a determination that it is
qualified under Section 401(a) and 401(k) of the Code, and that the related
Trust is exempt from tax under Section 501(a) of the Code. A plan that is
"qualified" under these sections of the Code is afforded special tax treatment
which include the following: (1) The sponsoring employer is allowed an
immediate tax deduction for the amount contributed to the Plan each year;
17
<PAGE>
(2) Participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) Earnings of the plan are tax-exempt thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code. Following such an
amendment, the Plan will be submitted to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code and that the IRS issues a favorable determination as described in
the preceding paragraph, participation in the Plan under existing federal income
tax laws will have the following effects:
(a) Amounts contributed to a Participant's 401(k) Account and the
investment earnings on this Account are not includable in a
Participant's federal taxable income until such contributions or
earnings are actually distributed or withdrawn from the Plan. Special
tax treatment may apply to the taxable portion of any distribution
that includes Common Stock or qualifies as a Lump Sum Distribution (as
described below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credit of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes (the "total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, a Participant who has
completed at least five years of participation in the Plan before the taxable
year in which the distribution is made, or a beneficiary who receives a Lump Sum
Distribution on account of the Participant's death (regardless of the period of
the Participant's participation in the Plan or any other profit-sharing plan
maintained by the Employer), may elect to have the ordinary income portion of
such Lump Sum Distribution taxed according to a special averaging rule ("five-
year averaging"). The election of the special averaging rules may apply only to
one Lump Sum Distribution received by the Participant or beneficiary, provided
such amount is received on or after the Participant turns 59-1/2 and the
recipient elects to have any other Lump Sum Distribution from a qualified plan
received in the
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<PAGE>
same taxable year taxed under the special averaging rule. Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule or under the
prior law ten-year averaging rule. Such individuals also may elect to have that
portion of the Lump Sum Distribution attributable to the Participant's pre-1974
participation in the Plan taxed at a flat 20% rate as gain from the sale of a
capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a Lump
Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant
does not elect to have an "eligible rollover distribution" transferred directly
to another qualified plan or to an IRA, the distribution will be subject to a
mandatory federal withholding tax equal to 20% of the taxable distribution. An
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution that is (a) one of a series of substantially equal
periodic payments made (not less frequently than annually) over the
Participant's life or the joint life of the Participant and the Participant's
designated beneficiary, or (b) for a specified period of ten years or more; (2)
any amount that is required to be distributed under the minimum distribution
rules; and (3) any other distributions excepted under applicable federal law.
The tax law change described above did not modify the special tax treatment of
Lump Sum Distributions, that are not rolled over or transferred i.e., forward
----
averaging, capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59-1/2 will be subject to an
additional income tax equal to 10% of the
19
<PAGE>
taxable amount of the distribution. The 10% additional income tax will not
apply, however, to the extent the distribution is rolled over into an IRA or
another qualified plan or the distribution is (i) made to a beneficiary (or to
the estate of a Participant) on or after the death of the Participant, (ii)
attributable to the Participant's being disabled within the meaning of Section
72(m)(7) of the Code, (iii) part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of the Participant and his beneficiary, (iv) made to the Participant after
separation from service on account of early retirement under the Plan after
attainment of age 55, (v) made to pay medical expenses to the extent deductible
for federal income tax purposes, (vi) pursuant to a qualified domestic relations
order, or (vii) made to effect the distribution of excess contributions or
excess deferrals.
ERISA and Other Qualifications
As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
Restrictions on Resale
Any person receiving shares of Common Stock under the Plan who is an
"affiliate" of the Company as the term "affiliate" is used in Rules 144 and 405
under the Securities Act of 1933, as amended ("Securities Act") (e.g.,
directors, officers and substantial shareholders of the Company) may reoffer or
resell such shares only pursuant to a registration statement filed under the
Securities Act or, assuming the availability thereof, pursuant to Rule 144 or
some other exemption of the registration requirements of the Securities Act.
Any person who may be an "affiliate" of the Company may wish to consult with
counsel before transferring any Company Stock owned by him. In addition,
Participants are advised to consult with counsel as to the applicability of
Section 16 of the Exchange Act which may restrict the sale of Common Stock where
acquired under the Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Company at the time of
resale will be free to resell any shares of Common Stock distributed to them
under the Plan, either publicly or privately, without regard to the registration
and prospectus delivery requirements of the Securities Act or compliance with
the restrictions and conditions contained in the exemptive rules thereunder. An
"affiliate" of the Company is someone who directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control,
with the
20
<PAGE>
Company. All directors, the Chief Executive Officer, the Chief Financial
Officer, Chief Counsel and the Director of Operations have been designated as
"affiliates" of the Company. A person who may be deemed an "affiliate" of the
Company at the time of a proposed resale will be permitted to make public
resales of the Company's Common Stock only pursuant to a "reoffer" Prospectus or
in accordance with the restrictions and conditions contained in Rule 144 under
the Securities Act or some other exemption from registration, and will not be
permitted to use this Prospectus in connection with any such resale. In
general, the amount of the Company's Common Stock which any such affiliate may
publicly resell pursuant to Rule 144 in any three-month period may not exceed
the greater of one percent of the Company's Common Stock then outstanding or the
average weekly trading volume reported on the Nasdaq Stock Market during the
four calendar weeks prior to the sale. Such sales may be made only through
brokers without solicitation and only at a time when the Company is current in
filing the reports required of it under the Exchange Act.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Exchange Act imposes reporting and liability requirements
on executive officers, directors and persons beneficially owning more than ten
percent of public companies such as the Company. Section 16(a) of the Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the SEC. Certain
changes in beneficial ownership, such as purchases, sales, gifts and
participation in savings and retirement plans must be reported periodically,
either on a Form 4 within ten days after the end of the month in which a change
occurs, or annually on a Form 5 within 45 days after the close of the Company's
fiscal year. Participation in the Employer Stock Fund of the Plan by executive
officers, directors and persons beneficially owning more than ten percent of
Common Stock of the Company must be reported to the SEC annually on a Form 5 by
such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Exchange Act provides for the recovery by the Company of profits realized by
any officer, director or any person beneficially owning more than ten percent of
the Company's Common Stock ("Section 16(b) Persons") resulting from the purchase
and sale or sale and purchase of the Company's Common Stock within any six-month
period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for Participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
The Plan, as amended, only permits Section 16(b) Persons to make transfers
to or from the Employer Stock Fund in accordance with the terms of the Plan, and
only during the period beginning on the third business day following the date of
release of the Company's quarterly and annual statements of earnings and ending
on the 12th business day following that date. Section
21
<PAGE>
16(b) Persons also are prohibited under the Plan from making a transfer into or
out of the Employer Stock Fund within six months of the next preceding transfer
into or out of the Employer Stock Fund.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order under the Plan, Section 16(b) Persons are required to hold shares of
Common Stock distributed from the Plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Employer Stock Fund for six months after receiving such a
distribution. Finally, the Plan provides that Section 16(b) Persons who
terminate their participation in the Plan may not rejoin the Plan for six months
following the date of their termination. These Plan restrictions conform with
the rules issued by the SEC to exempt the Plan from the profit-recovery rules of
Section 16(b) of the Exchange Act.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm is acting as special
counsel for the Company and the Bank in connection with the Bank's Conversion
from a mutual savings bank to a stock savings bank and the concurrent formation
of the Company.
22
<PAGE>
RETIREMENT PLAN FOR OCEAN FEDERAL SAVINGS BANK
INVESTMENT FORM
Name of Plan Participant: ____________________________
Social Security Number: ______________________________
1. Instructions. In connection with the proposed Conversion of Ocean Federal
Savings Bank from a mutual savings bank to a stock based organization (the
"Conversion"), the Ocean Federal Savings Bank Profit Sharing Plan and Trust
(the "401(k) Plan") has been adopted to permit Participants to direct their
[_________], account balances into a new fund: the Employer Stock Fund. The
percentage of a Participant's account transferred at the direction of the
Participant into the Employer Stock Fund will be used to purchase shares of
common stock of Ocean Financial Corp. (the "Common Stock").
To direct a transfer of all or a part of the funds credited to your accounts
to the Employer Stock Fund, you must complete and file this form with the
Human Resources Department no later than [______________]. A representative
for the Plan Administrator will retain a copy of this form and return a copy
to you. If you need any assistance in completing this form, please contact
Ms. Donna Lowden, Vice President and Director, Human Resources. If you do not
complete and return this form to the Human Resources Department by
[____________________], the funds credited to your accounts under the 401(k)
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the 401(k) Plan if no investment
direction had been provided.
2. Transfer Directions. I hereby direct the Plan Administrator to invest the
following percentage (in multiples of not less than 1%) of my account balance
in the:
A. Money Market Fund _____%
B. Equity Income Fund _____%
C. Growth Income Fund _____%
D. Special Equity Fund _____%
E. Intermediate Government Fund _____%
F. Conservative Fund _____%
G. Moderate Fund _____%
H. Aggressive Fund _____%
I. Employer Stock Fund _____%
Note: The total percentage stated above may not exceed 100%. Your ability to
transfer funds to the Employer Stock Fund in the Conversion is subject to
your general eligibility to purchase shares of Common Stock in the
Conversion and the maximum and minimum purchase limitations set forth in
the Plan of Conversion. For general information as to your eligibility to
purchase shares of Common Stock and the minimum and maximum amounts that
may be purchased in the Conversion, see "The Conversion--Subscription
Offering and Subscription Rights" and "Limitation on Common Stock
Purchases" in the Prospectus.
3. Acknowledgement of Participant. I understand that this Investment Form
shall be subject to all of the terms and conditions of the 401(k) Plan. I
acknowledge that I have received a copy of the Prospectus and the
Prospectus Supplement.
Signature of Participant: ________________________ _____________________
Date
Acknowledgment of Receipt by Administrator. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
Plan Administrator: ________________________ _____________________
Date
23
<PAGE>
PROSPECTUS
OCEAN FINANCIAL CORP.
(Proposed Holding Company for Ocean Federal Savings Bank)
Up to 7,293,981 Shares of Common Stock
Ocean Financial Corp. (the "Company" or "Ocean Financial"), a Delaware
corporation, is offering up to 7,293,981 shares of its common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of Ocean
Federal Savings Bank (the "Bank" or "Ocean Federal") from a federally chartered
mutual savings bank to a federally chartered stock savings bank pursuant to the
Bank's plan of conversion (the "Plan" or "Plan of Conversion"). The
simultaneous conversion of the Bank to stock form, the issuance of the Bank's
stock to the Company and the offer and sale of the Common Stock by the Company
are herein referred to as the "Conversion." In certain circumstances, the
Company may increase the amount of Common Stock offered hereby to 8,388,078
shares. See Footnote 4 to the table below.
(continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 19.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY
OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Underwriting
Commissions
Subscription Price(1) and Other Fees and Expenses(2) Estimated Net Proceeds(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share.............. $20.00 $.62 $19.38
- ------------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share............. $20.00 $.57 $19.43
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share.............. $20.00 $.54 $19.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)............... $107,824,060 $3,332,217 $104,491,843
- ------------------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1).............. $126,851,860 $3,638,565 $123,213,295
- ------------------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)............... $145,879,620 $3,944,912 $141,934,708
- ------------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4).. $167,761,560 $4,297,211 $163,464,349
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by RP
Financial, Inc. ("RP Financial") dated April 26, 1996, which states that
the estimated aggregate pro forma market value of the Common Stock being
offered for sale ranged from $107,824,060 to $145,879,620 with a midpoint
of $126,851,860 (the "Valuation Range"). Based on the Valuation Range, the
Board of Directors of the Bank (the "Board of Directors") established the
estimated price range of $107.8 million to $145.9 million (the "Estimated
Price Range"), or between 5,391,203 and 7,293,981 shares of Common Stock at
the $20 price per share (the "Purchase Price") to be paid for each share of
Common Stock subscribed for or purchased in the Offerings (as hereinafter
defined). RP Financial's appraisal is based upon estimates and projections
that are subject to change and the valuation must neither be construed as a
recommendation as to the advisability of purchasing such shares nor that a
purchaser will thereafter be able to sell such shares at or above the
Purchase Price. See "The Conversion - Stock Pricing" and "- Number of
Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion, including estimated fixed expenses of $1,633,000 and
marketing fees to be paid to Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") in connection with the Subscription and Community Offerings as
hereafter defined, which fees are estimated to be $1,699,217 and $2,311,912
at the minimum and the maximum of the Estimated Price Range, respectively.
See "The Conversion - Marketing and Underwriting Arrangements." Such fees
may be deemed to be underwriting fees and Sandler O'Neill may be deemed to
be an underwriter. See "Pro Forma Data" for the assumptions used to arrive
at these estimates. The actual fees and expenses may vary from the
estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in each of the Offerings, as hereinafter
defined, and other factors. Includes the purchase of shares of Common
Stock by the Ocean Federal Savings Bank Employee Stock Ownership Plan and
related trust (the "ESOP") funded by a loan from the Company to the ESOP,
which will initially be deducted from the Company's stockholders' equity.
See "Use of Proceeds," "Pro Forma Data" and "The Conversion Stock Pricing."
(4) As adjusted to give effect to the sale of up to an additional 15% of the
shares offered at the Purchase Price, without resolicitation of subscribers
or any right of cancellation, due to regulatory considerations, changes in
market or general financial and economic conditions. See "Pro Forma Data"
and "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, if any, see "The Conversion -
Subscription Offering and Subscription Rights," "- Community Offering" and
"- Limitations on Common Stock Purchases."
Sandler O'Neill & Partners, L.P.
The date of this Prospectus is _______________, 1996.
<PAGE>
Non-transferable rights to subscribe for the Common Stock have been
granted, in order of priority, to each of the Bank's Eligible Account Holders,
the ESOP, the Bank's Supplemental Eligible Account Holders and certain Other
Members (each as defined herein) in a subscription offering (the "Subscription
Offering"). Subscription rights are non-transferable. Persons found to be
transferring subscription rights will be subject to the forfeiture of such
rights and possible further sanctions and penalties imposed by the Office of
Thrift Supervision ("OTS"). Concurrently, and subject to the prior rights of
holders of subscription rights, the Company is offering the shares of Common
Stock not subscribed for in the Subscription Offering for sale in a community
offering to certain members of the general public, with preference given to
natural persons residing in Ocean, Middlesex and Monmouth Counties, New Jersey
(the "Community Offering") (the Subscription Offering and Community Offering are
referred to collectively as the "Subscription and Community Offerings"). It is
anticipated that shares not subscribed for in the Subscription and Community
Offerings will be offered to members of the general public in a syndicated
community offering (the "Syndicated Community Offering") (the Subscription and
Community Offerings and the Syndicated Community Offering are referred to
collectively as the "Offerings"). See "The Conversion - Subscription Offering
and Subscription Rights," "- Community Offering," "- Restrictions on Transfer of
Subscription Rights and Shares" and "- Limitations on Common Stock Purchases."
Except for the ESOP, which intends to subscribe for 8% of the shares of
Common Stock issued in the Conversion, no Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, in their capacity as such, may
subscribe in the Subscription Offering for more than $200,000 of the aggregate
value of shares of Common Stock offered; no person, together with associates of
or persons acting in concert with such person, may purchase in the Community
Offering and the Syndicated Community Offering in the aggregate more than
$200,000 of the aggregate value of shares of Common Stock offered; and no
person, together with associates of or persons acting in concert with such
person, may purchase in the Offerings more than the overall maximum purchase
limitation of 1.0% of the total number of shares of Common Stock to be issued in
the Conversion, exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%, provided, however, that the maximum overall
purchase limitation and the maximum individual amount permitted to be purchased
may be increased or decreased in the sole discretion of the Company. See "The
Conversion - Subscription Offering and Subscription Rights," -Community
Offering" and "Limitations on Common Stock Purchases."
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Ocean Federal Foundation (the "Foundation"),
which was incorporated under Delaware law as a non-stock corporation, and funded
with shares of Common Stock contributed by the Company, in an amount equal to 8%
of the number of shares of Common Stock issued in the Conversion. The Foundation
would be dedicated to charitable and educational purposes within Ocean County,
New Jersey and its neighboring communities. The establishment of the Foundation
is subject to the approval of the Bank's members at the special meeting being
held to consider the Plan of Conversion. For a discussion of the Foundation and
the effects on the Conversion, including if members do not approve the
establishment of the Foundation, see "Risk Factors - Charitable Foundation,"
"Pro Forma Data," and "The Conversion - Establishment of Charitable Foundation."
The Bank has engaged Sandler O'Neill to consult with and advise the Company
and the Bank in the Offerings and Sandler O'Neill has agreed to use its best
efforts to assist the Company with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill is
not obligated to take or purchase any shares of Common Stock in the Offerings.
The Bank and the Company will pay a fee to Sandler O'Neill which will be based
on the aggregate Purchase Price of the Common Stock sold in the Offerings. The
Company and the Bank have agreed to indemnify Sandler O'Neill against certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing and Underwriting
Arrangements."
The Subscription and Community Offerings will terminate at 12:00 noon,
Eastern Time, on ____________, 1996 (the "Expiration Date") unless extended by
the Bank and the Company, with approval of the OTS, if necessary. Subscriptions
paid by cash, check, bank draft or money order will be placed in a segregated
account at the Bank and will earn interest at the Bank's passbook rate of
interest from the date of receipt until completion or termination of the
Conversion. Payments authorized by withdrawal from deposit accounts at the Bank
will continue to earn interest at the contractual rate until the Conversion is
completed or terminated; these funds will be otherwise unavailable to the
depositor until such time. Orders submitted are irrevocable until the completion
of the Conversion; provided that, if the Conversion is not completed within 45
days after the close of the Subscription and Community Offerings, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
_______, 1998. For a discussion of the Offerings, and the rights of subscribers
in the event of an extension of the offering period, see, "The Conversion -
Subscription Offering and Subscription Rights," "- Community Offering" and
"- Procedure for Purchasing Shares in Subscription and Community Offerings."
The Company has received conditional approval from the National Association
of Securities Dealers, Inc. ("NASD") to have its Common Stock trade on the
Nasdaq National Market under the symbol "OCFC" upon completion of the
Conversion. Prior to this Offering there has not been a public market for the
Common Stock, and there can be no assurance that an active and liquid trading
market for the Common Stock will develop or that the Common Stock will trade at
or above the Purchase Price. The absence or discontinuance of a market may have
an adverse impact on both the price and liquidity of the Common Stock. See "Risk
Factors -Absence of Market for Common Stock" and "Market for Common Stock."
2
<PAGE>
[MAP APPEARS HERE]
3
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements of the Bank and Notes thereto appearing
elsewhere in this Prospectus.
Ocean Financial Corp.
Ocean Financial Corp. is a Delaware corporation recently organized by the
Bank for the purpose of acquiring all of the capital stock of the Bank to be
issued in the Conversion. Immediately following the Conversion, the only
significant assets of the Company will be the capital stock of the Bank, the
Company's loan to the Bank's ESOP, and the net proceeds of the Offerings
retained by the Company. The Company will purchase all of the capital stock of
the Bank to be issued upon the Conversion in exchange for 50% of the net
proceeds with the remaining net proceeds to be retained by the Company. Funds
retained by the Company will be used for general business activities, including
a loan by the Company directly to the ESOP to enable the ESOP to purchase 8% of
the Common Stock issued in the Conversion. On an interim basis, the net proceeds
are expected to be invested in federal funds, short-term, investment grade
marketable securities and mortgage-backed securities. See "Use of Proceeds." The
business of the Company will initially consist of the business of the Bank. See
"Business of the Bank" and "Regulation - Holding Company Regulation."
The Company's executive offices are located at the administrative office of
the Bank at 74 Brick Boulevard, Brick, New Jersey 08723. The Company's telephone
number is (908) 477-5200.
Ocean Federal Savings Bank
Ocean Federal Savings Bank was originally founded as a state-chartered
building and loan association in 1902. In 1945, the Bank converted to a federal
savings and loan association, and in 1989, the Bank adopted its current federal
savings bank charter. The Bank conducts business from its administrative office
located in Brick, New Jersey and its eight branch offices, seven of which are
located throughout Ocean County, and one of which is located in Middlesex
County, New Jersey. The Bank's deposit gathering base is concentrated in the
communities surrounding its offices, which includes Ocean County and parts of
Monmouth and Middlesex Counties. The Bank considers these communities to
comprise its primary market area, although its lending area extends throughout
the State of New Jersey. See "Business of the Bank -Market Area and
Competition." At December 31, 1995, the Bank had total assets of $1.0 billion,
total deposits of $926.6 million and retained earnings of $92.4 million. The
Bank's deposits are insured up to the maximum allowable amount by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC").
The Bank is the only remaining community-based financial institution
headquartered in Ocean County. Its business consists of accepting deposits from
customers and investing those funds primarily in mortgage loans secured by
single-family, owner-occupied residences within its market area. To a
significantly lesser extent, the Bank invests in commercial real estate, multi-
family, land, construction and consumer loans. At December 31, 1995, the Bank's
total loan portfolio amounted to $625.0 million, or 60.3% of total assets,
including $1.9 million of loans held for sale. Of that amount, one-to four-
family loans totalled $575.0 million, or 92.0% of total loans; commercial real
estate, multi-family and land loans totalled $14.9 million, or 2.4%;
construction loans totalled $8.2 million, or 1.3%; and consumer loans,
consisting almost entirely of home equity loans and lines of credit secured by
single-family residences, totalled $26.9 million, or 4.3%. Of the total loan
portfolio, $405.5 million, or 64.9%, had adjustable rates of interest; and
$219.5 million, or 35.1%, had fixed rates of interest.
In addition to its lending activities, the Bank also invests in mortgage-
backed securities, primarily those guaranteed by governmental agencies such as
the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National
Mortgage Association ("FNMA") and the Government National Mortgage Association
("GNMA"). At December 31, 1995, mortgage-backed securities totalled $265.1
million, or 25.6% of total assets, all of which were classified as available for
sale. For a discussion of the Bank's reclassification of its securities
portfolio, see "Business of the Bank - Investment Activities." The Bank also
invests in investment securities, primarily consisting of U.S. Government and
agency obligations. Investment securities totalled $114.9 million, or 11.1% of
assets as of December 31, 1995, all of which were classified as available for
sale. At December 31, 1995, the Bank's deposits totalled $926.6 million, or
98.1% of total liabilities. The average balance of core deposits, which consist
of savings, money market, NOW and non-interest bearing accounts, was $320.2
million, or 35.8% of average deposits as of December 31, 1995. The average
balance of certificates of deposit for the same period was $574.8 million, or
64.2% of average deposits. The Bank also uses an overnight line of credit from
the Federal Home Loan Bank of New York ("FHLB-NY") as a source of funds. At
4
<PAGE>
December 31, 1995, amounts borrowed against the overnight line of credit
totalled $10.4 million, or 1.1% of total liabilities. See "Ocean Federal Savings
Bank" and "Business of the Bank."
The Bank has historically operated as a consumer-oriented federal savings
bank, with a focus on offering traditional savings deposit and loan products to
its local community. In recent years, the Bank's strategy has been to maintain
profitability while managing its mutual capital position and limiting its credit
and interest rate risk exposure. To accomplish these objectives, the Bank has
sought to: (1) control credit risk by emphasizing the origination of single-
family, owner-occupied residential mortgage loans and consumer loans, consisting
primarily of home equity loans and lines of credit; (2) offer superior service
and competitive rates to increase the core deposit base consistent with its
capital management goals; (3) invest funds in excess of loan demand in mortgage-
backed and investment securities; (4) reduce exposure to interest rate risk by
originating for the portfolio first mortgage loans having terms to maturity of
not more than 15 years and adjustable-rate mortgage ("ARM") loans, selling
fixed-rate 30-year mortgage loans, and investing in shorter term or
adjustable-rate mortgage-backed securities; and (5) control operating expenses.
In recent years, most locally headquartered competitors in the Bank's
market area have been acquired by larger, regional financial institutions,
resulting in a reduced presence of local, community-based banks. Although such
acquisitions have generated increased competition from these larger, regional
institutions, the Bank believes that the absence of its former principal
competitors, the community-based institutions, has created significant
opportunities for Ocean Federal as the only remaining institution headquartered
in Ocean County. As a result, management plans to modify the Bank's operating
strategy to satisfy its perceived need within the market area for additional
customer products and services. By seeking to broaden the range of its products
and services offered, the Bank believes it will offset declining margins in the
market for one-to four-family mortgage loans which it has experienced in recent
years. Specifically, the Bank intends to: (1) maintain its traditional community
thrift orientation as a provider of residential mortgage products; (2) diversify
the products and services offered to possibly include, among other things, trust
services, nondeposit products, secured and unsecured commercial lending and
commercial deposit accounts in order to increase its customer base within its
existing market area; and (3) increase the Bank's market share within its
primary market area through the establishment and/or acquisition of additional
branch offices, or the acquisition of other remaining financial institutions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -Management Strategy."
Financial and operating characteristics of the Bank include the following:
Capital Strength. At December 31, 1995, the Bank had $90.3 million of
regulatory tangible capital, or 8.7% of total assets, and exceeded all of its
regulatory capital requirements. The Bank's tangible capital, core capital and
risk-based capital ratios were 8.7%, 8.7% and 21.3%, respectively, at that date.
Assuming the Company retains 50% of the net Conversion proceeds at the maximum
of the Estimated Price Range and utilizes the remaining net proceeds to purchase
the Bank's capital stock, the Bank would have had pro forma tangible capital of
$143.7 million, or 13.21% of assets, as of December 31, 1995. See "Regulatory
Capital Compliance."
Profitability. The Bank has been profitable in each of the past five years,
with net income of $7.9 million in 1995, $9.7 million in 1994, $10.1 million in
1993, $10.0 million in 1992 and $5.6 million in 1991. The Bank's return on
average assets for these periods ranged from a high of 1.19% for 1992, to a low
of 0.75% for 1991. Return on average retained earnings for the same periods
ranged from a high of 17.14% for 1992, to a low of 9.44% for 1995. The Bank's
net interest margin (net interest income as a percentage of average interest-
earning assets) ranged from a high of 3.48% for 1992, to a low of 3.07% for
1991. During 1995, the Bank experienced compression in its average interest rate
spread, which was reduced to 2.79%, from 3.07% for the year ended December 31,
1994, and in its net interest margin, which was reduced to 3.13% from 3.34% for
the year ended December 31, 1994. The Bank's profitability, like that of most
financial institutions, is dependent to a large extent upon its net interest
income. Accordingly, the Bank's results of operations and financial condition
are largely dependent on movements in market interest rates and its ability to
manage its assets and liabilities in response to such movements. See "Risk
Factors - Potential Impact of Changes in Interest Rates," "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Management of Interest Rate Risk," and "Selected Consolidated Financial and
Other Data."
Traditional Community Lending Activities. The Bank's primary lending
emphasis has been, and will continue to be, the origination of single-family,
owner-occupied residential mortgage loans, secured primarily by properties
located within its market area. At December 31, 1995, the Bank's residential
mortgage loan portfolio comprised 92.0% of its total loan portfolio. An
additional 4.3% of the Bank's loan portfolio was comprised of consumer loans,
which almost entirely consisted of home equity loans and lines of credit secured
by one-to four-family residential properties within the Bank's market area. Of
the Bank's $26.9 million in consumer loans, $25.2 million consisted of home
equity loans and
5
<PAGE>
lines of credit at December 31, 1995. At that date, adjustable-rate loans
accounted for 64.9% of the Bank's total loan portfolio, while fixed-rate loans
accounted for the remaining 35.1%. Although the Bank intends to maintain its
primary emphasis on traditional residential mortgage lending, the Bank also
plans to diversify the products and services offered in the future in an effort
to satisfy a perceived need within its market area for additional customer
products and services. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Management Strategy."
Asset Quality. The Bank has significantly reduced the level of its non-
performing loans and non-performing assets in recent periods. The Bank's ratio
of non-performing loans to total loans at December 31, 1995 was 1.40%, the
lowest such ratio has been in the past five years, reduced from a high of 4.09%
in 1991. The Bank's non-performing assets at December 31, 1995 totalled $10.0
million, representing .97% of total assets. At December 31, 1995, the Bank's
allowance for loan losses totalled $6.0 million, which equalled 0.97% of the
Bank's total loan portfolio, 69.2% of total non-performing loans and 59.8% of
total non-performing assets. See "Business of the Bank - Lending Activities."
Operating Expenses. The Bank has sought to manage and monitor overhead
costs in all areas, through controlled growth in personnel and an efficient
product delivery system. For the years ended December 31, 1995, 1994, 1993, 1992
and 1991, the Bank's ratio of operating expenses to average assets was 1.82%,
1.79%, 1.81%, 1.93% and 1.81%, respectively. The Bank's efficiency ratio
(operating expense divided by net interest income plus other income) over the
same periods ranged from a high of 57.05% for 1995, to a low of 49.46% for 1993.
Management expects that the Bank's operating expenses will increase in future
periods primarily as a result of operating as a public company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Comparison of Operating Results for the Years Ended December 31,
1995 and December 31, 1994."
Ocean Federal Foundation
In furtherance of the Bank's long-standing commitment to its local
community, the Bank's Plan of Conversion, as amended, provides for the
establishment of a charitable foundation in connection with the Conversion. The
Plan provides that the Bank and the Company will create the Ocean Federal
Foundation (the "Foundation"), which recently was incorporated under Delaware
law as a non-stock corporation, and will be funded with shares of common stock
contributed by the Company, as further described below. The Company and the Bank
believe that the funding of the Foundation with Common Stock of the Company is a
means of establishing a common bond between the Bank and its community and
thereby enables the Bank's community to share in the growth and success of the
Company over the long term. By further enhancing the Bank's visibility and
reputation in its local community, the Bank believes that the Foundation will
enhance the long-term value of the Bank's community banking franchise.
The Foundation will be dedicated to charitable purposes within Ocean
County, New Jersey and its neighboring communities, including, but not limited
to, providing housing assistance, scholarships, local education, not-for-profit
medical facilities, assistance to community groups, and other similar types of
organizations or projects. As required under the Internal Revenue Code of 1986,
as amended (the "Code"), in order to maintain its exempt status as a private
foundation, the certificate of incorporation of the Foundation provides that the
earnings of the Foundation shall not result in any private benefit for its
members, directors or officers. While this provision would not prohibit the
payment of reasonable compensation for services rendered, the Foundation does
not presently intend to pay any compensation to its directors and officers.
Pursuant to the Foundation's bylaws, the Foundation's board of directors
initially will be comprised of 19 members, a majority of whom must be civic and
community leaders of the Bank's local community who are unaffiliated with either
the Bank or the Company, or their directors and officers ("Disinterested
Directors"). The remaining members of the board will be comprised of the
existing directors of the Company or the Bank. See "The Conversion --
Establishment of Charitable Foundation -- Structure of Foundation." The
Foundation's place of business will be located at the Bank's administrative
offices and initially, the Foundation will have no employees but will utilize
members of the Bank's staff to provide administrative support services to the
Foundation which are ministerial in nature.
The authority for the affairs of the Foundation will be vested in the board
of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation was established. The directors will also be responsible for
directing the assets of the Foundation, including the voting of the shares of
Common Stock of the Company held by the Foundation. Pursuant to the Foundation's
bylaws, only a Special Committee of the board of directors, comprised solely of
Disinterested Directors, will be permitted to direct the timing of any sales of
Common Stock held by the Foundation. Furthermore, there will be no agreements or
understandings with directors of the Foundation regarding the exercise of
control, directly or indirectly, over the management or policies of the Company
or the Bank, including agreements related to voting, acquisition or disposition
of the Company's Common Stock. As a result, the Company and the Bank cannot
exercise control over the actions and decisions of the Foundation's board of
directors. As directors of a nonprofit corporation, directors of the Foundation
will at all times be bound by their fiduciary duty to advance the Foundation's
charitable goals, to protect the assets of the Foundation and to act in a manner
consistent with the charitable purpose for which the Foundation is
established.
6
<PAGE>
The Company proposes to establish the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 8.0% of the Common Stock issued in the
Offerings, or 431,297, 507,407 and 583,519 shares at the minimum, midpoint and
maximum, respectively, of the Estimated Price Range. The Foundation would
receive working capital from any dividends that may be paid on the Company's
Common Stock in the future, and subject to applicable federal and state laws,
loans collateralized by the Common Stock or from the proceeds of the sale of any
of the Common Stock in the open market from time to time as may be permitted to
provide the Foundation with additional liquidity. As a private foundation under
Section 501(c)(3) of the Code, the Foundation will be required to distribute
annually in grants or donations, a minimum of 5% of the average fair market
value of its net investment assets. One of the conditions imposed on the gift of
common stock by the Company is that the amount of Common Stock that may be sold
by the Foundation in any one year shall not exceed 5% of the average market
value of the assets held by the Foundation, except where the board of directors
of the Foundation, by two-thirds vote, determines that the failure to sell an
amount of Common Stock greater than such amount would result in a long-term
reduction of the value of the Foundation's assets and as such would jeopardize
the Foundation's capacity to carry out its charitable and educational purposes.
While there may be greater risk associated with a one-stock portfolio in
comparison to a diversified portfolio, the Company believes any such risk is
mitigated by the ability of the Foundation's directors to sell more than 5% of
its stock in such circumstances. Assuming the sale of shares at the maximum of
the Estimated Price Range, the Company will have 7,877,500 shares issued and
outstanding, of which the Foundation will own 583,519 shares or 7.4%. Due to the
additional issuance of shares of Common Stock to the Foundation, persons
purchasing shares in the Conversion will have their ownership and voting
interests in the Company diluted by 7.4%, as compared to completing the
Conversion without the establishment of the Foundation. See "Pro Forma Data."
The Foundation will submit a request to the Internal Revenue Service
("IRS") to be recognized as a tax-exempt organization. The application for tax-
exempt status will be submitted to the IRS after approval of the Foundation by
the Bank's members at the special meeting being held to consider the Conversion.
As long as the Foundation files its application for tax-exempt status within 15
months from the date of its organization, and provided the IRS approves the
application, the effective date of the Foundation's status as a Section
501(c)(3) organization will be the date of its organization. Although there can
be no assurances that such recognition will be received, the Company and the
Bank have been advised by their independent accountants that an organization
created for the above purposes would qualify as a Section 501(c)(3) exempt
organization, and would be classified as a private foundation. In the event the
IRS denied exempt status to the Foundation, the Company's contribution to the
Foundation would be expensed without tax benefit, resulting in a reduction in
earnings in the year in which the IRS makes such determination. In addition, in
cases of willful, flagrant or repeated acts or failures to act which results in
violations of the IRS rules governing private foundations, a private
foundation's status as a private foundation may be involuntarily terminated by
the IRS. In such event, the managers of a private foundation could be liable for
excise taxes based on such violations and the private foundation could be liable
for a termination tax under the Code. The Foundation's certificate of
incorporation provides that it shall have perpetual existence. In the event,
however, the Foundation were subsequently dissolved as a result of a loss of its
exempt status, the Foundation would be required under the Code and its
certificate of incorporation to distribute any assets remaining in the
Foundation at that time for one or more exempt purposes within the meaning of
Section 501(c)(3) of the Code, or to distribute such assets to the federal
government, or to a state or local government, for a public purpose.
The Company and the Bank have also been advised by their independent
accountants that a contribution of Common Stock to the Foundation by the Company
would be tax deductible, subject to a limitation based on 10% of the Company's
annual taxable income. The Company, however, would be able to carryforward any
unused portion of the deduction for five years following the contribution.
Neither the Company nor the Bank expect to make any further contributions to the
Foundation within the first five years following the initial contribution. After
that time, the Company and the Bank may consider future contributions to the
Foundation. Any such decisions would be based on an assessment of, among other
factors, the financial condition of the Company and the Bank at that time, the
interests of shareholders and depositors of the Company and the Bank, and the
financial condition and operations of the Foundation.
If the Foundation is established, the Company will recognize an expense in
the full amount of the contribution, offset in part by the corresponding tax
deduction, during the quarter in which the contribution is made, which is
expected to be the second quarter of 1996. Such expense would reduce earnings
and have a material impact on the Company's earnings for the year. Assuming a
contribution of $11.7 million in Common Stock, based on the maximum of the
Estimated Price Range, the Company estimates a net tax effected expense of $8.0
million. If the Foundation had been established at December 31, 1995, the Bank
would have incurred a net loss of $53,000, rather than experiencing earnings of
$7.9 million for the year ended December 31, 1995. Management cannot predict
earnings for 1996, but expects that the establishment and funding of the
Foundation will have an adverse impact on the Company's earnings for the year.
In addition to the contribution to the Foundation, the Bank expects in the
future to continue making ordinary charitable contributions within its
community. Such additional contributions are expected to range from $32,000 to
$40,000 per year. For further discussion of the Foundation and its impact on
purchasers in the Conversion, see "Risk Factors - Charitable Foundation," "Pro
Forma Data," and "The Conversion."
7
<PAGE>
Establishment of the Foundation is subject to the following conditions
imposed by the OTS: (i) the Foundation will be subject to examination by the
OTS, at its own expense; (ii) the Foundation must comply with supervisory
directives imposed by the OTS; (iii) the Foundation will provide annual reports
to the OTS describing grants made and grant recipients; (iv) the Foundation will
operate in accordance with written policies adopted by the board of directors,
including a conflicts of interest policy; and (v) the Foundation will not engage
in self-dealing and will comply with all laws necessary to maintain its tax-
exempt status. In addition, establishment of the Foundation is also subject to
the approval of the Bank's members at the special meeting being held to consider
the Conversion. The establishment of the Foundation will be considered as a
separate matter from approval of the Plan of Conversion. If the Bank's members
approve the Plan of Conversion, but not the establishment of the Foundation, the
Bank intends to complete the Conversion without the charitable foundation.
Failure to approve the Foundation may materially increase the pro forma market
value of the Common Stock being offered since the Valuation Range, as set forth
herein, takes into account the dilutive impact of the issuance of shares to the
Foundation. In such an event, the Bank may establish a new Estimated Price Range
and commence a resolicitation of subscribers. In the event of a resolicitation,
unless an affirmative response is received within a specified period of time,
all funds will be promptly returned to investors, as described elsewhere herein.
See " The Conversion - Stock Pricing."
The Conversion and the Subscription and Community Offerings
On August 17, 1995, the Board of Directors of the Bank adopted the Plan of
Conversion, which was subsequently amended on November 22, 1995, March 20, and
May 7, 1996. Pursuant to the Plan, the Bank is converting from a federally
chartered mutual savings bank to a federally chartered stock savings bank, the
Common Stock of the Company will be offered and sold hereby and all of the
outstanding capital stock of the Bank will be acquired by the Company in
exchange for 50% of the net proceeds of the Offerings. The Conversion and the
Offerings are subject to OTS approval, which was received on _______________,
1996, and approval of the Bank's members at a special meeting to be held on
_________, 1996 (the "Special Meeting"). See "The Conversion - General." For a
discussion of the reasons why the Bank is converting to stock form, see "The
Conversion - Purposes of Conversion.
Common Stock offered in the Subscription Offering will be offered in the
following order of priority: (1) depositors whose accounts with the Bank
totalled $50 or more on July 31, 1994 ("Eligible Account Holders"); (2) the
ESOP; (3) depositors whose accounts with the Bank totalled $50 or more on March
31, 1996 ("Supplemental Eligible Account Holders"); and (4) other members of the
Bank, consisting of depositors of the Bank as of _________, 1996, the voting
record date ("Voting Record Date") for the Special Meeting, and borrowers with
loans outstanding as of April 12, 1989 which continue to be outstanding as of
the Voting Record Date, other than those members who otherwise qualify as
Eligible Account Holders and Supplemental Eligible Account Holders ("Other
Members"). Subject to the prior rights of holders of subscription rights, Common
Stock not subscribed for in the Subscription Offering is being concurrently
offered in the Community Offering to certain members of the general public, with
preference given to natural persons residing in Ocean, Middlesex and Monmouth
Counties, the counties served by the Bank. It is anticipated that any shares not
subscribed for in the Subscription and Community Offerings will be offered to
members of the general public in a Syndicated Community Offering. The Company
and the Bank reserve the right, in their absolute discretion, to reject or
accept, in whole or in part, any orders in the Community Offering and the
Syndicated Community Offering, either at the time of receipt of an order or as
soon as practicable following the Expiration Date. If an order is rejected, the
funds submitted with such order will be returned promptly. Subscription rights
will expire if not exercised by 12:00 noon, Eastern Time, on ________, 1996,
unless extended by the Bank and the Company. See "The Conversion - Subscription
Offering and Subscription Rights" and "- Community Offering."
Prospectus Delivery and Procedure for Purchasing Shares
Order forms will only be distributed with a prospectus. The Bank is not
obligated to accept for processing orders not submitted on original order forms.
Order forms unaccompanied by an executed certification form will not be
accepted. Payment by check, money order, bank draft, cash or debit authorization
to an existing account at the Bank must accompany the order and certification
forms. No wire transfers will be accepted. The Bank is prohibited from lending
funds to any person or entity for the purpose of purchasing shares of Common
Stock in the Conversion. See "The Conversion -Procedure for Purchasing Shares in
Subscription and Community Offerings."
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (July 31,
1994) or Supplemental Eligibility Record Date (March 31, 1996) and depositors
and borrowers as of the Voting Record Date (__________, 1996) must list all
deposit and/or loan accounts on the stock order form, giving all names on each
account and the account numbers. Borrowers of the Bank with loans outstanding on
April 12, 1989 which continue to be outstanding on the Voting Record Date should
check the appropriate box on the stock order form in order to identify
themselves as Other Members. Failure to list all account numbers may result in
the inability of the Company or the Bank to fill all or part of a subscription
order. In addition, registration of shares in a name or title different from the
names or
8
<PAGE>
titles listed on the account may adversely affect such subscriber's purchase
priority. See "The Conversion - Procedure for Purchasing Shares in Subscription
and Community Offerings."
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that a purchase of Common Stock
is solely for the purchaser's own account and that there is no agreement or
understanding regarding the sale or transfer of such shares. The Company and the
Bank will pursue any and all legal and equitable remedies in the event they
become aware of the transfer of subscription rights and will not honor orders
known by them to involve the transfer of such rights. See "The Conversion -
Restrictions on Transfer of Subscription Rights and Shares."
Following the Conversion there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Bank. See "Regulation - Federal Securities Laws" and "The Conversion-
Certain Restrictions on Purchase or Transfer of Shares After Conversion."
Purchase Limitations
The minimum purchase in the Subscription and Community Offerings is 25
shares. The ESOP intends to subscribe for 8% of the shares of Common Stock
issued in the Conversion pursuant to the subscription rights granted under the
Plan. No Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member, in their capacity as such, may subscribe in the Subscription Offering
for more than $200,000 of the aggregate value of the shares of Common Stock
offered; no person, together with associates of or persons acting in concert
with such person, may purchase in the Community Offering and the Syndicated
Community Offering in the aggregate more than $200,000 of the aggregate value of
the shares of Common Stock offered; and no person, together with associates of
or persons acting in concert with such person, may purchase in the Offerings
more than the overall maximum purchase limitation of 1.0% of the total number of
shares of Common Stock to be issued in the Conversion, exclusive of any shares
issued pursuant to an increase in the Estimated Price Range of up to 15%. In the
event of an increase in the Estimated Price Range, the additional shares will be
distributed and allocated to fill unfilled orders in the Subscription and
Community Offerings, with priority given to the ESOP, without any resolicitation
of subscribers, as described in "The Conversion - Subscription Offering and
Subscription Rights," "-Community Offering" and "Limitations on Common Stock
Purchases." For further discussion of the purchase limitations and the right of
the Company and the Bank to increase such limitations, see "The Conversion -
Limitations on Common Stock Purchases."
Stock Pricing and Number of Shares to be Issued in the Conversion
Federal regulations require that the aggregate purchase price of the Common
Stock to be issued in the Conversion be consistent with an independent appraisal
of the estimated pro forma market value of the Common Stock giving effect to the
Conversion. RP Financial, an independent appraiser, has advised the Bank that in
its opinion, dated April 26, 1996, the estimated aggregate pro forma market
value of the Common Stock being offered for sale ranged from $107.8 million to
$145.9 million, with a midpoint of $126.9 million. The appraisal of the Common
Stock is not intended and should not be construed as a recommendation of any
kind as to the advisability of purchasing such stock nor can any assurance be
given that purchasers of the Common Stock in the Conversion will be able to sell
such shares after the completion of the Conversion at or above the Purchase
Price.
Based upon the above Valuation Range, the Board of Directors of the Bank
has established the Estimated Price Range of $107.8 million to $145.9 million,
assuming the issuance of 5,391,203 shares to 7,293,981 shares of Common Stock at
the Purchase Price of $20 per share. All shares of Common Stock issued in the
Conversion will be sold at the Purchase Price of $20 per share, as determined by
the Bank and approved by the Company. The actual number of shares to be issued
in the Conversion will be determined by the Company and the Bank based upon the
final updated estimate of the aggregate pro forma market value of the Common
Stock, giving effect to the Conversion, at the completion of the Offerings. The
maximum of the Estimated Price Range may be increased by up to 15% and the
number of shares of Common Stock to be issued in the Conversion may be increased
to 8,388,078 shares due to regulatory considerations, changes in market or
general financial and economic conditions. No resolicitation of subscribers will
be made and subscribers will not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Common Stock are
less than the minimum or more than 15% above the maximum of the current
Estimated Price Range. See "Risk Factors - Possible Increase in Estimated Price
Range and Number of Shares Issued," "Pro Forma Data," and "The Conversion -
Stock Pricing" and "- Number of Shares to be Issued."
9
<PAGE>
The number of shares to be outstanding following the Conversion may be
increased to fund the Foundation. If the Foundation is approved by the Bank's
members, the Company will issue an additional 583,519 shares of its common stock
from authorized but unissued shares immediately following completion of the
Conversion, assuming the sale of common stock at the maximum of the Estimated
Price Range in the Offerings. In that event, the Company will have a total of
7,877,500 shares of common stock outstanding. Of that amount, the Foundation
will own 7.4%. Funding the Foundation with authorized but unissued shares will
have the effect of diluting the ownership and voting interests of persons
purchasing shares in the Conversion by 7.4% since a greater number of shares
will be outstanding upon completion of the Conversion. See "Pro Forma Data."
Use of Proceeds
Net proceeds from the sale of the Common Stock are estimated to be between
$104.5 million and $141.9 million (or $163.5 million if the Estimated Price
Range is increased by 15%) depending on the number of shares sold and the
expenses of the Conversion. See "Pro Forma Data." The Company will purchase all
of the outstanding capital stock of the Bank to be issued upon Conversion in
exchange for 50% of the net proceeds with the remaining net proceeds to be
retained by the Company. Net proceeds to be retained by the Company after the
purchase of the capital stock of the Bank are estimated to be between $52.2
million and $71.0 million (or $81.7 million if the Estimated Price Range is
increased by 15%). The Company will not be permitted to utilize any of the net
proceeds until the close of the Offerings.
Funds retained by the Company will be used for general business activities,
including a loan by the Company directly to the ESOP and, subject to applicable
limitations, the possible payment of dividends and repurchases of Common Stock.
The Board of Directors intends to consider a policy of paying cash dividends on
the Common Stock in the future. However, no decision has been made as to the
amount or timing of such dividends, if any. See "Dividend Policy." Assuming the
acquisition by the ESOP of 8% of the shares to be issued in the Conversion, the
amount of the loan to the ESOP is estimated to be between $8.6 million and $11.7
million (or $13.4 million if the Estimated Price Range is increased by 15%) to
be repaid over a 12-year period at the prime rate of interest as of the date the
loan is made. See "Management of the Bank - Benefits - Employee Stock Ownership
Plan and Trust."
Funds received by the Bank from the Company's purchase of its capital stock
may be used to repay any of the Bank's outstanding FHLB borrowings, to renovate
newly acquired office space which is to become the Bank's new administrative
office, or for other general business purposes. See "Business of the Bank." The
renovation of the Bank's new administrative office, which is scheduled to be
completed in early 1997, is estimated to cost approximately $6.5 million. In
December 1995, the Bank entered into a $5.8 million construction commitment for
the planned renovation. See "Business of the Bank- Properties." The Company and
the Bank may also use such funds to expand operations through the establishment
or acquisition of branch offices and the acquisition of financial institutions.
Neither the Bank nor the Company has any pending agreements or understandings
regarding acquisitions of any specific financial institutions or branch offices,
although the Bank has received approval to open three new branch offices, and is
negotiating to establish a fourth new branch. In addition to the costs
associated with opening the new administrative office described above,
management estimates the aggregate cost of opening the additional newly approved
branches to be approximately $923,000. See "Business of the Bank - Properties."
On an interim basis, the net proceeds are expected to be invested in federal
funds, short-term, investment grade marketable securities and mortgage-backed
securities. See "Use of Proceeds." Investments in mortgage-backed securities
involve certain additional risks. See "Business of the Bank." Based on the
amount of the estimated net proceeds of the Offerings, it is anticipated that
the Company will experience lower rates of return on equity in future periods as
compared to historical returns. No assurances can be given that the Company will
be able to realize a rate of return on the investment of the net proceeds
comparable to the Bank's historical rates of return.
Dividends
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock in the future; however, it has no
present plans with respect to the payment of dividends. Declarations of
dividends by the Board of Directors will depend upon a number of factors,
including the amount of the net proceeds retained by the Company in the
Conversion, investment opportunities available to the Company or the Bank,
capital requirements, regulatory limitations, the Company's and the Bank's
financial condition and results of operations, tax considerations and general
economic conditions. No assurances can be given that any dividends will be paid
or, if commenced, will continue to be paid. See "Dividend Policy."
Risk Factors
See "Risk Factors - Recapitalization of SAIF and Its Impact on SAIF
Premiums;" "- Financial Institution Regulation and Possible Legislation;" "-
Potential Impact of Changes in Interest Rates;" "- Competition;" "Establishment
of Charitable Foundation;" "- Benefits to Management and Directors;"
10
<PAGE>
"- Possible Dilutive Effect of Stock Programs and Stock Options;" "- Certain
Anti-Takeover Provisions;" "- Absence of Market for Common Stock;" "- Possible
Increase in Estimated Price Range and Number of Shares Issued;" and "- Possible
Adverse Income Tax Consequences of the Distribution of Subscription Rights," for
a discussion of certain factors that should be considered by prospective
investors.
11
<PAGE>
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets.................................. $1,036,445 $971,651 $937,214 $886,494 $785,249
Investment securities held to maturity........ -- 127,451 126,999 122,625 66,114
Investment securities available for sale...... 114,881 -- -- -- --
FHLB-NY stock................................. 7,723 7,323 6,680 5,835 5,209
Mortgage-backed securities held to
maturity..................................... -- 224,569 241,188 205,958 191,066
Mortgage-backed securities available
for sale..................................... 265,113 -- -- -- --
Loans receivable, net......................... 612,696 592,315 539,885 514,187 495,774
Mortgage loans held for sale.................. 1,894 -- 963 545 1,428
Deposits...................................... 926,558 867,420 858,461 819,300 726,977
Retained earnings, substantially
restricted................................... 92,351 82,334 72,605 62,469 52,494
</TABLE>
(continued on next page)
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12
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
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1995 1994 1993 1992 1991
---------- --------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income............................... $70,210 $63,683 $64,853 $67,281 $67,822
Interest expense.............................. 40,004 32,373 33,975 38,897 45,249
------- ------- ------- ------- -------
Net interest income......................... 30,206 31,310 30,878 28,384 22,573
Provision for loan losses..................... 950 1,129 1,300 1,220 1,847
------- ------- ------- ------- -------
Net interest income after
provision for loan losses.................. 29,256 30,181 29,578 27,164 20,726
Other income.................................. 1,356 2,057 2,740 1,869 1,769
Operating expenses............................ 18,006 17,104 16,626 16,156 13,579
------- ------- ------- ------- -------
Income before provision for income
taxes and cumulative effect of
change in accounting......................... 12,606 15,134 15,692 12,877 8,916
Provision for income taxes.................... 4,659 5,405 5,556 4,567 3,327
------- ------- ------- ------- -------
Income before cumulative effect of
change in accounting......................... 7,947 9,729 10,136 8,310 5,589
Cumulative effect of change in
accounting for income taxes.................. -- -- -- 1,665 --
------- ------- ------- ------- -------
Net income.................................... $ 7,947 $ 9,729 $10,136 $ 9,975 $ 5,589
======= ======= ======= ======= =======
</TABLE>
(continued on next page)
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At or For the Years Ended
December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data(1):
Performance Ratios:
Return on average assets.................... 0.80% 1.02% 1.10% 1.19% 0.75%
Return on average retained earnings......... 9.44 12.54 14.85 17.14 11.25
Average retained earnings to average
assets.................................... 8.51 8.11 7.41 6.96 6.62
Retained earnings to total assets at end
of year................................... 8.91 8.47 7.75 7.05 6.69
Average interest rate spread(2)............. 2.79 3.07 3.20 3.22 2.70
Net interest margin(3)...................... 3.13 3.34 3.44 3.48 3.07
Average interest-earning assets to
average interest-bearing liabilities...... 107.98 107.71 106.42 105.56 106.02
Operating expenses to average assets........ 1.82 1.79 1.81 1.93 1.81
Operating Efficiency Ratio(4)............... 57.05 51.26 49.46 53.40 55.78
Regulatory Capital Ratios(5):
Tangible capital............................ 8.72 8.43 7.73 7.05 6.67
Core capital................................ 8.72 8.43 7.73 7.05 6.67
Risk-based capital.......................... 21.34 20.34 18.59 16.57 14.53
Asset Quality Ratios:
Non-performing loans as a percent of
total loans receivable(6)(7).............. 1.40 1.83 1.92 2.79 4.09
Non-performing assets as a percent of
total assets(7)........................... 0.97 1.29 1.45 2.08 2.84
Allowance for loan losses as a percent of
total loans receivable(6)................. 0.97 0.94 1.01 1.10 1.13
Allowance for loan losses as a percent of
total non-performing loans(7)............. 69.21 51.27 52.45 39.55 27.61
Number of full-service customer
facilities.................................. 8 8 8 8 8
</TABLE>
- -------------------------
(1) With the exception of end of year ratios, all ratios are based on
average monthly balances during the indicated years.
(2) The average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted average
cost of interest-bearing liabilities.
(3) The net interest margin represents net interest income as a percentage
of average interest-earning assets.
(4) Operating efficiency ratio represents the ratio of operating expenses to
the aggregate of other income and net interest income.
(5) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation - Federal Savings Institution
Regulation - Capital Requirements." See "Regulatory Capital Compliance" for
the Bank's pro forma capital levels as a result of the Offerings.
(6) Total loans receivable includes loans receivable and loans held for sale,
less undisbursed loan funds, deferred loan fees and unamortized
discounts/premiums.
(7) Non-performing assets consist of non-performing loans and real estate
acquired through foreclosure ("REO"). Non-performing loans consist of all
loans 90 days or more past due and other loans in the process of
foreclosure. It is the Bank's policy to cease accruing interest on all such
loans. See "Business of the Bank - Non-Accrual and Past Due Loans" and
"- Non-Accrual Loans and REO."
- --------------------------------------------------------------------------------
14
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The following table set forth certain consolidated financial and other data
of the Bank at and for the periods indicated. Consolidated financial and
operating data and financial ratios and other data at and for the year ended
December 31, 1995 have been derived from and should be read in conjunction with
the Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus. Consolidated financial and operating data and
financial ratios and other data at and for the three months ended March 31, 1996
and 1995, were derived from unaudited financial statements. The results of
operations and ratios and other data presented for the three months ended March
31, 1996 are not necessarily indicative of the results of operations for the
year ended December 31, 1996.
<TABLE>
<CAPTION>
At At
March 31, 1996 (1) December 31, 1995
----------------- -----------------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets........................... $1,130,204 $1,036,445
Investment securities available for
sale.................................. 128,956 114,881
FHLB-NY stock.......................... 8,457 7,723
Mortgage-backed securities available
for sale.............................. 342,872 265,113
Loans receivable, net.................. 615,790 612,696
Mortgage loans held for sale........... 5,352 1,894
Deposits............................... 931,273 926,558
Federal Home Loan Bank borrowings...... 98,800 10,400
Retained earnings, substantially
restricted............................ 92,091 92,351
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1996(1) 1995(1)
----------------------
(In thousands)
<S> <C> <C>
Selected Operating Data:
Interest income........................ $18,988 $16,838
Interest expense....................... 11,208 9,117
------- -------
Net interest income................... 7,780 7,721
Provision for loan losses.............. 125 237
------- -------
Net interest income after provision
for loan losses...................... 7,655 7,484
Other income........................... 696 481
Operating expenses..................... 4,460 4,238
------- -------
Income before provision for income
taxes................................. 3,891 3,727
Provision for income taxes............. 1,480 1,406
Net income............................. $ 2,411 $ 2,321
------- -------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
At or For the Three
Months Ended March 31,
-----------------------
1996(1) 1995(1)
---------- -----------
<S> <C> <C>
Selected Financial Ratios and Other
Data(2):
Performance Ratios:
Return on average assets.................. 0.89% 0.96%
Return on average retained earnings....... 10.65 11.44
Average retained earnings to average
assets................................... 8.33 8.36
Retained earnings to total assets at end
of period................................ 8.15 8.66
Average interest rate spread(3)........... 2.57 2.86
Net interest margin(4).................... 2.97 3.24
Average interest-earning assets to average
interest-bearing liabilities............. 107.45 108.03
Operating expenses to average assets...... 1.64 1.75
Operating efficiency ratio(5)............. 52.62 51.67
Regulatory Capital Ratios(6):
Tangible capital.......................... 8.17 8.81
Core capital.............................. 8.17 8.81
Risk-based capital........................ 20.74 20.67
Asset Quality Ratios:
Non-performing loans as a percent
of total loans receivable(7)(8).......... 1.65 1.60
Non-performing assets as a percent of
total assets(8).......................... 1.01 1.20
Allowance for loan losses as a percent of
total loans receivable(7)................ 0.97 0.93
Allowance for loan losses as a percent of
non-performing loans(8).................. 58.86 58.11
Number of full-service customer facilities. 8 8
</TABLE>
- -------------------------------------------
(1) In the opinion of management, financial information at and for the
three months ended March 31, 1996 and 1995 reflects all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods.
(2) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods and are annualized
where appropriate.
(3) The average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted average
cost of interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(5) Operating efficiency ratio represents the ratio of operating expenses
to the aggregate of other income and net interest income.
(6) For definitions and further information relating to the Bank's
regulatory capital requirements, see "Regulation -Federal Savings
Institution Regulation - Capital Requirements." See "Regulatory Capital
Compliance" for the Bank's pro forma capital levels as a result of the
Offerings.
(7) Total loans receivable includes loans receivable held for investment
and loans held for sale, less undisbursed loan funds, deferred loan fees
and unamortized discounts/premiums.
(8) Non-performing assets consist of non-performing loans and real estate
acquired through foreclosure ("REO"). Non-performing loans consist of all
loans 90 days or more past due and other loans in the process of
foreclosure. It is the Bank's policy to cease accruing interest on all such
loans. See "Business of the Bank - Non-Accrual and Past Due Loans" and "-
Non-Accrual Loans and REO."
16
<PAGE>
Management's Discussion and Analysis of Recent Developments
Comparison of Financial Condition at March 31, 1996 and December 31, 1995
Total assets at March 31, 1996, were $1.1 billion, an increase of $93.8
million, or 9.0%, compared to $1.04 billion at December 31, 1995. The growth was
primarily due to a strategy employed by the Bank to prefund anticipated
Conversion proceeds, through the layered purchase of investment and mortgage-
backed securities funded by short-term Federal Home Loan Bank borrowings. The
Bank expects to prefund up to 100% of the anticipated Conversion proceeds prior
to the closing date of the Conversion. The Federal Home Loan Bank borrowings
will be repaid upon consummation of the Conversion. As a result of this
strategy, investment securities available-for-sale increased by $14.1 million to
a balance of $129.0 million at March 31, 1996, compared to a balance of $114.9
million at December 31, 1995 and mortgage-backed securities available-for-sale
increased by $77.8 million to $342.9 million at March 31, 1996, from $265.1
million at December 31, 1995. The $91.9 million aggregate increase in investment
and mortgage-backed securities available for sale was funded by an increase in
Federal Home Loan Bank borrowings of $88.4 million. These borrowings increased
to $98.8 million at March 31, 1996, compared to a balance of $10.4 million at
December 31, 1995. Cash and due from banks was $301,000 at March 31, 1996, a
decrease of $7.7 million from $8.0 million at December 31, 1995. The decrease in
cash and due from banks was a result of the timing of operating and investing
cash flows. Mortgage loans held for sale increased by $3.5 million or 182.6%, to
$5.4 million at March 31, 1996, from $1.9 million at December 31, 1995. The
relatively low interest rate environment at the start of the first quarter of
1996 increased mortgage loan refinance activity, primarily in the 30-year fixed-
rate mortgage product, which the Bank sells. Total deposits at March 31, 1996
were $931.3 million, an increase of $4.7 million, compared to $926.6 million at
December 31, 1995. Retained earnings at March 31, 1996 were $92.1 million, a
decrease of $300,000, compared to $92.4 million at December 31, 1995, as net
income of $2.4 million for the three months ended March 31, 1996, was more than
offset by a reduction in the net unrealized gain on securities available-for-
sale, net of tax, of $2.7 million.
Comparison of Operating Results for the Three Months Ended March 31, 1996
and March 31, 1995
General
- -------
Net income increased $90,000, or 3.9%, to $2.4 million for the three months
ended March 31, 1996, from $2.3 million for the three months ended March 31,
1995. The increase was due to an increase in net interest and other income,
combined with a reduction in the provision for loan losses, partly offset by
increases in operating expenses and provision for income taxes.
Interest Income
- ---------------
Interest income for the three months ended March 31, 1996 was $19.0
million, compared to $16.8 million for the three months ended March 31, 1995, an
increase of $2.1 million, or 12.8%. The increase in interest income was the
result of a significant increase in the average size of the mortgage-backed
securities available-for-sale portfolio due to the 1996 purchases relating to
the prefunding of Conversion proceeds strategy discussed above. Additionally,
the average balance of loans receivable and investment securities available-for-
sale also increased during the first quarter of 1996 as compared to the first
quarter of 1995.
Interest Expense
- ----------------
Interest expense for the three months ended March 31, 1996, was $11.2
million, compared to $9.1 million for the three months ended March 31, 1995, an
increase of $2.1 million, or 22.9%. The increase in interest expense was the
result of an increase in both the average balance of deposits and Federal Home
Loan Bank borrowings and an increase in the average cost of deposits. The
increase in the average cost of deposits was partly due to a shift in the
composition of deposit accounts from lower yielding core accounts into higher
yielding certificates of deposit.
17
<PAGE>
Provision for Loan Losses
- -------------------------
During the three months ended March 31, 1996, the Bank's provision for loan
losses was $125,000 compared to $237,000 for the three months ended March 31,
1995, a decrease of $112,000, which was based on management's assessment of the
loan portfolio.
Other Income
- ------------
Other income increased to $696,000 for the three months ended March 31,
1996, from $481,000 for the three months ended March 31, 1995. The increase was
primarily due to an increase in the net gain of $174,000 on the sale of loans
held for sale due to a higher volume of loan sales and due to the adoption,
effective January 1, 1996, of Statement of Financial Accounting Standards No.
122 "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement
No. 65," which allowed the Bank to record, as a separate asset, rights to
service mortgage loans for others.
Operating Expenses
- ------------------
Operating expenses increased to $4.5 million for the three months ended
March 31, 1996, from $4.2 million for the three months ended March 31, 1995. The
increase was attributable to higher compensation and employee benefits due to
annual salary increases, increased FDIC insurance premiums resulting from
increased deposit levels; and higher data processing charges.
Provision for Income Taxes
- --------------------------
Income tax expense was $1.5 million for the three months ended March 31,
1996, compared to $1.4 million for the three months ended March 31, 1995. The
increase in the provision for income taxes was the result of the increase in
earnings before income taxes.
18
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
Recapitalization of SAIF and Its Impact on SAIF Premiums
Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the Bank Insurance Fund ("BIF"), the deposit insurance fund that covers most
commercial bank deposits, are statutorily required to be recapitalized to a
1.25% of insured reserve deposits ratio. A portion of the insurance assessment
paid by SAIF members is required by statute to be used to make payments on bonds
issued by the Financing Corporation ("FICO") which were issued in the late 1980s
to recapitalize the predecessor to the SAIF.
The FDIC recently adopted a new assessment rate schedule of 0 to 27 basis
points for BIF members. Under the new schedule, approximately 92% of BIF members
would be required to pay only $2,000 per year, the legal minimum, in insurance
premiums. With respect to SAIF member institutions, the FDIC adopted a final
rule retaining the existing assessment rate schedule applicable to SAIF member
institutions of 23 to 31 basis points. Consequently, there is a significant
differential in the insurance premiums paid by BIF and SAIF members. As long as
the premium differential continues, it may have adverse consequences for SAIF
members, including reduced earnings and an impaired ability to raise funds in
the capital markets. In addition, 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.
Several legislative bills have been introduced in Congress to mitigate the
effect of the BIF/SAIF premium disparity. These bills would, among other things,
impose a one-time special assessment on SAIF-member institutions, including the
Bank, calculated on the basis of an institution's deposit insurance assessment
base as of March 31, 1995, to recapitalize the SAIF fund, would spread the FICO
payments across all BIF and SAIF members, and would require a merger of the BIF
and SAIF by January 1, 1998 provided that subsequent legislation is adopted to
eliminate the federal thrift charter. It is presently estimated that the amount
of the one-time fee would range from 75 to 80 basis points on the amount of
deposits held by SAIF-member institutions. The payment of the one-time fee would
have the effect of immediately reducing the capital of SAIF-member institutions
by the amount of the fee, net of any tax effect; however, it would not affect
the Bank's compliance with its regulatory capital requirements. See "Regulatory
Capital Compliance" and "Regulation -- Insurance of Deposit Accounts."
Management cannot predict whether legislation imposing such a fee will be
enacted, or, if enacted, the amount of any one-time fee or whether ongoing SAIF
premiums will be reduced to a level equal to that of BIF premiums.
The Bank's assessment rate for 1995 was 23 basis points, and the premium
paid for 1995 totalled $2.2 million. A significant increase in SAIF insurance
premiums or a significant one-time fee to recapitalize the SAIF would likely
have an adverse effect on the operating expenses and results of operations of
the Bank. Based on the Bank's deposit insurance assessment base as of March 31,
1995, a 75 to 80 basis point fee to recapitalize the SAIF would result in a $4.2
million to $4.5 million charge to operations on an after-tax basis. If the Bank
had been required to pay a special assessment of 80 basis points on March 31,
1995, the Bank would have reported net income of $3.4 million for the year ended
December 31, 1995, rather than $7.9 million.
Financial Institution Regulation and Possible Legislation
The Bank is subject to extensive regulation and supervision, as a federal
savings bank. In addition, the Company, as a savings association holding
company, is subject to extensive regulation and supervision. Any change in the
regulatory structure or the applicable statutes or regulations, whether by the
OTS, the FDIC or the Congress, could have a material impact on the Company, the
Bank, its operations or the Bank's Conversion. See "Regulation."
19
<PAGE>
Congress currently has under consideration various proposals to eliminate
the federal thrift charter and abolish the OTS. Several of the bills presently
pending in Congress would require that all federal savings associations convert
to national banks or state banks by no later than January 1, 1998 and would
treat all state savings associations as state banks as of that date. All savings
and loan holding companies would become bank holding companies under the pending
legislative proposals and would be subject to the activities restrictions
applicable to bank holding companies. The legislative proposals would
grandfather any lawful activity in which a savings association was lawfully
engaged as of September 13, 1995 for up to five years following the effective
date of its conversion to a bank charter and would grandfather existing thrift
intrastate and interstate branches which were operated as branches on September
13, 1995. The legislative proposals would also abolish the OTS and transfer its
functions to the Office of the Comptroller of the Currency with respect to the
regulation of federal savings associations, and to the Board of Governors of the
Federal Reserve Board with respect to the regulation of savings and loan holding
companies. All state savings associations would be regulated as state banks by
the FDIC. Certain provisions of other pending legislation would eliminate the
bad debt reserve deduction for financial institutions and, would require savings
associations to recapture any bad debt reserves taken after 1987. See "Federal
and State Taxation --Federal Taxation -- Tax Bad Debt Reserve." The outcome of
any pending legislation and the effect of such legislation on the bad debt
reserve deduction of thrift institutions such as the Bank is uncertain.
Therefore, the Bank is unable to determine the extent to which such legislation,
if enacted, would affect its business or require the recapture of the bad debt
reserve. If legislation is enacted eliminating the bad debt reserve deduction
for thrifts and requires thrifts to recapture the bad debt reserve for reserves
taken after 1987, federal income taxes of $600,000 could be imposed on the Bank.
This cash payment would have no effect on the Bank's operating results for the
year(s) of payment.
Potential Impact of Changes in Interest Rates
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the Bank's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements.
The Bank's recent results of operations have been adversely affected by the
increase in interest rates experienced during 1995. In particular, during 1995,
the Bank experienced compression in its average interest rate spread, which was
reduced to 2.79%, from 3.07% for the year ended December 31, 1994, and in its
net interest margin, which was reduced to 3.13%, from 3.34% for the year ended
December 31, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Of the Bank's $625.0 million total loan
portfolio as of December 31, 1995, $219.5 million or 35.1% had fixed rates, and
$405.5 million or 64.9% had adjustable interest rates, of which $221.2 million
reprice within one year.
One method of analyzing an institution's exposure to interest rate risk is
by measuring the change in the institution's Net Portfolio Value ("NPV") under
various interest rate scenarios. NPV is the present value of expected cash flows
from assets, liabilities and off-balance sheet contracts. A NPV Ratio, in any
interest rate scenario, is defined as the NPV in that scenario divided by the
market value of assets in the same scenario. The sensitivity measure is the
decline in the NPV Ratio, in basis points, caused by a 2% increase or decrease
in rates, whichever produces a larger decline. The higher an institution's
sensitivity measure is, the greater its exposure to interest rate risk is
considered to be. As of December 31, 1995, the Bank's sensitivity measure, as
measured by the OTS, indicated that a 2% increase in interest rates would cause
a 164 basis point decline in the Bank's NPV Ratio. This NPV Ratio sensitivity
measure is below the thresholds at which the Bank could be required to hold
additional risk-based capital under OTS regulations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Management of Interest Rate Risk - Net Portfolio Value."
Another indicator of interest rate risk exposure is GAP analysis, which
compares asset and liability balances that reprice in given time periods.
20
<PAGE>
At December 31, 1995, the Bank's total interest-earning assets maturing or
repricing within one year exceeded its total interest-bearing liabilities
maturing or repricing in the same time period by $11.8 million, representing a
cumulative one-year interest sensitivity gap as a percentage of total assets of
1.14%. Although the Bank had a positive one year sensitivity gap a significant
portion of its interest-earning assets consist of ARMs, which will be repricing
within 12 months. The limits on annual adjustments on certain of the Bank's one-
to four-family ARM loans, together with the overall caps on interest rate
increases on such loans, may cause the Bank's yield on interest-earning assets
to adjust more slowly than the cost of interest-bearing liabilities.
Accordingly, a rapidly rising interest rate environment generally may adversely
affect the Bank's net interest income. Increases in interest rates also could
adversely affect the type (fixed-rate or adjustable-rate) and amount of loans
originated by the Bank and the average life of loans and securities which could
adversely impact the yields earned on the Bank's loan and securities portfolios
as well as the amount of secondary market activity in which the Bank engages.
Additionally, the Bank originates for sale one- to four-family fixed-rate loans
with terms in excess of 15 years and utilizes forward sale commitment contracts
as a method of hedging such loan sales. The Bank covers most loans originated
for sale with forward commitment contracts depending on management's estimation
of the amount of such loans that are expected to close and its estimation of
future market interest rates. See "Business of the Bank - Origination, Sale,
Servicing and Purchase of Loans." With respect to loans originated for sale that
are not covered by forward commitment contracts, if market interest rates rise
from the time of the loan commitment to the actual time of sale of such loans,
the market value of such loans will be adversely affected, thereby exposing the
Bank to potential losses with respect to such loans. With respect to loans
originated for sale that are covered by forward commitments, if borrowers
determine not to close such loans, the Bank may be required to fund each forward
commitment contract with loans purchased at a premium or take other measures
which may result in losses related to such activity.
Increases in interest rates would result in interest rates on the Bank's
adjustable-rate loans increasing, thereby resulting in increased loan payment
amounts by the borrowers which, in turn, may result in higher delinquencies on
such loans. Increases in the level of interest rates also may adversely affect
the value of the Bank's mortgage-backed securities and other interest-earning
assets, which could adversely affect the Bank's results of operations. Of the
Bank's $265.1 million in mortgage-backed securities, $175.4 million, or 66.9%
were adjustable rate. Of this amount, $170.3 million of such securities will
reprice within one year. Of the Bank's $114.9 million in investment securities,
$10.8 million had contractual maturities of one year or less, and $84.6 million
had contractual maturities of between one and five years at December 31, 1995.
Unrealized gains on mortgage-backed securities and investment securities
available for sale totalled $2.9 million and $376,000, respectively, at December
31, 1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management of Interest Rate Risk," "Business of the
Bank -Lending Activities - One- to Four-Family Mortgage Lending" and
"- Investment Activities."
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which have a state-wide or regional presence, and, in some
cases, a national presence, all of which are competitors of the Bank to varying
degrees. The Bank's competition for loans comes principally from commercial
banks, savings banks, savings and loan associations, credit unions, mortgage
banking companies and insurance companies. Its most direct competition for
deposits has historically come from commercial banks, savings banks, savings and
loan associations and credit unions, many of which are significantly larger than
the Bank and, therefore, have greater financial and marketing resources than
those of the Bank. The Bank faces additional competition for deposits from
short-term money market funds, other corporate and government securities funds
and from other financial institutions such as brokerage firms and insurance
companies. See "Business of the Bank -- Market Area and Competition."
21
<PAGE>
Establishment of the Charitable Foundation
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will establish the Foundation, which will be incorporated under
Delaware law as a non-stock corporation, and funded with shares of Common Stock
contributed by the Company. Establishment of the Foundation is subject to the
approval of the Bank's members at the special meeting being held to consider the
Conversion. If approved by members, the establishment of the Foundation will be
dilutive to the interests of stockholders and will have a adverse impact on the
operating results of the Company in 1996, possibly resulting in an operating
loss in 1996, the year in which the Foundation is established. The establishment
and funding of a charitable foundation as part of a conversion is innovative and
has never been done in connection with a mutual to stock conversion. As such,
the Foundation may be subject to potential challenges by depositors of the Bank
notwithstanding that the Boards of Directors of the Company and the Bank have
carefully considered the various factors involved in the establishment of the
Foundation in reaching its determination to establish the Foundation as part of
the Conversion. In conjunction with its approval of the Conversion, the Bank
determined to submit the Foundation for a vote of depositors so that depositors
have a right to vote on whether the Foundation should be established as part of
the Conversion. See "The Conversion - Establishment of Charitable
Foundation."
Dilution of Stockholders' Interests. The Company proposes to establish the
Foundation with Company Common Stock in an amount equal to 8.0% of the Common
Stock to be issued in the Conversion. At the minimum, midpoint and maximum of
the Estimated Price Range, the contribution to the Foundation would equal
431,297, 507,407 and 583,519 shares, with a value of $8.6 million, $10.1 million
and $11.7 million, respectively, based on the Purchase Price of $20 per share.
Upon completion of the Conversion and establishment of the Foundation, the
Company will have 7,877,500 shares issued and outstanding at the maximum of the
Estimated Price Range, of which the Foundation will own 583,519 shares, or 7.4%.
As a result, persons purchasing shares in the Conversion will have their
ownership and voting interests in the Company diluted by 7.4%, as compared to
completing the Conversion without the Foundation. See "Pro Forma Data."
Impact on Earnings. Assuming receipt of approval of the Bank's members,
establishment of the Foundation will have an adverse impact on the Company's and
the Bank's earnings in the year in which the contribution is made. The Company
will recognize an expense in the amount of the contribution to the Foundation in
the quarter in which it occurs, which is expected to be the second quarter of
1996. The amount of the contribution will range from $8.6 million to $11.7
million, depending on the amount of Common Stock sold in the Conversion. The
contribution expense will be partially offset by the tax deductibility of the
expense. The Company and the Bank have been advised by their independent
accountants that the contribution to the Foundation will be tax deductible,
subject to a limitation based on 10% of the Company's annual taxable income.
Assuming a contribution of $11.7 million in Common Stock, based on the maximum
of the Estimated Price Range, the Company estimates a net tax effected expense
of $8.0 million. If the Foundation had been established at December 31, 1995,
the Bank would have incurred a net loss of $53,000, rather than experiencing
earnings of $7.9 million for the year ended December 31, 1995. Management cannot
predict earnings for 1996, but expects that the establishment and funding of the
Foundation will have an adverse impact on the Company's earnings for the year.
In addition to the contribution to the Foundation, the Bank expects in the
future to continue making ordinary charitable contributions within its
community. Such additional contributions are expected to range from $32,000 to
$40,000 per year.
Tax Considerations. The Company and the Bank have been advised by their
independent accountants that an organization created for the above purposes
should qualify as a Section 501(c)(3) exempt organization under the Code, and
should be classified as a private foundation. In this regard, the Foundation
will submit a request to the IRS to be recognized as an exempt organization. The
Company and the Bank have received an opinion of their independent accountants
that the Foundation would qualify as a Section 501(c)(3) exempt organization
under the Code. The opinion further provides that there is substantial authority
for the position that the Company's contribution of its own stock to the
Foundation would not constitute an act of self-dealing, and that the Company
would be entitled to a deduction in the amount of the fair market value of the
stock at the time of the contribution, subject to a limitation based on 10% of
the Company's annual taxable income. The Company, however, would be able to
carryforward any unused portion of the deduction for five years following the
contribution. Thus, while the Company will only receive a charitable
22
<PAGE>
contribution deduction of approximately $1.6 million in 1996, the Company is
permitted under the Code to carryover the excess contribution over a six-year
period. Assuming the sale of Common Stock at the midpoint of the Estimated Price
Range, the Company estimates that substantially all of the deduction should be
deductible over the six-year period. Although the Company and the Bank have
received an opinion of their independent accountants that the Company will be
entitled to the deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Foundation as a Section 501(c)(3)
exempt organization or that the deduction will be permitted. In such event, the
Company's contribution to the Foundation would be fully expensed, resulting in a
further reduction in earnings in the year in which the IRS makes such a
determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation was
taken into account by RP Financial, Inc. in determining the estimated pro forma
market value of the Company. The aggregate price of the shares of Common Stock
being offered in the Subscription and Community Offerings is based upon the
independent appraisal conducted by RP Financial of the estimated pro forma
market value of the Company. The pro forma aggregate price of the shares being
offered in the Conversion is currently estimated to be between $107.8 million
and $145.9 million, with a midpoint of $126.9 million. Based on the appraisal,
the pro forma market capitalization of the Bank at the midpoint, including
shares contributed to the Foundation, is $137.0 million. The pro forma price to
book ratio and the pro forma price to earnings ratio are 67.14% and 12.18x,
respectively, at the midpoint of the Estimated Price Range. In the event that
the Conversion did not include the Foundation, RP Financial has estimated that
the estimated pro forma market capitalization of the Bank would be approximately
$145.0 million at the midpoint based on a pro forma price to book ratio and the
pro forma price to earnings ratio that are approximately the same as the
independent appraisal at 67.12% and 12.27%, respectively. If the Foundation was
not part of the Conversion, the pro forma market value of the shares being
offered is estimated to be between $123.2 million and $166.7 million. See "Pro
Forma Data." This estimate by RP Financial was prepared at the request of the
OTS and is solely for purposes of providing depositors with sufficient
information with which to make an informed decision on the Foundation. There is
no assurance that if the Foundation is not approved the appraisal prepared at
that time would conclude that the pro forma market value of the Company would be
the same as that the amount estimated herein. Any appraisal prepared at that
time would be based on the facts and circumstances existing at that time,
including, among other things, market conditions and economic conditions.
The Bank believes that the establishment of the Foundation is in the best
interests of the Bank, its depositors, its prospective stockholders and its
community. The Foundation is integrally tied to the Bank's business of operating
a community banking institution and the Bank believes that the Foundation will
have a positive impact on the Bank's long-term franchise value. The amount of
Common Stock being offered in the Conversion at the midpoint of the Estimated
Price Range is approximately $18.1 million less than the estimated amount of
Common Stock that would be offered in the Conversion without the Foundation,
and, as such, certain depositors of the Bank who subscribe to purchase Common
Stock in the Subscription Offering may receive less shares depending on the
appraisal valuation at that time, the number of shares sold based on that
appraisal, the size of a depositor's stock order and the amount of his or her
qualifying deposits in the Bank. The decrease in the amount of Common Stock
being offered will not have a significant effect on the Company or the Bank's
capital position. The Bank's regulatory capital is significantly in excess of
its regulatory capital requirements and will further exceed such requirements
following the Conversion. The Bank's tangible, leverage and risk-based capital
ratios at December 31, 1995 were 8.7%, 8.7% and 21.34%, respectively. Assuming
the sale of shares at the midpoint of the Estimated Price Range, the Bank's pro
forma tangible, leverage and risk-based capital ratios at December 31, 1995
would be 12.6%, 12.6% and 30.3%, respectively. On a consolidated basis, the
Company's pro forma stockholders' equity would be $204.0 million or
approximately 17.8% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Price Range. Pro forma stockholders'
equity per share and pro forma net earnings per share would be $29.79 and $1.64,
respectively. If the Foundation was not being established in the Conversion,
based on the RP Financial estimate, the Company's pro forma stockholders' equity
would be approximately $216.0 million or approximately 18.6% of pro forma
consolidated assets at the midpoint of the estimate and pro forma stockholder's
equity per share and pro forma net earnings per share would be the same with the
Foundation as without the establishment of the Foundation.
23
<PAGE>
Potential Anti-Takeover Effect. If approved by the Bank's members, upon
completion of the Conversion, the Foundation will own 7.4% of the total shares
of the Company's Common Stock outstanding. Such shares will be owned solely by
the Foundation, and the Foundation's board of directors will exercise sole
voting power over such shares. Initially, however, nine of the Foundation's
nineteen directors will be directors of the Company and only one additional vote
would be required to comprise a majority of the board. In this regard,
management of the Company and the Bank may benefit to the extent that a majority
of the board of directors of the Foundation determines to vote in favor of
proposals supported by the Company and the Bank. Furthermore, when the
Foundation's shares are combined with shares purchased directly by officers and
directors of the Company, shares held by proposed stock benefit plans, if
approved by stockholders, and shares held in the Bank's ESOP, the aggregate of
such shares could exceed 20% of the Company's outstanding Common Stock, which
could enable management to defeat stockholder proposals requiring 80% approval.
Consequently, this potential voting control might preclude takeover attempts
that certain stockholders deem to be in their best interest, and might tend to
perpetuate management. Since the ESOP shares are allocated to all eligible
employees of the Bank, and any unallocated shares will be voted by an
independent trustee, and because any stock benefit plans must first be approved
by stockholders no sooner than six months following completion of the
Conversion, and awards under such proposed plans may be granted to employees
other than executive officers and directors, management of the Company does not
expect to have voting control of all shares covered by the ESOP and other stock
benefit plans. See, " - Certain Anti-Takeover Provisions - Voting Control of
Officers and Directors."
In addition, management of the Company has attempted to mitigate the
potential anti-takeover effect of the Foundation through the structure of the
Foundation and certain of the policies and procedures under which the Foundation
must operate. Although directors of the Company and/or the Bank will serve on
the Foundation's board, the Foundation's bylaws mandate that Disinterested
Directors must at all times constitute a majority of the board. The bylaws
further direct that the number of Foundation directors will be decreased over
the first three years from 19 members to a total of 15 members. Of those 15,
only six would be affiliated with the Company or the Bank. Furthermore, there
will be no agreements or understandings, written or tacit, with respect to the
exercise of either direct or indirect control over the management or policies of
the Company, including agreements related to voting, acquisition or disposition
of the Company's Common Stock. Finally, as the Foundation sells its shares of
Common Stock over time, its ownership interest and voting power in the Company
is expected to decrease.
Approval of Members. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the special meeting being held to consider the
Conversion. The Foundation will be considered as a separate matter from approval
of the Plan of Conversion. If the Bank's members approve the Plan of Conversion,
but not the establishment of the Foundation, the Bank intends to complete the
Conversion without the establishment of the Foundation. Failure to approve the
Foundation may materially increase the pro forma market value of the Common
Stock being offered for sale in the Offerings since the Valuation Range, as set
forth herein, takes into account the dilutive impact of the issuance of shares
to the Foundation. If the pro forma market value of the Company without the
Foundation is either greater than $167.8 million or less than $107.8 million,
the Bank will establish a new Estimated Price Range and commence a
resolicitation of subscribers (i.e., subscribers will be permitted to continue
their orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscriptions funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to increase, decrease, or cancel
their subscriptions). Any change in the Estimated Price Range must be approved
by the OTS. See "The Conversion - Stock Pricing." A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days unless further extended by the OTS for periods of up to 90 days
not to extend beyond _______________, 1998.
24
<PAGE>
Benefits to Management and Directors
Stock Programs. The Company intends to seek stockholder approval of certain
performance based stock programs (the "Stock Programs") it intends to adopt for
the benefit of non-employee directors, officers and employees of the Company and
the Bank at a meeting of stockholders following the Conversion, which under
current OTS regulations may be held no earlier than six months after completion
of the Conversion. Assuming the receipt of stockholder approval, the Company
expects to acquire Common Stock on behalf of the Stock Programs in an amount
equal to 4% of the Common Stock issued in the Conversion, or 215,648 shares and
291,759 shares at the minimum and maximum of the Estimated Price Range,
respectively. These shares will be acquired either through open market
purchases, if permissible, or from authorized but unissued Common Stock. See "-
Possible Dilutive Effect of Stock Programs and Stock Options." Although no
specific award determinations have been made, the Company anticipates that, if
stockholder approval is obtained, it will provide awards to its directors and
employees to the extent permitted by applicable regulations. Current OTS
regulations provide that no individual officer or employee may receive more than
25% of the shares of any plan (72,940 shares at the maximum of the Estimated
Price Range); and non-employee directors may not receive more than 5%
individually (14,588 shares at the maximum of the Estimated Price Range), or 30%
in the aggregate (87,528 shares at the maximum of the Estimated Price Range), of
the shares awarded under any plan. The maximum value of shares eligible to be
granted under OTS regulations, assuming the sale of Common Stock at the maximum
of the Estimated Price Range, the receipt of stockholder approval of the Stock
Programs and based upon the initial Purchase Price of $20 per share, would be
$1.5 million for an individual officer or employee; $291,760 for an individual
director; and $1.8 million for all non-employee directors in the aggregate.
These shares will be awarded at no cost to the recipients. Under the terms of
the Stock Programs, an independent trustee will vote unallocated shares in the
same proportion as it receives instructions from recipients with respect to
allocated shares which have not been earned and distributed. The trustee will
not vote allocated shares which have not been distributed if it does not receive
instructions from the recipient. See "Management - Benefits of the Bank - Stock
Programs."
Stock Option Plans. The Company also intends to seek stockholder approval
of an Incentive Stock Option Plan for Officers and a Stock Option Plan for
Outside Directors (the "Stock Option Plans") at a meeting of stockholders
following the Conversion, which under current OTS regulations may be held no
earlier than six months after completion of the Conversion. Although no specific
determinations have been made, assuming the receipt of stockholder approval, the
Company expects that officers and directors will be granted options to purchase
an amount of authorized but unissued Common Stock or treasury stock, if any,
equal to 10% of the Common Stock issued in the Conversion, or 539,120 shares and
729,398 shares at the minimum and maximum of the Estimated Price Range. Current
OTS regulations provide that no individual may receive more than 25% of the
options of any plan and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the options awarded under any plan. At
the maximum of the Estimated Price Range, assuming receipt of stockholder
approval of the Option Plans, an individual officer or employee could receive
options for up to 182,350 shares; an individual non-employee director could
receive options for up to 36,470 shares, and all non-employee directors in the
aggregate could receive options for up to 218,819 shares. Under the Stock Option
Plans, the exercise price will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving such options will not be required to pay for the shares
until the date of exercise. See "Management of the Bank - Benefits - Stock
Option Plans." The stock-based benefits provided under the Stock Programs and
the Stock Option Plans, discussed above, may be provided under separate Stock
Program plans and Stock Option Plans for officers, employees and non-employee
directors or such benefits may be provided for under a single master stock-based
benefit plan adopted by the Company which would incorporate the benefits and
features in the separate plans (the "Master Stock-Based Benefit Plan"). See
"Business of the Bank - Benefits - Stock Programs - Stock Option Plans."
Employee Stock Ownership Plan. In connection with the Conversion, certain
officers and employees of the Bank and the Company will obtain the benefit of
stock ownership through the establishment of the ESOP, which is a tax-qualified
plan for the benefit of all eligible employees, including executive officers, of
the Bank.
25
<PAGE>
The ESOP intends to purchase in the Subscription Offering up to 8% of the Common
Stock issued in the Conversion, or 431,296 shares and 583,519 shares at the
minimum and maximum of the Estimated Price Range. The ESOP will be funded over
time by the Bank, and the Bank will allocate shares of common stock to employees
of the Bank who are Participants in the ESOP at no cost to the ESOP
beneficiaries. See "Management of the Bank -- Benefits -- Employee Stock
Ownership Plan and Trust."
Change In Control Provisions. It is anticipated that employment or
severance agreements with certain officers and employees may be entered into
subsequent to the Conversion, which would provide for benefits and cash payments
in the event of a change in control of the Company or the Bank. Such provisions
may have the effect of increasing the cost of acquiring the Company, thereby
discouraging future attempts to take over the Company or the Bank. Based on
current salaries, cash payments that would be paid in the event of a change in
control pursuant to the terms of the employment agreements, change in control
agreements and a proposed employee severance compensation plan would be
approximately $5.0 million. The actual amount to be paid in the event of a
change in control of the Bank or the Company, however, cannot be determined at
this time because the actual amount is based on the average salary of the
employee and other factors existing at the time of the change in control. See
"Restrictions on Acquisition of the Company and the Bank - Restrictions in the
Company's Certificate of Incorporation and Bylaws," "Management of the Bank -
Employment Agreements," "- Change-in-Control Agreements," "- Employee Severance
Compensation Plan," "- Benefits - Stock Option Plans" and "-Benefits - Stock
Programs."
Possible Dilutive Effect of Stock Programs and Stock Options
Following the Conversion, the Stock Programs, if approved by the
stockholders of the Company, will acquire an amount of shares equal to 4% of the
shares of Common Stock issued in the Conversion, either through open market
purchases or the issuance of authorized but unissued shares of Common Stock from
the Company. If the Stock Programs are funded by the issuance of authorized but
unissued shares, the voting interests of existing stockholders will be diluted
by approximately 3.8%. Also following the Conversion, directors, officers and
employees will be granted options, if the Stock Option Plans are approved by the
stockholders of the Company. Although no specific determinations have been made,
the Company expects that executive officers and directors will be granted
options to purchase authorized but unissued shares in an amount equal to 10% of
the Common Stock issued in the Conversion. Under certain circumstances, such
options may be exercised and sold on the same day, thereby eliminating any risk
to officers and directors in exercising options in the event that the market
price exceeds the exercise price. If all of the options were to be granted and
exercised and all of the Stock Programs are funded with authorized but unissued
Common Stock, the voting interests of existing stockholders would be diluted by
approximately 12.3%. See "Pro Forma Data."
Certain Anti-Takeover Provisions
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock Charter
and Bylaws, as well as certain federal regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting on certain
matters, staggered boards of directors, non-cumulative voting for directors,
limits on the calling of special meetings, limits on voting shares in excess of
10% of the outstanding shares, and certain uniform price provisions for certain
business combinations. The Bank's Stock Charter also prohibits, for five years,
the acquisition or offer to acquire, directly or indirectly, the beneficial
ownership of more than 10% of the Bank's equity securities. Any person violating
this restriction may not vote the Bank's securities in excess of 10%. These
provisions in the Bank's and the Company's governing instruments may discourage
potential proxy contests and other potential takeover attempts, particularly
those which have not been negotiated with the Board of Directors, and thus,
generally may serve to perpetuate current management. For a more detailed
discussion of these provisions, see "Restrictions on Acquisition of the Company
and the Bank."
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a
26
<PAGE>
tender or exchange offer for any equity security of the Company, (ii) merge or
consolidate the Company with another corporation or entity or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of the
Company, may, in connection with the exercise of its judgment in determining
what is in the best interest of the Company, the Bank and the stockholders of
the Company, give due consideration to all relevant factors, including, without
limitation, the social and economic effects of acceptance of such offer on the
Company's customers and the Bank's present and future account holders, borrowers
and employees; on the communities in which the Company and the Bank operate or
are located; on the ability of the Company to fulfill its corporate objectives
as a savings bank holding company; and on the ability of the Bank to fulfill the
objectives of a federally chartered stock savings bank under applicable statutes
and regulations. Notwithstanding these standards in the Certificate of
Incorporation of the Company, the Board of Directors may waive such anti-
takeover provisions in order to accept an offer determined to be in the best
interests of the Company, the Bank and stockholders.
Voting Control of Officers and Directors. Directors and executive officers
of the Bank and the Company expect to purchase approximately 2.0% or 1.4% of the
shares of Common Stock to be issued in the Conversion, based upon the minimum
and the maximum of the Estimated Price Range, respectively. Accordingly,
assuming the receipt of stockholder approval for the Stock Programs and the
Stock Option Plans, and assuming the maximum allocation and full vesting of the
ESOP, Stock Programs and Stock Option Plans, directors, executive officers and
employees would have effective control over 21.8% or 21.3%, at the minimum and
maximum of the Estimated Price Range, on a fully diluted basis, respectively, of
the Common Stock issued and outstanding. Management's potential voting control
could, together with additional stockholder support, defeat stockholder
proposals requiring 80% approval of stockholders. As a result, this potential
voting control may preclude takeover attempts that certain stockholders deem to
be in their best interest and may tend to perpetuate existing management. See
"Management of the Bank - Subscriptions by Executive Officers and Directors,"
and "Restrictions on Acquisition of the Company and the Bank -Restrictions in
the Company's Certificate of Incorporation and Bylaws."
Absence of Market For Common Stock
The Company and the Bank have never issued capital stock. The Company has
received conditional approval from the NASD to have its Common Stock quoted on
the Nasdaq National Market under the symbol "OCFC" upon completion of the
Conversion. There can be no assurance, however, that an active and liquid
trading market for the Common Stock will develop, or, once developed, will
continue, nor can there be any assurance that purchasers of the Common Stock
will be able to sell their shares at or above the Purchase Price. The absence or
discontinuance of a market for the Common Stock may have an adverse impact on
both the price and liquidity of the Common Stock. See "Market for the Common
Stock."
Possible Increase in Estimated Price Range and Number of Shares Issued
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will issue up to
8,388,078 shares of Common Stock at the Purchase Price for an aggregate price of
up to $167,761,560. An increase in the number of shares issued will decrease a
subscriber's pro forma net earnings per share and stockholders' equity per share
and will increase the Company's pro forma consolidated stockholders' equity and
net earnings. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net earnings per
share.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Bank has received a letter from RP Financial which states that,
pursuant to RP Financial's valuation, that subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members have no value. However, such valuation is not binding on the Internal
Revenue Service ("IRS"). If the subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders
27
<PAGE>
and Other Members are deemed to have an ascertainable value, receipt of such
rights could result in taxable gain to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the subscription rights in an amount equal to such value. Additionally,
the Bank could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion - Effects of Conversion" and "- Tax
Aspects."
OCEAN FINANCIAL CORP.
The Company was recently organized at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital stock to
be issued by the Bank. The Company has applied to the OTS to become a savings
and loan holding company, and, as such, will be subject to regulation by the
OTS. See "The Conversion - General." After completion of the Conversion, the
Company will conduct business initially as a unitary savings and loan holding
company. See "Regulation - Holding Company Regulation." Upon consummation of the
Conversion, the Company's assets will consist of all of the outstanding shares
of the Bank's capital stock issued to the Company in the Conversion and that
portion of the net proceeds of the Offerings retained by the Company. The
Company intends to use part of the net proceeds it retains to make a loan
directly to the ESOP to enable the ESOP to purchase 8% of the Common Stock in
the Conversion. See "Use of Proceeds." The Company will have no significant
liabilities. The management of the Company is set forth under "Management of the
Company." Initially, the Company will neither own nor lease any property, but
will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
officers, but will utilize the support staff of the Bank from time to time.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. Although there are no current arrangements, understandings or
agreements, written or oral, regarding any such opportunities or transactions,
the Company will be in a position after the Conversion, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. The initial activities
of the Company are anticipated to be funded by the net proceeds retained by the
Company and earnings thereon or, alternatively, through dividends from the Bank.
OCEAN FEDERAL SAVINGS BANK
Ocean Federal was originally founded as a state-chartered building and loan
association in 1902, and converted to a federal savings and loan association in
1945. The Bank became a federally chartered mutual savings bank in 1989. The
Bank's primary market area includes Ocean County and portions of Monmouth and
Middlesex Counties in New Jersey. The Bank conducts its business from its
administrative office located in Brick, and eight branch offices, seven of which
are located throughout Ocean County, and one of which is located in Middlesex
County.
The Bank is the only remaining community-based financial institution
headquartered in Ocean County. Its business has been, and continues to be,
attracting deposits from the general public in its primary market area and
investing such deposits and other funds, generated from operations and
borrowings, primarily in mortgage loans secured by single-family, owner-occupied
residences. At December 31, 1995, the Bank had invested $575.0 million, or
92.0%, of its total loan portfolio, in one- to four-family mortgage loans. To a
significantly lesser extent, the Bank invests in commercial real estate, multi-
family, land, construction, and consumer loans. The Bank also invests in
mortgage-backed securities, securities issued by the U.S. government and
agencies thereof, and other investments permitted by applicable laws and
regulations. In addition, the Bank services loans for others. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business of the Bank."
The Bank is subject to extensive regulation, supervision and examination by
the OTS, its primary regulator, and the FDIC, which insures its deposits. As of
December 31, 1995, the Bank exceeded all regulatory capital requirements with
tangible, core and risk-based capital of $90.3 million, $90.3 million and $95.7
million,
28
<PAGE>
respectively. Additionally, the Bank's regulatory capital was in excess of
the amount necessary for the Bank to be deemed "well-capitalized" under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
See "Regulatory Capital Compliance" and "Regulation." The Bank is a member
of the FHLB-NY, which is one of the twelve regional banks which comprise
the FHLB system.
The Bank's executive offices are located at its administrative office
at 74 Brick Boulevard, Brick, New Jersey 08723. The Bank's telephone number
is (908) 477-5200.
29
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At December 31, 1995, the Bank exceeded all regulatory capital
requirements. See "Regulation - Federal Savings Institution Regulation -Capital
Requirements." Set forth below is a summary of the Bank's compliance with
regulatory capital standards as of December 31, 1995, on a historical and pro
forma basis assuming that the indicated number of shares were sold as of such
date and receipt by the Bank of 50% of the net proceeds. For purposes of the
table below, the amount expected to be borrowed by the ESOP and the cost of the
shares expected to be acquired by the Stock Programs are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
Pro Forma at December 31, 1995 Based Upon Sale at $20 Per Share
------------------------------------------------------------------------------------------------
5,391,203 Shares 6,342,593 Shares 7,293,981 Shares
(Minimum of (Midpoint of (Maximum of
Historical Estimated Estimated Estimated
December 31, 1995 Price Range) Price Range) Price Range)
-------------------- ------------------- -------------------- ---------------------
Percent Percent Percent Percent
of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital................ $92,351 8.91% $131,658 12.26% $138,736 12.83% $145,814 13.40%
======= ====== ======== ====== ======== ====== ======== ======
Tangible Capital:
Capital Level............ $90,281 8.72% $129,588 12.06% $136,666 12.64% $143,744 13.21%
Requirement.............. 15,523 1.50 16,113 1.50 16,219 1.50 16,325 1.50
------- ----- -------- ----- -------- ----- -------- -----
Excess................... $74,758 7.22% $113,475 10.56% $120,447 11.14% $127,419 11.71%
======= ====== ======== ====== ======== ====== ======== ======
Core Capital:
Capital Level............ $90,281 8.72% $129,588 12.06% $136,666 12.64% $143,744 13.21%
Requirement(3)........... 31,047 3.00 32,226 3.00 32,438 3.00 32,650 3.00
------- ----- -------- ----- -------- ----- -------- -----
Excess................... $59,234 5.72% $ 97,362 9.06% $104,228 9.64% $111,094 10.21%
======= ====== ======== ====== ======== ====== ======== ======
Risk-Based Capital:
Capital Level(4)......... $95,684 21.34% $134,991 29.00% $142,069 30.32% $149,147 31.62%
Requirement.............. 35,877 8.00 37,240 8.00 37,485 8.00 37,730 8.00
------- ----- -------- ----- -------- ----- -------- -----
Excess................... $59,807 13.34% $ 97,751 21.00% $104,584 22.32% $111,417 23.62%
======= ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
8,388,078 Shares
(15% above
Maximum
of Estimated
Price Range)(1)
-------------------
Percent
of
Amount Assets(2)
-------- ---------
<S> <C> <C>
GAAP Capital................ $153,953 14.04%
======== ======
Tangible Capital:
Capital Level............ $151,883 13.85%
Requirement.............. 16,447 1.50
-------- ------
Excess................... $135,436 12.35%
======== ======
Core Capital:
Capital Level............ $151,883 13.85%
Requirement(3)........... 32,894 3.00
-------- ------
Excess................... $118,989 10.85%
======== ======
Risk-Based Capital:
Capital Level (4)........ $157,286 33.10%
Requirement.............. 38,013 8.00
-------- ------
Excess................... $119,273 25.10%
======== ======
Excess...................
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of total tangible assets.
Core capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of total risk-weighed
assets.
(3) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a 4% to 5% core capital ratio requirement for all other thrifts. See
"Regulation - Federal Savings Institution Regulation -Capital Requirements."
(4) Assumes net proceeds are invested in assets that carry a risk-weighting
equivalent to the average risk-weight of the Bank's assets at December 31,
1995. Risk-based capital at December 31, 1995 includes supplementary capital
of $5,403,000, which represents general valuation allowances. GAAP capital
at December 31, 1995, includes $2,070,000, which represents the net
unrealized gains on securities available for sale, net of tax. This amount
is excluded from regulatory capital.
30
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will be
between $104.5 million and $141.9 million (or $163.5 million if the
Estimated Price Range is increased by 15%). See "Pro Forma Data" and "The
Conversion - Stock Pricing" as to the assumptions used to arrive at such
amounts. The Company will be unable to utilize any of the net proceeds of
the Offerings until the consummation of the Conversion.
The Company will purchase all of the outstanding capital stock of the
Bank to be issued upon Conversion in exchange for 50% of the net proceeds
of the Offerings. Such proceeds will be added to the Bank's general funds,
and may be used for the repayment of any outstanding FHLB borrowings, the
renovation of a newly-acquired office which is to become the Bank's new
administrative office, or other general corporate purposes, including
investment in one- to four-family residential mortgage loans and other
loans, investment in federal funds, short-term, investment grade marketable
securities and mortgage-backed securities and to fund the Stock Programs.
See Note 12 to the Consolidated Financial Statements for a description of
the Bank's FHLB borrowings. The renovation of the new administrative office
is expected to be completed in early 1997, and is expected to cost
approximately $6.5 million. In December 1995, the Bank entered into a $5.8
million construction commitment for the planned renovation. The Bank may
also use such funds for further expansion of its facilities, and to expand
operations through the acquisition of other financial institutions, or the
establishment or acquisition of branch offices or other financial services
companies. Apart from the amounts which may be used to repay FHLB
borrowings, to renovate the new office space and the two new branch offices
discussed below, the Bank has not yet determined the approximate amount of
net proceeds to be used for each of the purposes mentioned above. Based on
the amount of the estimated net proceeds of the Offerings, it is
anticipated that the Company will experience lower rates of return on
equity in future periods as compared to historical returns. No assurances
can be given that the Company will be able to realize a rate of return on
the investment of the net proceeds comparable to the Bank's historical
rates of return.
The net proceeds retained by the Company will initially be invested
primarily in federal funds, short-term, investment grade marketable
securities and mortgage-backed securities. The Company intends to use a
portion of the net proceeds to make a loan directly to the ESOP to enable
the ESOP to purchase 8% of the Common Stock issued in the Conversion.
Based upon the issuance of 5,391,203 shares or 7,293,981 shares at the
minimum and maximum of the Estimated Price Range, the amount of the loan to
the ESOP would be $8.6 million or $11.7 million, respectively (or $13.4
million if the Estimated Price Range is increased by 15%) to be repaid over
a 12-year period at an interest rate of 8.25%. See "Management of the Bank
- Benefits - Employee Stock Ownership Plan and Trust."
The net proceeds retained by the Company may also be used to support
the future expansion of operations through the establishment of branch
offices, branch acquisitions and the acquisition of savings associations
and commercial banks or diversification into other banking related
businesses. The Company has no current arrangements, understandings or
agreements regarding acquisitions of any specific financial institutions or
branch offices, although the Bank has received approval to open three new
branch offices, and is presently negotiating a lease for a fourth new
branch. In addition to the costs associated with opening the new
administrative office described above, management estimates the cost of
opening the two newly approved branches to be approximately $923,000. See
"Business of the Bank- Properties." The Company, upon the Conversion, will
be a unitary savings and loan holding company, which under existing laws
would generally not be restricted as to the types of business activities in
which it may engage, provided that the Bank continues to be a qualified
thrift lender ("QTL"). See "Regulation - Holding Company Regulation" for a
description of certain regulations currently applicable to the Company, and
"Risk Factors -Financial Institution Regulation and Possible Legislation,"
for a discussion of possible restrictions which may be imposed upon unitary
savings and loan holding companies in the future.
31
<PAGE>
Upon completion of the Conversion, the Board of Directors of the
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements. Unless approved by the OTS, the
Company, pursuant to OTS regulations, will be prohibited from repurchasing
any shares of the Common Stock for three years except (i) for an offer to
all stockholders on a pro rata basis, or (ii) for the repurchase of
qualifying shares of a director. Notwithstanding the foregoing and except
as provided below, beginning one year following completion of the
Conversion the Company may repurchase its Common Stock so long as (i) the
repurchases within the following two years are part of an open-market
program not involving greater than 5% of its outstanding capital stock
during a twelve-month period; (ii) the repurchases do not cause the Bank to
become "undercapitalized" within the meaning of the OTS prompt corrective
action regulation; and (iii) the Company provides to the Regional Director
of the OTS no later than 10 days prior to the commencement of a repurchase
program written notice containing a full description of the program to be
undertaken and such program is not disapproved by the Regional Director.
See "Regulation - Prompt Corrective Regulatory Action." In addition, under
current OTS policies, repurchases may be allowed in the first year
following Conversion and in amounts greater than 5% in the second and third
years following Conversion provided there are valid and compelling business
reasons for such repurchases and the OTS does not object to such
repurchases.
Based upon facts and circumstances following Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include
but not be limited to: (i) market and economic factors such as the price
at which the stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares,
and the opportunity to improve the Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional
shares to cover the exercise of stock options or to fund employee stock
benefit plans; and (iii) any other circumstances in which repurchases would
be in the best interests of the Company and its shareholders. In the event
the Company determines to repurchase stock, such repurchases may be made at
market prices which may be in excess of the Purchase Price in the
Conversion.
Any stock repurchases will be subject to the determination of the Board
of Directors that both the Company and the Bank will be capitalized in
excess of all applicable regulatory requirements after any such repurchases
and that such capital will be adequate, taking into account, among other
things, the level of non-performing and other risk assets, the Company's
and the Bank's current and projected results of operations and
asset/liability structure, the economic environment and tax and other
considerations. See "The Conversion - Certain Restrictions on Purchase or
Transfer of Shares after Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory
and regulatory requirements. The Board of Directors intends to consider a
policy of paying cash dividends on the Common Stock in the future; however,
it has no present plans with respect to the payment of dividends.
Declarations of dividends by the Board of Directors, if any, will depend
upon a number of factors, including the amount of net proceeds retained by
the Company in the Conversion, investment opportunities available to the
Company or the Bank, capital requirements, regulatory limitations, the
Company's and the Bank's financial condition and results of operations, tax
considerations and general economic conditions. No assurances can be
given, however, that any dividends will be paid or, if commenced, will
continue to be paid.
The Bank will not be permitted to pay dividends on its capital stock if
its stockholders' equity would be reduced below the amount required for the
liquidation account. See "The Conversion - Liquidation Rights." For
information concerning federal regulations which apply to the Bank in
determining the amount of proceeds which may be retained by the Company and
regarding a savings institution's ability to make capital distributions
including payment of dividends to its holding company, see "Federal and
State Taxation - Federal Taxation - Distributions" and "Regulation -Federal
Savings Institution Regulation - Limitation on Capital Distributions."
32
<PAGE>
Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by
the Company and earnings thereon and may be dependent, in part, upon
dividends from the Bank. The Company is subject, however, to the
requirements of Delaware law, which generally limit dividends to an amount
equal to the excess of the net assets of the Company (the amount by which
total assets exceed total liabilities) over its statutory capital, or if
there is no such excess, to its net profits for the current and/or
immediately preceding fiscal year.
MARKET FOR THE COMMON STOCK
The Company and Bank have not previously issued capital stock, and,
consequently, there is no established market for the Common Stock. The
Company has received conditional approval from the NASD to have its Common
Stock quoted on the Nasdaq National Market under the symbol "OCFC" upon
completion of the Conversion. One of the requirements for quotation of the
Common Stock on the Nasdaq National Market is that there be at least two
market makers for the Common Stock. The Company will seek to encourage and
assist at least two market makers to make a market in its Common Stock.
Making a market involves maintaining bid and ask quotations and being able,
as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. Sandler O'Neill has advised the Company that it intends to
make a market in the Common Stock following the completion of the
Conversion, but it is under no obligation to do so. As of the date hereof,
no other broker-dealers have agreed to act as market makers. While the
Company has attempted to obtain commitments from broker-dealers to act as
market makers, and anticipates that prior to the completion of the
Conversion it will be able to obtain the commitment from at least one other
broker-dealer to act as market maker for the Common Stock, there can be no
assurance there will be two or more market makers for the Common Stock.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not
within the control of the Company, the Bank or any market maker. The
number of active buyers and sellers of the Common Stock at any particular
time may be limited. Under such circumstances, investors in the Common
Stock could have difficulty disposing of their shares on short notice and
should not view the Common Stock as a short-term investment. There can be
no assurance that an active and liquid trading market for the Common Stock
will develop or that, if developed, it will continue, nor is there any
assurance that persons purchasing shares will be able to sell them at or
above the Purchase Price or that quotations will be available on the Nasdaq
National Market as contemplated.
33
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Bank at December 31, 1995, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion, based upon
the sale of the number of shares indicated in the table and the other
assumptions set forth under "Pro Forma Data." The table does not reflect the
possible use of net conversion proceeds for the repayment of any FHLB
borrowings, or the cost of renovating the new administrative offices.
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $20 Per Share
--------------------------------------------------------------------------
8,388,078
5,391,203 6,342,593 7,293,981 Shares
Shares Shares Shares (15% above
(Minimum of (Midpoint of (Maximum of Maximum of
Bank Estimated Estimated Estimated Estimated
Historical Price Range) Price Range) Price Range) Price Range)(1)
---------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Deposits(2)............................ $926,558 $926,558 $926,558 $926,558 $926,558
FHLB borrowings........................ 10,400 10,400 10,400 10,400 10,400
-------- -------- -------- -------- --------
Total deposit accounts and
borrowed funds...................... $936,958 $936,958 $936,958 $936,958 $936,958
-------- -------- -------- -------- --------
Stockholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized;
none to be issued................ $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value,
55,000,000 shares authorized;
shares to be issued as reflected(3) -- 58 69 79 91
Additional paid-in capital(4)....... -- 104,434 123,144 141,856 163,374
Retained earnings(5)................ 92,351 92,351 92,351 92,351 92,351
Less:
Common Stock acquired by the
ESOP(6).......................... -- (8,626) (10,148) (11,670) (13,421)
Common Stock acquired by the
Stock Programs(7)................ -- (4,313) (5,074) (5,835) (6,710)
Plus:
After-tax effect of contribution to
Foundation(8)....................... -- 3,192 3,700 3,700 3,700
-------- -------- -------- -------- --------
Total stockholders' equity............. $ 92,351 $187,096 $204,042 $220,481 $239,385
======== ======== ======== ======== ========
</TABLE>
- ----------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of the stated number of shares in the Offerings and
the issuance of 431,297, 507,407, 583,519 and 671,047 shares of Common
Stock to the Foundation, at the minimum, midpoint, maximum, and maximum, as
adjusted, respectively, of the Estimated Price Range.
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Company's proposed Stock Option Plans intended to be
adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion. If approved by the
stockholders of the Company, an amount equal to 10% of the shares of Common
Stock issued in the Conversion will be reserved for issuance upon the
exercise of options to be granted under the Stock Option Plans. See "Risk
Factors - Possible Dilutive Effect of Stock Programs and Stock Options,"
Footnote 4 to the table under "Pro Forma Data" and "Management of the Bank
- Benefits - Stock Option Plans."
(5) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "The Conversion - Liquidation Rights" and "Regulation
- Federal Savings Institution Regulation - Limitations on Capital
Distributions."
(6) Assumes that 8% of the shares offered for sale in the Conversion will be
purchased by the ESOP and that the funds used to acquire such shares will
be borrowed from the Company. The Common Stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management of the
Bank - Benefits - Employee Stock Ownership Plan and Trust" and Footnote 1
to the tables under "Pro Forma Data."
(7) Assumes that an amount equal to 4% of the shares of Common Stock issued in
the Conversion is purchased by the Stock Programs subsequent to the
Conversion through open market purchases. The Common Stock purchased by
the Stock Programs is reflected as a reduction of stockholders' equity.
Implementation of the Stock Programs is subject to the approval of the
Company's stockholders at a meeting following the Conversion. See "Risk
Factors - Possible Dilutive Effect of Stock Programs and Stock Options,"
Footnote 3 to the table under "Pro Forma Data" and "Management of the Bank
- Benefits - Stock Programs."
(8) Since the contribution to the Foundation will be made with Company Common
Stock, there is no cash outlay affecting stockholders' equity. The tax
benefit derived from the contribution, however, will increase stockholders'
equity. The amount of the deduction is limited to 10% of the Company's
annual taxable income, subject to the ability of the Company to carry
forward any unused portion of the deduction for six years following the
contribution.
34
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $104.5 million and $141.9 million (or
$163.5 million in the event the Estimated Price Range is increased by
15.0%) based upon the following assumptions: (i) all of the shares of
Common Stock will be sold in the Subscription and Community Offerings; (ii)
directors, officers and employees of the Bank and members of their
immediate families will purchase an aggregate of 105,000 shares of Common
Stock; (iii) Sandler O'Neill will receive a fee equal to 1.75% of the
aggregate Purchase Price of the shares sold in the Subscription and
Community Offerings, excluding shares purchased by directors, officers,
employees, and members of their immediate families and any employee plans,
for which there is no fee; and (iv) Conversion expenses, excluding the
marketing fees paid to Sandler O'Neill, will be approximately $1,633,000.
Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net earnings of the Company for the year ended
December 31, 1995, have been calculated as if the Common Stock had been
sold at the beginning of the period and the net proceeds had been invested
at 5.86%, the arithmetic average of the weighted average yield earned by
the Bank on its interest-earning assets and the weighted average rate paid
on its deposits during such period (as required by OTS regulations). The
table below does not reflect the effect of withdrawals from deposit
accounts for the purchase of Common Stock or the effect of any possible use
of the net Conversion proceeds, except as set forth in Footnote 1 to the
table below. The pro forma after-tax yields for the Company and the Bank
are assumed to be 3.69% for the year ended December 31, 1995, based on an
effective tax rate of 37.0% for the period. Historical and pro forma net
earnings per share amounts have been calculated by dividing historical and
pro forma amounts by the indicated number of shares of Common Stock issued,
as adjusted to give effect to the purchase of shares by the ESOP.
Historical and pro forma stockholders' equity per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated
number of shares of Common Stock issued. No effect has been given in the
pro forma stockholders' equity calculations for the assumed earnings on the
net proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity
represents the difference between the stated amount of assets and
liabilities of the Company computed in accordance with GAAP. The pro forma
stockholders' equity is not intended to represent the fair market value of
the Common Stock and may be greater than amounts that would be available
for distribution to stockholders in the event of liquidation.
The following table summarizes historical data of the Bank and pro
forma data of the Company at or for the year ended December 31, 1995, based
on the assumptions set forth above and in the table and should not be used
as a basis for projections of market value of the Common Stock following
the Conversion. The table below gives effect to the Stock Programs, which
are expected to be adopted by the Company following the Conversion and
presented to stockholders for approval at a meeting of stockholders. See
Footnote 3 to the table and "Management of the Bank - Benefits - Stock
Programs." The table also gives effect to the possible issuance of
authorized but unissued shares of the Company's Common Stock to the
Foundation concurrently with completion of the Conversion. No effect has
been given in the table to the possible issuance of additional shares
reserved for future issuance pursuant to the Stock Option Plans to be
adopted by the Board of Directors of the Company and presented to
stockholders for approval at a meeting of stockholders, nor does book value
give any effect to the liquidation account to be established for the
benefit of Eligible Account Holders and Supplemental Eligible Account
Holders or the bad debt reserve in liquidation. See Footnote 4 to the table
below, "The Conversion - Liquidation Rights" and "Management of the Bank -
Benefits - Stock Option Plans." The following table assumes that the
Foundation is approved as part of the Conversion and therefore gives effect
to the issuance of authorized but unissued shares of the Company's Common
Stock to the Foundation concurrently with the completion of the Conversion.
The Valuation Range, as set forth herein and in the table below, takes into
account the dilutive impact of the issuance of shares to the Foundation.
35
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1995
----------------------------------------------------------------
5,391,203 6,342,593 7,293,981 8,388,078
Shares Sold Shares Sold Shares Sold Shares Sold
at $20.00 at $20.00 at $20.00 at $20.00 Per
Per Share Per Share Per Share Share (15%
(Minimum (Midpoint (Maximum of above Maximum
of Estimated Estimated Estimated of Estimated
Price Range) Price Range) Price Range) Price Range)(7)
------------- ------------ ------------ ---------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds.................... $107,824 $126,852 $145,880 $167,762
Plus: Shares issued to
Foundation (equal
to 8% of stock
issued in
Conversion)............... 8,626 10,148 11,670 13,421
-------- -------- -------- --------
Pro Forma Market
Capitalization................... $116,450 $137,000 $157,550 $181,183
======== ======== ======== ========
Gross proceeds.................... $107,824 $126,852 $145,880 $167,762
Less: Offering expenses and
commissions................ (3,332) (3,639) (3,945) (4,297)
-------- -------- -------- --------
Estimated net proceeds............ 104,492 123,213 141,935 163,465
Less:
Common Stock purchased by
ESOP....................... (8,626) (10,148) (11,670) (13,421)
Common Stock purchased by
Stock Programs............. (4,313) (5,074) (5,835) (6,710)
-------- -------- -------- --------
Estimated net proceeds, as
adjusted................... $ 91,553 $107,991 $124,430 $143,334
======== ======== ======== ========
Consolidated net earnings(1):
Historical.................. $ 7,947 $ 7,947 $ 7,947 $ 7,947
Pro forma earnings on
net proceeds, as
adjusted(2)................. 3,106 3,713 4,320 5,018
Less: Pro forma ESOP
adjustment(3).............. (453) (533) (613) (705)
Pro forma Stock Programs
adjustment(4).............. (543) (639) (735) (846)
-------- -------- -------- --------
Pro forma net earnings............ $ 10,057 $ 10,488 $ 10,919 $ 11,414
======== ======== ======== ========
Per share net earnings(1):
Historical.................. $ 1.46 $ 1.25 $ 1.08 $ 0.94
Pro forma earnings on net
proceeds, as adjusted(2).... 0.57 0.57 0.59 0.59
Less: Pro forma ESOP
adjustment(3).......... (0.08) (0.08) (0.08) (0.08)
Pro forma Stock
Programs adjustment(4). (0.10) (0.10) (0.10) (0.10)
-------- -------- -------- --------
Pro forma net earnings
per share.............. $ 1.85 $ 1.64 $ 1.49 $ 1.35
======== ======== ======== ========
Stockholders' equity:
Historical................... $ 92,351 $ 92,351 $ 92,351 $ 92,351
Estimated net proceeds....... 104,492 123,213 141,935 163,465
Plus: After tax effect
of contribution
to Foundation.......... 3,192 3,700 3,700 3,700
Less: Common Stock
acquired by
ESOP(3)................ (8,626) (10,148) (11,670) (13,421)
Common Stock acquired
by Stock Programs(2)... (4,313) (5,074) (5,835) (6,710)
-------- -------- -------- --------
Pro forma stockholders'
equity(4)(5)(6)............ $187,096 $204,042 $220,481 $239,385
======== ======== ======== ========
Stockholders' equity per share:
Historical................... $ 15.86 $ 13.48 $ 11.72 $ 10.19
Estimated net proceeds....... 17.95 17.99 18.02 18.04
Plus: After tax effect
of contribution
to Foundation.......... 0.55 0.54 0.47 0.41
Less: Common Stock acquired
by ESOP(3)............ (1.48) (1.48) (1.48) (1.48)
Common Stock acquired
by Stock Programs(3).. (0.74) (0.74) (0.74) (0.74)
-------- -------- -------- --------
Pro forma stockholders'
equity per
share(4)(5)(6)........... $ 32.14 $ 29.79 $ 27.99 $ 26.42
======== ======== ======== ========
Offering price as a percentage
of pro forma stockholders'
equity per share............... 62.24% 67.14% 71.46% 75.69%
Offering price to pro forma net
earnings per share............. 10.79x 12.18x 13.45x 14.80x
</TABLE>
36
<PAGE>
(1) Does not give effect to the non-recurring expense that will be
recognized in 1996 if the establishment of the Foundation is approved.
In that event, the Company will recognize an after-tax expense for the
amount of the contribution to the Foundation which will range from $5.4
million to $8.0 million at the minimum and maximum of the Estimated
Price Range.
(2) For purposes of this calculation, net proceeds have been reduced by
$7.4 million, which amount is expected to be used for office
renovations in 1996, and by the amount of the Company's contribution of
common stock to the Foundation, both of which are considered non
interest-earning assets.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. For purposes of this table,
the funds used to acquire such shares are assumed to have been borrowed
by the ESOP from the Company. The amount borrowed is reflected as a
reduction of stockholders' equity. The Bank intends to make annual
contributions to the ESOP in an amount at least equal to the principal
and interest requirement of the debt. The Bank's total annual payment
of the ESOP debt is based upon 12 equal annual installments of
principal, with an assumed annual interest rate of 8.25%. The pro forma
net earnings assumes: (i) that the Bank's contribution to the ESOP is
equivalent to the debt service requirement for the year ended December
31, 1995, and was made at the end of the period; (ii) that 35,941,
42,284, 48,627 and 55,921 shares at the minimum, midpoint, maximum and
15% above the maximum of the range, respectively, were committed to be
released during the year ended December 31, 1995, at an average fair
value of $20 per share in accordance with Statement of Position ("SOP")
93-6; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the net earnings per share
calculations. See "Management of the Bank -Benefits - Employee Stock
Ownership Plan and Trust."
(4) Gives effect to the Stock Programs expected to be adopted by the
Company following the Conversion and presented for approval at a
meeting of stockholders. If the Stock Programs are approved by
stockholders, the Stock Programs intend to acquire an amount of Common
Stock equal to 4% of the shares of Common Stock issued in the
Conversion, or 215,648, 253,704, 291,759 and 335,523 shares of Common
Stock at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Price Range, respectively, either through open market
purchases, if permissible, or from authorized but unissued shares of
Common Stock or treasury stock of the Company, if any. Funds used by
the Stock Programs to purchase the shares will be contributed to the
Stock Programs by the Bank. In calculating the pro forma effect of the
Stock Programs, it is assumed that the required stockholder approval
has been received, that the shares were acquired by the Stock Programs
at the beginning of the period presented in open market purchases at
the Purchase Price and that 20% of the amount contributed was an
amortized expense during such period. The issuance of authorized but
unissued shares of the Company's Common Stock to the Stock Programs
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $1.81, $1.61, $1.46 and $1.33 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
and pro forma stockholders' equity per share would be $31.70, $29.44,
$27.70 and $26.20 at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively. There can be no assurance that
stockholder approval of the Stock Programs will be obtained, or that
the actual purchase price of the shares will be equal to the Purchase
Price. See "Management of the Bank -Benefits - Stock Programs."
(5) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the
Stock Option Plans for approval at a meeting of stockholders. If the
Stock Option Plans are approved by stockholders, an amount equal to 10%
of the Common Stock issued in the Conversion, or 539,120, 634,259,
729,398 and 838,808 shares at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Price Range, respectively, will be
reserved for future issuance upon the exercise of options to be granted
under the Stock Option Plans. The issuance of Common Stock pursuant to
the exercise of options under the Stock Option Plans will result in the
dilution of existing stockholders' interests. Assuming stockholder
approval of the Stock Option Plans and all options were exercised at
the end of the period at an exercise price of $20 per share, the pro
forma net earnings per share would be $1.75, $1.56, $1.42 and $1.30,
respectively, and the pro forma stockholders' equity per share would be
$31.11, $28.96, $27.31 and $25.88, respectively. See "Management of the
Bank - Benefits - Stock Option Plans."
(6) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The
Conversion - Liquidation Rights" and "Regulation - Federal Savings
Institution Regulation - Limitation on Capital Distributions."
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to
15% as a result of regulatory considerations or changes in market or
general financial and economic conditions following the commencement
of the Subscription and Community Offerings.
37
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of
the Conversion, RP Financial has estimated that the pro forma market
capitalization of the Bank would be approximately $145.0 million, at the
midpoint, which is approximately $8.0 million greater than the pro forma
market capitalization of the Bank if the Foundation is approved by the
members of the Bank and would result in approximately an $18.1 million
increase, or 12.5%, in the amount of Common Stock offered for sale in the
Conversion. The pro forma price to book ratio and pro forma price to
earnings ratio would be approximately the same under both the current
appraisal and the estimate of the value of the Company without the
Foundation. Further, assuming the midpoint of the Estimated Price Range,
pro forma stockholders' equity per share and pro forma earnings per share
would be the same with the Foundation as without the Foundation. In this
regard, pro forma stockholders' equity and pro forma net income per share
would be $29.79 and $1.64 at the midpoint of the estimate, respectively.
The pro forma price to book ratio and the pro forma price to earnings ratio
are 67.12% and 12.27x, respectively, at the midpoint of the estimate,
assuming no Foundation and are 67.14% and 12.18x, respectively, with the
Foundation. This estimate by RP Financial was prepared at the request of
the OTS and is solely for purposes of providing depositors with sufficient
information with which to make an informed decision on the Foundation.
There is no assurance that in the event the Foundation is not approved at
the Special Meeting of members that the appraisal prepared at that time
would conclude that the pro forma market value of the Company would be the
same as that estimated herein. Any appraisal prepared at that time would be
based on the facts and circumstances existing at that time, including,
among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial ratios at the midpoint of the Estimated Price
Range.
<TABLE>
<CAPTION>
At the Midpoint
--------------------------------------
Establishment
of Foundation No Foundation
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Pro Forma Pricing Ratios
Price/Earnings............... 12.18x 12.27x
Price/Book Value............. 67.14% 67.12%
Price/Assets................. 11.06 12.50
Pro Forma Financial Ratios
Equity/Assets................ 17.77% 18.62%
Return on Assets............. 0.91 0.94
Return on Equity............. 5.14 5.07
Pro Forma Stockholder's Equity
Per Share..................... $29.79 $29.79
Pro Forma Net Earnings Per
Share......................... $ 1.64 $ 1.64
Midpoint Offering.............. $126,852 $145,000
Midpoint Pro Forma Market
Capitalization................ 137,000 145,000
</TABLE>
38
<PAGE>
OCEAN FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years ended December 31, 1995, 1994 and 1993 have been derived from the
Consolidated Financial Statements, which Financial Statements have been audited
by KPMG Peat Marwick, LLP, independent certified public accountants, whose
report thereon appears elsewhere herein. The report of KPMG Peat Marwick LLP
refers to a change in the method of accounting for investments in 1994. These
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans........................ $48,323 $42,706 $42,413
Mortgage-backed securities... 13,799 13,440 14,198
Investment securities and
other....................... 8,088 7,537 8,242
------- ------- -------
Total interest income...... 70,210 63,683 64,853
------- ------- -------
Interest expense:
Deposits (note 9)............ 39,826 32,130 33,948
Federal Home Loan
Bank borrowings............. 178 243 27
------- ------- -------
Total interest expense..... 40,004 32,373 33,975
------- ------- -------
Net interest income........ 30,206 31,310 30,878
------- ------- -------
Provision for loan
losses (note 5)............... 950 1,129 1,300
------- ------- -------
Net interest income after
provision for loan losses. 29,256 30,181 29,578
------- ------- -------
Other income:
Fees and service
charges (note 5)............ 1,603 1,685 1,776
Net (loss) gain on sales of
loans and securities
available for sale (note 3). (340) 182 670
Net (loss) gain
from real estate owned...... (41) 8 228
Other........................ 134 182 66
------- ------- -------
Total other income......... 1,356 2,057 2,740
------- ------- -------
Operating expenses:
Compensation and employee
benefits (note 11).......... 8,707 8,324 7,688
Occupancy (note 12).......... 1,721 1,652 1,565
Equipment.................... 879 958 967
Advertising.................. 836 716 545
Federal insurance............ 2,199 2,167 2,020
Data processing.............. 737 715 764
General and administrative... 2,927 2,572 3,077
------- ------- -------
Total operating expenses... 18,006 17,104 16,626
------- ------- -------
Income before provision for
income taxes.............. 12,606 15,134 15,692
Provision for income
taxes (note 10)............... 4,659 5,405 5,556
------- ------- -------
Net income..................... $ 7,947 $ 9,729 $10,136
======= ======= =======
</TABLE>
See accompanying Notes to consolidated financial statements.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, accordingly has no results
of operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
the Bank's interest-earning assets, such as loans and investments, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates non-interest income such as income from
secondary marketing activities, loan servicing and other fees. The Bank's
operating expenses primarily consist of compensation and employee benefits,
general and administrative expenses, federal deposit insurance premiums,
occupancy and equipment expenses, advertising expenses and other operating
expenses. The Bank's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory agencies. The Bank
exceeded all of its regulatory capital requirements at December 31, 1995. See
"Regulatory Capital Compliance" for a discussion of the historical and pro forma
capital of the Bank and capital requirements. See also "Regulation -Federal
Savings Institution Regulation - Capital Requirements."
Management Strategy
The Bank has historically operated as a consumer-oriented federal savings
bank, with a focus on offering traditional savings deposit and loan products to
its local community. In recent years, the Bank's strategy has been to maintain
profitability while managing its mutual capital position and limiting its credit
and interest rate risk exposure. To accomplish these objectives, the Bank has
sought to: (1) control credit risk by emphasizing the origination of single-
family, owner-occupied residential mortgage loans and consumer loans, consisting
primarily of home equity loans and lines of credit; (2) offer superior service
and competitive rates to increase the core deposit base consistent with its
capital management goals; (3) invest funds in excess of loan demand in mortgage-
backed and investment securities; (4) reduce exposure to interest rate risk by
originating for the portfolio first mortgage loans having terms to maturity of
not more than 15 years and adjustable-rate mortgage ("ARM") loans, selling
fixed-rate 30-year mortgage loans, and investing in shorter term or
adjustable-rate mortgage-backed securities; and (5) control operating expenses.
In recent years, most locally headquartered competitors in the Bank's
market area have been acquired by larger, regional financial institutions,
resulting in a reduced presence of local, community-based banks. Although such
acquisitions have generated increased competition from these larger, regional
institutions, the Bank believes that the absence of its former principal
competitors, the community-based institutions, has created significant
opportunities for Ocean Federal as the only remaining financial institution
headquartered in Ocean County. As a result, management plans to modify its
operating strategy to satisfy its perceived need within the market area for
additional customer products and services. By seeking to broaden the range of
its products and services offered, the Bank believes it will offset declining
margins in the market for one-to four-family mortgage loans which it has
experienced in recent years. Specifically, the Bank intends to: (1) maintain its
traditional community thrift orientation as a provider of residential mortgage
products; (2) diversify the products and services offered to possibly include,
among other things, trust services, nondeposit products, secured and unsecured
commercial lending and commercial deposit accounts in order to increase its
customer base within its existing market area; and (3) increase the Bank's
market share within its primary market area through the establishment and/or
acquisition of additional branch offices, or the acquisition of other remaining
financial institutions.
Management believes that the diversification of the Bank's loan products
may expose the Bank to a higher degree of credit risk than is involved in the
Bank's one- to four-family residential mortgage lending activity. As a
consequence of management's lending strategy, the Bank may, in future periods,
depending upon the current conditions, increase the level of its provision for
loan losses as well as its provision for losses on real estate owned over that
experienced in the Bank's most recent fiscal year.
40
<PAGE>
Maintaining Community Orientation. Management is seeking to maintain the
value of the Bank's existing franchise in its primary market area, which is
based in large part upon its long-standing reputation for a high level of
customer service in the delivery of traditional thrift products and services and
active community involvement. The Bank is the only remaining financial
institution headquartered in Ocean County. See "Business of the Bank - Market
Area and Competition." It intends to maintain its community orientation by
continuing to emphasize traditional deposit and loan products, primarily single-
family residential mortgages. Many of the Bank's directors and senior officers
belong to service or philanthropic organizations in the communities served by
the Bank which management believes contributes to the Bank's community presence.
The Bank also intends to enhance its community involvement through the
establishment of the Foundation. See "The Conversion - Establishment of a
Charitable Foundation," and "Management of the Bank - Biographical Information."
Diversifying Products and Services Offered. The Bank intends to take
advantage of a perceived opportunity created by the reduced presence of
community-based financial institutions in its primary market area to expand its
services and products to customers and increase its market share. While
maintaining its emphasis on originating one- to four- family residential
mortgage loans, the Bank is seeking to broaden the range of products and
services it offers and may in the future offer products and services such as
trust services, nondeposit products, secured and unsecured commercial loans and
commercial deposit accounts. To facilitate this diversification, the Bank may
hire additional personnel experienced with such product lines. The Bank also
intends to consider the issuance of a proprietary credit card and other consumer
loan products. In this manner, the Bank is aiming to increase its presence
within its existing market area. See "Business of the Bank."
Increasing Market Share. Management is also seeking to increase the Bank's
market share in its primary market area through expanding the Bank's branch
network as well as through expanding the product and customer base. The Bank has
received approval to relocate its administrative offices to Toms River, New
Jersey, and to open three additional branch offices. In addition, the Bank is
currently negotiating a lease for a fourth new branch site in Toms River, and
will seek approval for that site if a lease can be successfully negotiated. Each
of these new branches would represent an expansion of the Bank's existing market
share. The Company and the Bank may use a portion of the net Conversion proceeds
to open additional branch offices or acquire other financial institutions.
However, neither the Company nor the Bank have any additional pending agreements
or understandings regarding acquisitions of any specific financial institutions
or branch offices. See "Use of Proceeds."
Management of Interest Rate Risk
The principal objectives of the Bank's interest rate risk management
function are to evaluate the interest rate risk included in certain balance
sheet accounts; determine the level of risk appropriate given the Bank's
business focus, operating environment, capital and liquidity requirements and
performance objectives; and manage the risk consistent with Board approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank monitors its interest
rate risk as such risk relates to its operating strategies. The Bank's Board of
Directors has established an Asset/Liability Committee ("ALCO Committee")
consisting of members of the Bank's management, responsible for reviewing the
Bank's asset/liability policies and interest rate risk position. The ALCO
Committee meets monthly and reports trends and the Bank's interest rate risk
position to the Board of Directors on a quarterly basis. The extent of the
movement of interest rates, higher or lower, is an uncertainty that could have a
negative impact on the earnings of the Bank. See "Risk Factors - Potential
Impact of Changes in Interest Rates."
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (i) emphasizing the origination for portfolio of first
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans, and consumer loans consisting primarily of home equity
loans and lines of credit; (ii) selling substantially all 30-year fixed-rate
mortgage loans originated to the secondary market; (iii) holding primarily
short-term and/or adjustable-rate mortgage-backed and investment securities;
and
41
<PAGE>
(iv) attempting to reduce the overall interest rate sensitivity of liabilities
by emphasizing core and longer-term deposits.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of interest-
bearing liabilities maturing or repricing within that time period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets. Accordingly, during a period of rising interest
rates, an institution with a negative gap position generally would not be in as
favorable a position, compared to an institution with a positive gap, to invest
in higher yielding assets. This may result in the yield on the institution's
assets increasing at a slower rate than the increase in its cost of interest-
bearing liabilities. Conversely, during a period of falling interest rates, an
institution with a negative gap might experience a repricing of its assets at a
slower rate than its interest-bearing liabilities which, consequently, may
result in its net interest income growing at a faster rate than an institution
with a positive gap position.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1995, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown. Except as stated below, the amount of
assets and liabilities shown which reprice or mature during a particular period
were determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. It is intended to provide an
approximation of the projected repricing of assets and liabilities at December
31, 1995, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate loans and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
For loans on residential properties, adjustable-rate loans and fixed-rate loans
are projected to prepay at rates between 9.0% and 28.4% annually. Mortgage-
backed securities are projected to prepay at rates between 13.0% and 25.0%
annually. Passbook accounts and negotiable order of withdrawal ("NOW") accounts
are assumed to decay at 9.53%, 8.62%, 14.85%, 36.92%, 16.58%, 11.68% and 1.82%
and money market savings accounts are assumed to decay at 15.90%, 13.38%,
20.71%, 37.50%, 9.38%, 3.03% and .10% for the periods of three months or less,
three to six months, six to 12 months, one to three years, three to five years,
five to ten years and more than ten years, respectively. Prepayment rates can
have a significant impact on the Bank's estimated gap. There can be no assurance
that projected prepayment rates for loans and mortgage-backed securities will be
achieved or that projected decay rates will be realized. See "Business of the
Bank - Lending Activities," " - Investment Activities" and " - Sources of
Funds."
42
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1995
------------------------------------------------------------------------------------------------------
More than 3 More than 6 More than 1 More than More than
3 Months Months to 6 Months to 1 Year to 3 3 Years to 5 Years to More than
or Less Months Year Years 5 Years 10 Years 10 Years Total
---------- ---------- ----------- ----------- ---------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets(1):
Interest-earning
deposits and short-
term investments...... $ 6,408 $ -- $ -- $ -- $ -- $ -- $ -- $ 6,408
Investment securities... 10,000 100 708 20,410 64,528 19,000 135 114,881
Loans receivable(2)..... 104,052 76,925 128,467 150,729 85,696 64,566 14,534 624,969
Mortgage-backed
securities............ 60,565 31,713 111,721 41,659 18,601 854 -- 265,113
FHLB stock.............. 7,723 -- -- -- -- -- -- 7,723
-------- --------- --------- ---------- -------- ------- -------- ---------
Total interest-
earning assets...... 188,748 108,738 240,896 212,798 168,825 84,420 14,669 1,019,094
-------- --------- --------- ---------- -------- ------- -------- ---------
Interest-bearing
liabilities:
Money market deposit
accounts.............. 11,224 9,440 14,613 26,459 6,615 2,136 69 70,556
Passbook accounts....... 16,747 15,151 26,109 64,903 29,135 20,528 3,204 175,777
NOW accounts............ 6,727 6,038 10,405 25,866 11,611 8,181 1,277 70,105
Certificate accounts.... 108,131 132,912 158,680 137,363 39,314 28,815 -- 605,215
FHLB borrowings......... 10,400 -- -- -- -- -- -- 10,400
-------- --------- --------- ---------- -------- ------- -------- ---------
Total interest-
bearing liabilities. 153,229 163,541 209,807 254,591 86,675 59,660 4,550 932,053
-------- --------- --------- ---------- -------- ------- -------- ---------
Interest sensitivity
gap(3)................ $ 35,519 $ (54,803) $ 31,089 $ (41,793) $ 82,150 $24,760 $10,119 $ 87,041
======== ========= ========= ========== ======== ======= ======= =========
Cumulative interest
sensitivity gap....... $ 35,519 $ (19,284) $ 11,805 $ (29,988) $ 52,162 $76,922 $87,041
======== ========= ========= ========== ======== ======= ========
Cumulative interest
sensitivity gap
as a percent of
total assets......... 3.43% (1.86%) 1.14% (2.89%) 5.03% 7.42% 8.40%
Cumulative interest-
earning assets as a
percent of cumulative
interest-bearing
liabilities.......... 123.18% 93.91% 102.24% 96.16% 106.01% 108.29% 109.34%
</TABLE>
- -----------------------
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) For purposes of the gap analysis, loans receivable includes non-performing
loans gross of the allowance for loan losses, undisbursed loan funds,
unamortized discounts and deferred loan fees.
(3) Interest sensitivity gap represents the difference between net
interest-earning assets and interest-bearing liabilities.
43
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and decay rates would likely deviate significantly from those assumed
in calculating the table. Finally, the ability of many borrowers to service
their adjustable-rate loans may be impaired in the event of an interest
rate increase.
Net Portfolio Value. Another method of analyzing an institution's exposure
to interest rate risk is by measuring the change in the institution's net
portfolio value ("NPV") under various interest rate scenarios. NPV is the
difference between the net present value of assets, liabilities and off-balance
sheet contracts. The NPV ratio, in any interest rate scenario, is defined as the
NPV in that scenario divided by the market value of assets in the same scenario.
The Sensitivity Measure is the decline in the NPV ratio, in basis points, caused
by a 2% increase or decrease in rates, whichever produces a larger decline. The
higher an institution's Sensitivity Measure is, the greater its exposure to
interest rate risk is considered to be. The Bank's interest rate sensitivity is
monitored by management through the use of interest rate risk ("IRR") reports
which are generated by an external servicer. The Bank measures its IRR by
modeling the change in NPV over a range of interest rate scenarios. The OTS also
produces a similar analysis using its own model, based upon data submitted on
the Bank's quarterly Thrift Financial Reports, the results of which may vary
from the results provided by the Bank's external servicer. See "Regulation -
Federal Savings Institution Regulation." The following table sets forth the
Bank's NPV as of December 31, 1995, as calculated by the OTS.
<TABLE>
<CAPTION>
NPV as %
of Portfolio
Net Portfolio Value Value of Assets
--------------------------------- --------------------
Change in
Interest Rates in
Basis Points NPV %
(Rate Shock) Amount $ Change % Change Ratio Change (1)
- ----------------- ---------- --------- -------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400 $ 67,219 $(53,427) (44.3)% 6.72% (40.3)%
300 84,669 (35,977) (29.8) 8.28 (26.4)
200 100,078 (20,568) (17.0) 9.61 (14.6)
100 112,378 (8,268) (6.9) 10.61 (5.7)
Static 120,646 -- -- 11.25 --
(100) 126,911 6,265 5.2 11.70 4.0
(200) 130,560 9,914 8.2 11.92 6.0
(300) 135,422 14,776 12.2 12.23 8.7
(400) 143,204 22,558 18.7 12.75 13.3
</TABLE>
- ----------------------------
(1) Based on the portfolio value of the Bank's assets assuming no change in
interest rates.
44
<PAGE>
The OTS has incorporated an interest rate risk component into its
regulatory capital rule which requires an institution whose sensitivity measure
exceeds 2% to deduct an interest rate risk component in calculating its total
capital for purposes of the risk-based capital requirement. As of December 31,
1995, the last date this information was available, the Bank's NPV, as measured
by the OTS, was $120.6 million, or 11.25% of the market value of assets.
Following a 200 basis point increase in interest rates, the Bank's "post-shock"
NPV was $100.1 million, or 9.61% of the market value of assets. The change in
the NPV ratio or the Bank's Sensitivity Measure was negative 1.64%. Under OTS
capital requirements, which have not yet been fully implemented, the decline in
the NPV ratio at December 31, 1995 would reflect a below normal interest rate
risk because it is less than 2%. If such OTS requirement had been implemented,
the Bank's Sensitivity Measure would not have resulted in an increase in the
Bank's risk-based capital requirement because its sensitivity measure is below
the threshold at which the Bank could be required to hold additional risk-based
capital. See "Regulation -- Federal Savings Institution Regulation."
As is the case with the gap table, certain shortcomings are inherent in the
methodology used in the NPV IRR measurements. Modelling changes in NPV requires
the making of certain assumptions which may tend to oversimplify the manner in
which actual yields and costs respond to changes in market interest rates.
First, the models assume that the composition of the Bank's interest sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured. Second, the models assume that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Third, the model does not take into account the Bank's business or
strategic plans. Accordingly, although the NPV measurements do provide an
indication of the Bank's IRR exposure at a particular point in time, such
measurements are not intended to provide a precise forecast of the effect of
changes in market interest rates on the Bank's net interest income and can be
expected to differ from actual results.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
45
<PAGE>
Average Balance Sheet. The following table sets forth certain information
---------------------
relating to the Bank at December 31, 1995 and for each of the years ended
December 31, 1995, 1994 and 1993. The yields and costs are derived by dividing
income or expense by the average balance of assets or liabilities, respectively,
for the periods shown except where noted otherwise. Average balances are derived
from average month-end balances. Management does not believe that the use of
average monthly balances instead of average daily balances has caused any
material differences in the information presented. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------- -------- --------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits
and short-term investments........... $ 5,245 $ 331 6.31% $ 1,322 $ 56 4.24%
Investment securities(1).............. 126,792 7,166 5.65 127,762 6,933 5.43
Loans receivable, net (2)............. 612,431 48,323 7.89 559,862 42,706 7.63
Mortgage-backed
securities(3)........................ 214,348 13,799 6.44 241,944 13,440 5.56
FHLB stock............................ 7,679 591 7.70 7,216 548 7.59
-------- -------- -------- ------
Total interest-earning
assets........................... 966,495 70,210 7.26 938,106 63,683 6.79
-------- ---- ------ ----
Non-interest-earning assets........... 22,212 18,282
-------- -------
Total assets....................... $988,707 $956,388
======== ========
Liabilities and Equity:
Interest-bearing
liabilities:
Money market deposit
accounts............................. $ 68,987 $ 2,083 3.02% $ 78,288 $ 1,899 2.43%
Savings accounts...................... 178,973 4,537 2.54 206,131 5,246 2.54
NOW accounts.......................... 69,330 1,483 2.14 69,934 1,440 2.06
Time deposits......................... 574,844 31,723 5.52 511,634 23,545 4.60
-------- -------- -------- ------
Total.............................. 892,134 39,826 4.46 865,987 32,130 3.71
FHLB borrowings....................... 2,933 178 6.07 5,006 243 4.85
-------- -------- -------- ------
Total interest-bearing
liabilities...................... 895,067 40,004 4.47 870,993 32,373 3.72
Non-interest-bearing.................. -------- ---- ------ -----
liabilities.......................... 9,457 7,805
-------- -------
Total liabilities.................. 904,524 878,798
Retained Earnings..................... 84,183 77,590
-------- -------
Total liabilities and
equity........................... $988,707 956,388
======== ========
Net interest income................... $ 30,206 $ 31,310
======== ========
Net interest rate spread(4)........... 2.79% 3.07%
==== =====
Net interest margin(5)................ 3.13% 3.34%
===== =====
Ratio of interest-earning assets
to interest-bearing liabilities....... 107.98% 107.71%
====== ======
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
1993 At December 31, 1995
-------------------------------------------- ---------------------
Average
Average Yield/ Yield/
Balance Interest Cost Balance Cost
--------- -------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits
and short-term investments........... $ 5,162 $ 149 2.89% $ 6,408 4.25%
Investment securities(1).............. 131,786 7,511 5.70 114,881 6.34
Loans receivable, net (2)............. 524,172 42,413 8.09 614,590 7.82
Mortgage-backed
securities(3)........................ 229,676 14,198 6.18 265,113 6.81
FHLB stock............................ 6,580 582 8.84 7,723 6.90
------- -------- ---------
Total interest-earning
assets........................... 897,376 64,853 7.23 1,008,715 7.16
-------- ---- ----
Non-interest-earning assets........... 22,965 27,730
------- ---------
Total assets....................... $920,341 $1,036,445
======== ==========
Liabilities and Equity:
Interest-bearing
liabilities:
Money market deposit
accounts............................. $ 82,620 $ 2,228 2.70% $ 70,556 2.93%
Savings accounts...................... 187,743 5,178 2.76 175,777 2.53
NOW accounts.......................... 59,672 1,347 2.26 70,105 2.14
Time deposits......................... 512,323 25,195 4.92 605,215 5.70
-------- ------- ----------
Total.............................. 842,358 33,948 4.03 921,653 4.61
FHLB borrowings....................... 893 27 3.02 10,400 5.94
-------- ------- ----------
Total interest-bearing
liabilities...................... 843,251 33,975 4.03 932,053 4.62
Non-interest-bearing ------- ---- ----
liabilities.......................... 8,852 12,041
-------- ----------
Total liabilities.................. 852,103 944,094
Retained Earnings..................... 68,238 92,351
-------- ----------
Total liabilities and
equity........................... $920,341 $1,036,445
======== ==========
Net interest income................... $30,878
=======
Net interest rate spread(4)........... 3.20% 2.54%
===== =====
Net interest margin(5)................ 3.44% 2.89%
===== =====
Ratio of interest-earning assets
to interest-bearing liabilities....... 106.42% 108.23%
======= =======
</TABLE>
________________________________
(1) Includes investment securities available for sale.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts and
premiums and estimated loan loss allowances and includes loans held for
sale and non-performing loans.
(3) Includes mortgage-backed securities available for sale.
(4) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
46
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
--------------------
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 Year Ended December 31, 1994
Compared to Compared to
Year Ended December 31, 1994 Year Ended December 31, 1993
---------------------------- ----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------ ------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits and
short-term investments................... $ 236 $ 39 $ 275 $ (143) $ 50 $ (93)
Investment securities...................... (52) 285 233 (227) (351) (578)
Loans receivable........................... 4,121 1,496 5,617 2,788 (2,495) 293
Mortgage-backed securities................. (1,633) 1,992 359 726 (1,484) (758)
FHLB stock................................. 35 8 43 53 (87) (34)
------- ------- ------- ------ ------- -------
Total interest-earning assets............ 2,707 3,820 6,527 3,197 (4,367) (1,170)
------- ------- ------- ------ ------- -------
Interest-bearing liabilities:
Money market deposit accounts.............. (243) 427 184 (113) (216) (329)
Savings accounts........................... (709) -- (709) 493 (425) 68
NOW accounts............................... (13) 56 43 219 (126) 93
Time deposits.............................. 3,123 5,055 8,178 (33) (1,617) (1,650)
------ ------- -------
Total.................................... 2,158 5,538 7,696 566 (2,384) (1,818)
FHLB borrowings............................ (116) 51 (65) 191 25 216
------- ------- ------- ------ ------- -------
Total interest-bearing liabilities....... 2,042 5,589 7,631 757 (2,359) (1,602)
------- ------- ------- ------ ------- -------
Net change in net interest income............ $ 665 $(1,769) $(1,104) $2,440 $(2,008) $ 432
======= ======= ======= ====== ======= =======
</TABLE>
47
<PAGE>
Comparison of Financial Condition at December 31, 1995 and December 31, 1994
Total assets at December 31, 1995, were $1.04 billion, an increase of $64.8
million, or 6.7%, compared to $971.7 million at December 31, 1994. This growth
was primarily due to an increase in one- to four-family residential mortgage
loans, which caused loans receivable, net, to increase by $20.4 million to a
balance of $612.7 million at December 31, 1995, compared to a balance of $592.3
million at December 31, 1994. On November 15, 1995, the Financial Accounting
Standards Board ("FASB") issued its Special Report for SFAS No. 115, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," which provided institutions a limited opportunity to
reassess the appropriateness of the classification of all securities held at
that time and account for any resulting reclassification at fair value. As a
result of that Special Report, in December 1995, the Bank reclassified all
investment and mortgage-backed securities from held-to-maturity to
available-for-sale. Subsequent to this reclassification, but prior to year-end,
the Bank sold $63.7 million in low-yielding U.S. agency obligations, incurring a
loss of $587,000. The sale proceeds were reinvested in callable U.S. government
agency securities and either 1-year adjustable-rate or 5- to 10-year fixed-rate
mortgage-backed securities. Under the provisions of FASB Statement No. 115,
securities categorized as available-for-sale are reported at fair value, with
unrealized gains or losses reported as a separate component of equity. At
December 31, 1995, the fair value of the Bank's investment and mortgage-backed
securities available-for-sale exceeded the related amortized cost by $3.2
million. The net result of the security portfolio restructuring was to decrease
total investment securities by $12.6 million, or 9.9%, to a balance of $114.9
million at December 31, 1995, compared to a balance of $127.5 million at
December 31, 1994 and increase total mortgage-backed securities by $40.5 million
to $265.1 million at December 31, 1995, from $224.6 million at December 31,
1994. Cash and due from banks was $8.0 million at December 31, 1995, an increase
of $7.8 million from $239,000 at December 31, 1994. The increase in cash and due
from banks was a result of the timing of operating and investing cash flows.
Premises and equipment increased by $3.3 million, or 76.5%, to $7.6 million at
December 31, 1995, from $4.3 million at December 31, 1994, as a result of the
purchase in July 1995 of land and a building, which upon renovation, will be the
site of both a new branch office and the Bank's new administrative facility. The
renovation is due to be completed in early 1997. Total deposits at December 31,
1995, were $926.6 million, an increase of $59.1 million, or 6.8%, compared to
$867.4 million at December 31, 1994. The increase was primarily due to an
increase of $71.9 million, or 13.5%, in time deposits to $605.2 million at
December 31, 1995, from $533.3 million at December 31, 1994, which reflected a
shift in the composition of the Bank's interest-bearing liabilities from core
savings accounts into higher-yielding certificates of deposit. Retained earnings
at December 31, 1995, were $92.4 million, compared to $82.3 million at December
31, 1994 as a result of net income of $7.9 million for the year ended December
31, 1995 combined with the recognition as a component of retained earnings of
$2.1 million of unrealized gain (net of tax) on securities available-for-sale.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General
Net income decreased $1.8 million, or 18.3%, to $7.9 million for the year
ended December 31, 1995, from $9.7 million for the year ended December 31, 1994.
The decrease was due primarily to a decline in net interest income, which is the
principal source of income for the Bank and represents the difference between
total interest and fees earned on loans, mortgage-backed securities and other
investments and total interest paid on deposits and borrowings. The decline in
net interest income resulted from a decrease in the interest rate spread to
2.79% for the year ended December 31, 1995, from 3.07% for the year ended
December 31, 1994. The shift in the composition of the Bank's interest-bearing
liabilities from core savings accounts to higher yielding certificates of
deposit was the primary reason for this decline. Additionally, the Bank
recognized a loss of $587,000 in 1995 on the sale of investment securities
available for sale. Profitability further declined as a result of a decrease in
other income (net of the $587,000 loss on the sale of investment securities) and
increased operating expenses, partly offset by decreases in the provision for
loan losses and the provision for income taxes.
48
<PAGE>
Interest Income
Interest income for the year ended December 31, 1995 was $70.2 million,
compared to $63.7 million for the year ended December 31, 1994, an increase of
$6.5 million, or 10.2%. Increased interest income on loans accounted for
substantially all of this increase. The increase in interest income on loans was
a result of growth in the average balance of loans outstanding combined with an
increase in the average yield. The average balance of loans receivable increased
$52.6 million, while the yield on such loans increased by 26 basis points to
7.89% for 1995, from 7.63% for 1994. The growth in loans was attributable to an
increase in the origination of ARM loans in the first half of 1995, which the
Bank maintains in portfolio. The volume of originations of ARM loans declined in
the second half of 1995 as market interest rates declined and the demand for
fixed-rate financing increased. As a result, the Bank experienced a slight
decline in loans receivable during the second half of 1995. The increase in
average yield for 1995 over 1994 was a result of the generally higher interest
rate environment, causing ARM loans to reprice upward.
Interest income on mortgage-backed securities increased $359,000 for 1995,
compared to 1994. The average balance of mortgage-backed securities declined by
$27.6 million for 1995, compared to 1994, as a result of principal repayments
and limited purchase activity due to an increased demand for loans. The yield on
this portfolio, however, increased 88 basis points due to the repricing of
adjustable-rate securities. Interest income on investment securities increased
$233,000 for 1995, compared to 1994, primarily due to an increase in the average
yield of 22 basis points.
Interest Expense
Interest expense for the year ended December 31, 1995 was $40.0 million,
compared to $32.4 million for the year ended December 31, 1994, an increase of
$7.6 million, or 23.6%. The increase in interest expense was the result of a
$26.1 million increase in the average balance of interest-bearing deposits and
an increase in the average cost of deposits to 4.46% for 1995, from 3.71% for
1994. The increase in average cost was primarily due to a shift in the
composition of deposit accounts from lower yielding core accounts into higher
yielding certificates of deposit. Average balances on money market deposit and
savings accounts decreased by $9.3 million and $27.2 million, respectively, for
1995, compared to 1994, while the average balance of time deposits increased by
$63.2 million from 1994 to 1995.
Provision for Loan Losses
During the year ended December 31, 1995, the Bank's provision for loan
losses was $950,000 compared to $1.1 million for the year ended December 31,
1994, a decrease of $179,000. The decrease was partly due to the decline in
nonperforming loans, which decreased by $2.2 million to $8.7 million at December
31, 1995, from $10.9 million at December 31, 1994. Management of the Bank is
responsible for the determination of the level of the allowance for loan losses.
The allowance for loan losses is maintained at a level sufficient to provide for
estimated losses based on evaluating known and inherent risks in the loan
portfolio and upon management's continuing analysis of the factors underlying
the quality of the loan portfolio. These factors include changes in the size and
composition of the loan portfolio, actual loan loss experience, current and
anticipated economic conditions, detailed analysis of individual loans for which
full collectibility may not be assured, and determination of the existence and
realizable value of the collateral and guarantees securing the loan. Additions
to this allowance are charged to earnings. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
provide additions to the allowance based upon judgments different from
management. Although management uses the best information available, future
adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions beyond the Bank's control. See "Business of the
Bank - Lending Activities -Nonperforming Assets and Delinquencies" and "-
Lending Activities -Allowance for Loan Losses."
49
<PAGE>
Other Income
Other income decreased to $1.4 million for the year ended December 31,
1995, from $2.1 million for the year ended December 31, 1994. The decrease was
primarily due to the recognition of a $587,000 loss in 1995 on the sale of
investment securities available for sale. Additionally, fees and service
charges, which consist of deposit product fees, loan servicing fees and other
loan fees, declined by $82,000 in 1995 as compared to 1994. The decrease in this
category can be attributed to a $112,000 decrease in mortgage loan servicing
income.
Operating Expenses
Operating expenses increased to $18.0 million for the year ended December
31, 1995, from $17.1 million for the year ended December 31, 1994. Compensation
and employee benefits increased $383,000, or 4.6%, primarily due to annual
salary increases. Advertising expense increased by $120,000 to $836,000 for
1995, from $716,000 for 1994, as a result of increased advertising to maintain
loan volume and market presence. General and administrative expenses increased
$355,000, or 13.8%, to $2.9 million for 1995, compared to 1994. The Bank expects
that salary and benefits expense may increase after the Conversion, primarily as
a result of the adoption of various employee benefit plans and compensation
adjustments contemplated in connection with the Conversion. In this regard, the
proposed ESOP, which intends to purchase 8% of the Common Stock sold in the
Offering, and the Stock Programs which, if implemented, would purchase an amount
of Common Stock equal to 4% of the Common Stock sold in the Offering, may result
in increased salary and benefits expense as interest on and amortization of the
ESOP loan and amortization of the Stock Program awards will be reflected as
compensation expense. See "Management of the Bank -- Employee Stock Ownership
Plan and Trust." In addition, the Bank expects operating expenses to increase in
future periods as a result of its current renovation of a new administrative
office and the opening of at least three new branch offices in 1996 and early
1997. See "Use of Proceeds" and "Business of the Bank -- Properties."
Provision for Income Taxes
Income tax expense was $4.7 million for the year ended December 31, 1995,
compared to $5.4 million for the year ended December 31, 1994. The decrease in
the provision for income taxes was primarily the result of the decrease in
earnings before income taxes. The effective tax rate for 1995 was 37.0%, an
increase of 1.3% over the 35.7% effective tax rate for 1994. The increase in the
effective tax rate for 1995 can be attributed to the non-deductibility of
certain expenses incurred by the Bank.
Comparison of Financial Condition at December 31, 1994 and December 31, 1993.
Total assets at December 31, 1994, were $971.7 million, an increase of
$34.4 million or 3.7%, compared to $937.2 million at December 31, 1993. This
growth was primarily due an increase in one- to four-family residential mortgage
loans, which caused loans receivable, net, to increase by $52.4 million to a
balance of $592.3 million at December 31, 1994, compared to a balance of $539.9
million at December 31, 1993. This increase was partially offset by a decrease
in mortgage-backed securities of $16.6 million, to $224.6 million at December
31, 1994, from $241.2 million at December 31, 1993. Total liabilities at
December 31, 1994 were $889.3 million, an increase of $24.7 million, or 2.9%,
compared to $864.6 million at December 31, 1993. The increase was primarily
attributable to an increase in certificate of deposit accounts to $25.9 million
to $533.3 million at December 31, 1994, from $507.4 million at December 31,
1993. Retained earnings at December 31, 1994, were $82.3 million, an increase of
$9.7 million from December 31, 1993. The increase is attributable to net income
for the period.
50
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1994 and
December 31, 1993
General
Net income decreased $407,000, or 4.0%, to $9.7 million for the year ended
December 31, 1994, from $10.1 million for the year ended December 31, 1993. The
decrease was primarily due to a decline in total other income, which was
primarily attributable to reduced gains of $708,000 on the sale of mortgage
loans and on the sale of real estate owned properties in 1994 compared to 1993.
An increase in total operating expenses in 1994 of $478,000 also contributed to
the decline, which was partly offset by an increase in net interest income and
decreases in the provisions for loan losses and income taxes.
Interest Income
Interest income for the year ended December 31, 1994 was $63.7 million,
compared to $64.9 million for the year ended December 31, 1993, a decrease of
$1.2 million, or 1.8%. The decrease in interest income was the result of a
decline in the average yield on interest-earning assets of 44 basis points, to
6.79% in 1994, from 7.23% in 1993, partly offset by growth in average interest-
earning asset balances. Most of the increase in the average balance of interest-
earning assets was attributable to an increase in the balance of loans
receivable. The average balance of loans receivable increased by $35.7 million
for 1994 over 1993. The average yield on loans receivable decreased 46 basis
points, to 7.63% in 1994, from 8.09% in 1993. The decrease was due to the high
levels of prepayments on higher rate mortgage loans during late 1993 and the
effects of lower interest rates on new loan originations.
The average balance of mortgage-backed securities increased by $12.3
million for 1994, compared to 1993; however, average yields on mortgage-backed
securities declined 62 basis points to 5.56% in 1994 from 6.18% in 1993. The
decline in average yield was largely due to the purchase of adjustable-rate
securities at discounted first year yields, which adjust to market rates in
succeeding years. Also, high coupon securities were prepaid as a result of the
low interest rate environment.
Interest Expense
Interest expense for the year ended December 31, 1994 was $32.4 million,
compared to $34.0 million for the year ended December 31, 1993, a decrease of
$1.6 million, or 4.7%. The decrease is primarily due to the decrease in the
average cost of deposits to 3.71% for 1994, from 4.03% for 1993, partly offset
by a $23.6 million increase in the average balance of deposits outstanding. Part
of the decrease in average cost can be attributed to a shift in the composition
of deposits from certificate accounts to core accounts, which represented 40.9%
of average deposit balances in 1994, compared to 39.2% in 1993. The decline in
the average cost of deposits further reflected generally lower rates paid for
new deposits and the maturities of higher, fixed-rate term certificates of
deposits issued in prior years. Interest on Federal Home Loan Bank borrowings
increased to $243,000 for the year ended December 31, 1994, from $27,000 for the
year ended December 31, 1993, an increase of $216,000, which reflected increases
in both the average balance outstanding and the average cost incurred.
Provision for Loan Losses
During the year ended December 31, 1994, the Bank's provision for loan
losses was $1.1 million, compared to $1.3 million for the year ended December
31, 1993, a decrease of $171,000. The reduction in the provision was based on
improved charge-off experience, as well as management's review and evaluation of
the loan portfolio, an asset classification review, the stabilization of real
estate values in New Jersey and the continued improvement in the economy.
51
<PAGE>
Other Income
Other income decreased to $2.1 million for the year ended December 31,
1994, from $2.7 million for the year ended December 31, 1993. The decrease was
primarily due to a $488,000 reduction in secondary market income due to a
decrease in loan sales. As a result of the generally high level of refinance
activity in 1993, sales of 30-year fixed-rate loans decreased to $16.8 million
in 1994, a decline of $24.3 million, from $41.1 million in 1993. Additionally,
the net gain from real estate owned decreased to $8,000 for the year ended
December 31, 1994, from $228,000 for the year ended December 31, 1993, as actual
sales of real estate owned declined to $4.6 million in 1994 from $6.36 million
in 1993.
Operating Expenses
Operating expenses increased $478,000, or 2.9%, to $17.1 million for the
year ended December 31, 1994, from $16.6 million for the year ended December 31,
1993. The increase in compensation and employee benefits expenses of $636,000,
or 8.3%, partially reflected the decline in mortgage lending originations as a
smaller proportion of these expenses were offset through the recognition of fee
income. Advertising expense increased $171,000 to $716,000 for the year ended
December 31, 1994, from $545,000 for the year ended December 31, 1993. The
increase was primarily the result of a greater focus on deposit generation in
addition to mortgage volume. The decline in general and administrative expense
to $3.3 million for the year ended December 31, 1994 from $3.8 million for the
year ended December 31, 1993 was primarily related to the decline in mortgage
loan production, as loan related expenses, including appraisal fees and credit
reports, declined by $483,000 in 1994, compared to 1993.
Provision for Income Taxes
The provision for income taxes totalled $5.4 million for the year ended
December 31, 1994 compared to $5.6 million for the year ended December 31, 1993,
a decrease of $151,000. The decrease is primarily due to lower income before
taxes as the effective tax rate remained relatively unchanged at 35.7% in 1994,
compared to 35.4% in 1993.
Liquidity And Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, FHLB borrowings and, to a lesser extent, investment
maturities and proceeds from the sale of loans. While scheduled amortization of
loans are predictable sources of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions, and
competition. The Bank's most liquid assets are cash and short-term investments.
The levels of these assets are dependent on the Bank's operating, financing,
lending and investing activities during any given period. At December 31, 1995,
cash and investment securities maturing within one year totalled $18.8 million.
See "Use of Proceeds." The Bank has other sources of liquidity if a need for
additional funds arises, including an overnight line of credit and advances from
the FHLB. At December 31, 1995, the Bank had $10.4 million in overnight
borrowings outstanding from the FHLB, representing a decrease from $16.3 million
at December 31, 1994. The Bank utilizes the overnight line from time to time to
fund short-term liquidity needs.
The Bank has continued to maintain the required minimum levels of liquid
assets as defined by OTS regulations. This requirement, which may be varied at
the direction of the OTS depending upon economic conditions and deposit flows,
is based upon a percentage of deposits and short-term borrowings. The Bank's
liquidity ratio at December 31, 1995, was 17.2%, compared to its required
liquidity ratio of 5.0%. The Bank's liquidity ratio has historically exceeded
regulatory requirements. See the Consolidated Statements of Cash Flows in the
Consolidated Financial Statements contained elsewhere herein.
At December 31, 1995, the Bank exceeded all of its regulatory capital
requirements with tangible capital of $90.3 million, or 8.7% of total adjusted
assets, which is above the required level of $15.5 million or 1.5%;
52
<PAGE>
core capital of $90.3 million, or 8.7% of total adjusted assets, which is above
the required level of $31.0 million or 3.0%, and risk-based capital of $95.7
million, or 21.3% of risk-weighted assets, which is above the required level of
$35.9 million or 8.0%. See "Regulatory Capital Compliance."
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
In November 1993, the American Institute of Certified Public Accountants
issued SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans"
which is effective for fiscal years beginning after December 15, 1993. SOP 93-6
will apply to the Bank upon completion of the Conversion and establishment of
the ESOP. SOP 93-6 will, among other things, change the measurement of
compensation expense recorded by employers for leveraged ESOPs, from the cost of
ESOP shares to the fair value of ESOP shares. Under SOP 93-6, the Company will
recognize compensation expense equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the extent that
the fair value of the Bank's ESOP shares differs from the cost of such shares,
this differential will be charged or credited to equity. Employers with
internally leveraged ESOPs, such as the Company, will not report the loan
receivable from the ESOP as an asset and will not report the ESOP debt from the
employer as a liability. For information on the pro forma effects of the ESOP on
the Bank's results of operations and stockholders equity, see "Pro Forma Data."
See "Management of the Bank - Benefits - Employee Stock Ownership Plan and
Trust."
In May 1993, FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 generally requires that debt and equity securities that have
readily determinable fair values be carried at fair value unless they are
classified as held to maturity. Securities can be classified as held to maturity
and carried at amortized cost only if the reporting entity has a positive intent
and ability to hold those securities to maturity. If not classified as held to
maturity, such securities must be classified as trading securities or securities
available for sale. Unrealized holding gains or losses for securities available
for sale are to be excluded from earnings and reported as a net amount as a
separate component of stockholders' equity. Unrealized holding gains and losses
for trading securities are to be included in earnings. The statement's effective
date was for fiscal years beginning after December 15, 1993. SFAS 115 was
adopted on January 1, 1994 by the Bank.
On November 28, 1994, the OTS changed its policy relating to the treatment
of unrealized gains and losses on securities available for sale in accordance
with SFAS 115. Under the new policy, unrealized gains and losses are excluded
for purposes of calculating regulatory capital. This change in OTS policy did
not have a material impact on the Bank's level of regulatory capital.
On November 15, 1995, the FASB issued its Special Report for SFAS No. 115,
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." The Special Report provides that,
concurrent with the initial adoption of the implementation guidance but no later
than December 31, 1995, an enterprise may reassess the appropriateness of the
classification of all securities held at that time and account for any resulting
reclassification at fair value. Reclassification from the held to maturity
category that results from this one-time reassessment (which must be made on a
single date) will not call into question the intent of an enterprise to hold
debt securities to maturity in the future. In accordance with such
53
<PAGE>
Special Report, in December, 1995, the Bank reclassified all of its investment
and mortgage-backed securities included in its held to maturity portfolio,
totalling $382.7 million, to its available for sale portfolio. Prior to year-
end, the Bank subsequently sold $63.7 million in low-yielding U.S. agency
obligations, recognizing a loss of $587,000. At December 31, 1995, the fair
value of the Bank's investment and mortgage-backed securities available for sale
exceeded the related amortized cost by $3.2 million.
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. However, SFAS No. 121 does not apply to financial instruments, core
deposit intangibles, mortgage and other servicing rights or deferred tax assets.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
Management believes that the adoption of this Statement will not have a material
impact on the earnings or the financial statements of the Bank.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65," which requires that a
mortgage banking enterprise record as a separate asset, rights to service
mortgage loans for others, however those servicing rights are acquired. In
circumstances where mortgage loans are originated, separate asset rights to
service mortgage loans are only recorded when the enterprise intends to sell or
securitize such loans and retain servicing. SFAS No. 122 will be applied
prospectively beginning January 1, 1996. Adoption of this new statement is not
expected to have a material impact on the Bank's financial position or results
of operations.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS 123 permits the Bank to choose either a new fair value
based method or the current APB Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS 123 requires pro
forma disclosures of net earnings and earnings per share computed as if the fair
value based method had been applied in financial statements of companies that
continue to follow current practice in accounting for such arrangements under
APB Opinion 25. SFAS 123 applies to all stock-based employee compensation plans
in which an employer grants shares of its stock or other equity instruments to
employees except for employee stock ownership plans. SFAS 123 also applies to
plans in which the employer incurs liabilities to employees in amounts based on
the price of the employer's stock, (e.g. stock option plans, stock purchase
plans, restricted stock plans, and stock appreciation rights). The statement
also specifies the accounting for transactions in which a company issues stock
options or other equity instruments for services provided by nonemployees or to
acquire goods or services from outside suppliers or vendors. The recognition
provisions of SFAS 123 for companies choosing to adopt the new fair value based
method of accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal years that
begin after December 15, 1995. The disclosure provisions of SFAS 123 are
effective for fiscal years beginning after December 15, 1995, however disclosure
of the pro forma net earnings and earnings per share, as if the fair value
method of accounting for stock-based compensation had been elected, is required
for all awards granted in fiscal years beginning after December 31, 1994. Any
effect that this statement will have on the Bank will be applicable upon the
consummation of the Conversion.
In December 1994, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 94-6, "Disclosure of Certain Significant
Risks and Uncertainties." SOP 94-6 supplements disclosure requirements for risks
and uncertainties existing as of the date of the financial statements in the
following areas: (a) nature of operations, (b) use of estimates in the
preparation of financial statements, (c) certain significant estimates and (d)
current vulnerability due to certain concentrations. SOP 94-6 is effective for
financial statements issued for fiscal years ending after December 15, 1995, and
for financial statements for interim periods in fiscal years subsequent to the
year for which this SOP is to be first applied. The Bank implemented the
disclosure requirements of SOP 94-6 in the financial statements as of and for
the year ended December 31, 1995.
54
<PAGE>
BUSINESS OF THE BANK
General
The Bank's principal business has been and continues to be attracting
retail deposits from the general public in the communities surrounding its
branch offices and investing those deposits, together with funds generated from
operations and borrowings, primarily in single-family, owner-occupied
residential mortgage loans within its market area. To a significantly lesser
extent, the Bank invests in commercial real estate, multi-family, construction
and consumer loans. The Bank also invests in mortgage-backed securities,
securities issued by the U.S. Government and agencies thereof, and other
investments permitted by applicable law and regulations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Management Strategy." The Bank sells substantially all newly originated 30-year,
fixed-rate mortgage loans to the secondary market. Loan sales come from loans
held in the Bank's portfolio designated as being held for sale or originated
during the period and being so designated. The Bank retains all of the servicing
rights of loans sold. The Bank's revenues are derived principally from interest
on its mortgage loans, and to a lesser extent, interest on its investment and
mortgage-backed securities and income from loan servicing. The Bank's primary
sources of funds are deposits, principal and interest payments on loans,
advances from the FHLB and to a lesser extent, investment maturities and
proceeds from the sale of loans.
Market Area and Competition
The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through an
administrative office located in Brick, New Jersey, and eight branch offices,
seven of which are located in Ocean County and one of which is located in
Middlesex County, New Jersey. The Bank's deposit gathering base is concentrated
in the communities surrounding its offices. While its lending area extends
throughout New Jersey, most of the Bank's mortgage loans are secured by
properties located in Ocean County and Southern Monmouth County.
The Bank is the only remaining community-based financial institution
headquartered in Ocean County, New Jersey, which is located along the central
New Jersey shore. Ocean County is among the fastest growing population areas in
New Jersey and has a significant number of retired residents who have
traditionally provided the Bank with a stable source of deposit funds. The
economy in the Bank's primary market area is based upon a mixture of service and
retail trade. Other employment is provided by a variety of wholesale trade,
manufacturing, federal, state and local government, hospitals and utilities. The
area is also home to commuters working in New Jersey suburban areas around New
York and Philadelphia.
In the late 1980's and early 1990's, due in part to the effects of a
prolonged decline in the national and regional economy, layoffs in the financial
services industry and corporate relocations, New Jersey experienced reduced
levels of employment. These events, in conjunction with a surplus of available
commercial and residential properties, resulted in an overall decline during
this period in the underlying values of properties located in New Jersey.
However, New Jersey's real estate market has stabilized in recent periods.
Whether such stabilization will continue is dependent, in large part, upon the
general economic health of the United States and New Jersey, and other factors
beyond the Bank's control and, therefore, cannot be estimated.
The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money
55
<PAGE>
market funds, other corporate and government securities funds and from other
financial service institutions such as brokerage firms and insurance companies.
Lending Activities
Loan Portfolio Composition. The Bank's loan portfolio consists primarily
--------------------------
of conventional first mortgage loans secured by one- to four-family residences.
At December 31, 1995, the Bank had total loans outstanding of $625.0 million, of
which $575.0 million, or 92.0% of total loans, were one-to four-family,
residential mortgage loans. The remainder of the portfolio consisted of $26.9
million of consumer loans, primarily home equity loans and lines of credit,
equalling 4.3% of total loans; $14.9 million of commercial real estate, multi-
family and land loans, or 2.4% of total loans; and $8.2 million of real estate
construction loans, or 1.3% of total loans. The Bank had $1.9 million in loans
held for sale at December 31, 1995. At that same date, 64.9% of the Bank's total
loans had adjustable interest rates.
The types of loans that the Bank may originate are subject to federal and
state law and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies of
the federal government, including the Federal Reserve Board, and legislative tax
policies.
56
<PAGE>
The following table sets forth the composition of the Bank's loan portfolio in
dollar amounts and as a percentage of the portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------- ------------------- ------------------- ---------------- ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
One- to four-family........ $575,010 92.01% $552,401 91.63% $505,984 91.66% $477,753 90.75% $456,827 89.92%
Commercial real estate,
multi-family and land.... 14,939 2.39 13,885 2.30 11,472 2.08 8,235 1.56 9,283 1.83
Construction............... 8,153 1.30 10,474 1.74 8,123 1.47 12,484 2.37 11,897 2.34
Consumer (1)................. 26,867 4.30 26,100 4.33 26,427 4.79 28,003 5.32 30,019 5.91
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Total loans.............. 624,969 100.00% 602,860 100.00% 552,006 100.00% 526,475 100.00% 508,026 100.00%
======== ======== ======== ======== ========
Less:
Undisbursed loan funds..... 2,687 2,661 2,341 2,233 1,417
Unamortized discounts, net. 12 13 27 36 38
Deferred loan fees......... 1,679 2,263 3,286 3,737 3,687
Allowance for loan losses.. 6,001 5,608 5,504 5,737 5,682
--------- --------- --------- -------- --------
Total loans, net......... 614,590 592,315 540,848 514,732 497,202
Less:
Mortgage loans held for sale 1,894 -- 963 545 1,428
--------- --------- --------- -------- --------
Loans receivable, net.... $612,696 $592,315 $539,885 $514,187 $495,774
========= ======== ========= ======== ========
Total loans:
Adjustable rate.......... $405,485 64.88% $386,424 64.10% $332,487 60.23% $311,898 59.24% $332,381 65.43%
Fixed rate............... 219,484 35.12 216,436 35.90 219,519 39.77 214,577 40.76 175,645 34.57
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Total loans............ $624,969 100.00% $602,860 100.00% $552,006 100.00% $526,475 100.00% $508,026 100.00%
========= ======== ========= ======== ========= ======== ======== ======== ======== ========
</TABLE>
- ---------------------------
(1) Consists primarily of home equity loans and lines of credit, and to a
lesser extent, loans on savings accounts, automobile and student loans.
57
<PAGE>
Loan Maturity. The following table shows the contractual maturity of the
Bank's total loans at December 31, 1995. There were $1.9 million in loans held
for sale at December 31, 1995. The table does not include principal repayments.
Principal repayments, including prepayments, on total loans was $89.6 million,
$90.9 million and $127.5 million for the years ended December 31, 1995, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
At December 31, 1995
--------------------------------------------------------------------------
Commercial
One- to real estate, Total
Four- multi-family Loans
Family and land Construction Consumer Receivable
----------- -------------- -------------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
One year or less............................. $ 20,464 $ -- $8,153 $ 2,637 $ 31,254
-------- ------- ------ ------- --------
After one year:
More than one year to three years.......... 45,461 2,083 -- 3,703 51,247
More than three years to five years........ 50,433 1,831 -- 3,415 55,679
More than five years to 10 years........... 124,641 2,497 -- 11,574 138,712
More than 10 years to 20 years............. 187,204 5,751 -- 5,537 198,492
More than 20 years......................... 146,807 2,777 -- 1 149,585
-------- ------- ------ ------- --------
Total due after December 31, 1996.......... 554,546 14,939 -- 24,230 593,715
-------- ------- ------ ------- --------
Total amount due........................... $575,010 $14,939 $8,153 $26,867 624,969
======== ======= ====== =======
Less:
Undisbursed loan funds................. 2,687
Unamortized discounts, net............. 12
Deferred loan fees..................... 1,679
Allowance for loan losses.............. 6,001
-------
Total loans, net............................... 614,590
Less: Mortgage loans held for sale............ 1,894
-------
Loans receivable, net.......................... $612,696
========
</TABLE>
58
<PAGE>
The following table sets forth at December 31, 1995, the dollar amount of
total loans receivable contractually due after December 31, 1996, and whether
such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1996
---------------------------------------
Fixed Adjustable Total
--------- ------------ -------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family ........... $204,812 $349,734 $554,546
Commercial real estate,
multi-family and land ....... 3,178 11,761 14,939
Construction .................. -- -- --
Consumer 3,348 20,882 24,230
-------- -------- --------
Total loans receivable ...... $211,338 $382,377 $593,715
======== ======== ========
</TABLE>
Origination, Sale, Servicing and Purchase of Loans. The Bank's mortgage
lending activities are conducted primarily by commissioned loan representatives
in the exclusive employment of the Bank and through the Bank's branch offices.
The Bank originates both adjustable-rate and fixed-rate mortgage loans. The
Bank's ability to originate loans is dependent upon the relative customer demand
for fixed-rate or adjustable-rate mortgage loans, which is affected by the
current and expected future level of interest rates. It is the general policy of
the Bank to sell substantially all of the 30-year, fixed-rate mortgage loans
that it originates and retain for portfolio ARM loans and shorter term fixed-
rate loans with maturities of 15 years or less. The Bank also may sell the ARM
loans that it originates. The Bank retains all servicing of the loans sold. See
"- Loan Servicing." The Bank recognizes, at the time of sale, the gain or loss
on the sale of the loans based on the difference between the net cash proceeds
received and the carrying value of the loans sold. At December 31, 1995 there
were $1.9 million in loans categorized as held for sale. In the past, the Bank
has also originated loans through commitments negotiated with correspondent
mortgage origination firms.
59
<PAGE>
The following tables set forth the Bank's loan originations, purchases,
sales, principal repayments and loan activity for the periods indicated.
<TABLE>
<CAPTION>
For the Year December 31,
----------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Total loans:
Beginning balance............................... $602,860 $552,006 $526,475
-------- -------- --------
Loans originated:
One- to four-family........................ 112,283 139,106 181,081
Commercial real estate,
multi-family and land.................. 4,058 2,558 1,936
Construction............................... 6,010 11,647 7,409
Consumer................................... 11,007 7,714 7,991
-------- -------- --------
Total loans originated................. 133,358 161,025 198,417
-------- -------- --------
Total.................................. 736,218 713,031 724,892
Less:
Principal repayments......................... 89,596 90,870 127,514
Sales of loans............................... 18,861 16,578 40,400
Transfer to REO.............................. 2,792 2,723 4,972
-------- -------- --------
Total loans..................................... $624,969 $602,860 $552,006
======== ======== ========
</TABLE>
60
<PAGE>
One- to Four-Family Mortgage Lending. The Bank offers both fixed-rate and
------------------------------------
adjustable-rate mortgage loans secured by one- to four-family residences with
maturities up to 30 years. Substantially all of such loans are secured by
property located in the Bank's primary market area. Loan originations are
generally obtained from the Bank's existing or past customers, members of the
local communities and commissioned loan representatives and their contacts with
the local real estate industry. In the past, the Bank has also originated loans
through commitments negotiated with correspondent mortgage origination firms.
At December 31, 1995, the Bank's total loans outstanding were $625.0
million, of which $575.0 million, or 92.0%, were one- to four-family residential
mortgage loans, primarily single-family and owner-occupied. To a lesser extent,
the Bank also makes mortgage loans secured by seasonal second homes. The average
size of the Bank's one- to four-family mortgage loan was approximately $76,000
at December 31, 1995. The Bank currently offers a number of ARM loan programs
with interest rates which adjust every one-, three-, or five-years. The Bank's
ARM loans generally provide for periodic (not less than 2%) and overall (not
more than 6%) caps on the increase or decrease in the interest rate at any
adjustment date and over the life of the loan. The interest rate on these loans
is indexed to the applicable one-, three-, or five year U.S. Treasury constant
maturity yield, with a repricing margin which ranges generally from 2.75% to
3.25% above the index. The Bank also offers three-, five- and seven-year ARM
loans which operate as fixed-rate loans for three, five or seven years and then
convert to one-year ARM loans for the remainder of the term. The ARM loans are
then indexed to a margin of generally 2.75% to 3.25% above the one-year U.S.
Treasury constant maturity yield.
Generally, ARM loans pose credit risks different than risks inherent in
fixed-rate loans, primarily because as interest rates rise, the payments of the
borrower rise, thereby increasing the potential for delinquency and default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. In order to minimize risks, borrowers of one-
year ARM loans with a loan-to-value ratio of 75% or less are qualified at the
fully-indexed rate (the applicable U.S. Treasury index plus the margin, rounded
to the nearest one-eighth of one percent), and borrowers of one-year ARM loans
with a loan-to-value ratio over 75% are qualified at the higher of the fully
indexed rate or the initial rate plus the 2% annual interest rate cap. The Bank
does not originate ARM loans which provide for negative amortization.
The Bank's fixed-rate mortgage loans currently are made for terms from 10
to 30 years. At December 31, 1995, the Bank had commitments for the origination
of fixed-rate mortgage loans totalling $10.8 million. The normal terms for such
commitments provide for a maximum of 90 days rate lock upon receipt of a 1.0%
fee charged on the mortgage amount. The Bank sells substantially all of the
30-year, fixed-rate residential mortgage loans that it originates and retains
the servicing on all loans sold. The Bank retains for its portfolio shorter
term, fixed-rate loans with maturities of 15 years or less, and certain longer
term fixed-rate loans, generally consisting of loans to facilitate the sale of
REO, loans to officers, directors or employees of the Bank and "jumbo", non-
conforming loans as determined by applicable FNMA and FHLMC guidelines.
The Bank's policy is to originate one- to four-family residential mortgage
loans in amounts up to 80% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value or
selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank include due-on-sale clauses which provide the Bank with
the contractual right to deem the loan immediately due and payable in the event
the borrower transfers ownership of the property without the Bank's consent.
Due-on-sale clauses are an important means of adjusting the rates on the Bank's
fixed-rate mortgage loan portfolio and the Bank has generally exercised its
rights under these clauses.
Commercial Real Estate, Multi-Family and Land Lending. The Bank originates
-----------------------------------------------------
commercial real estate loans that are secured by properties generally used for
business purposes such as small office buildings or retail facilities located in
the Bank's primary market area. The Bank's underwriting procedures provide that
commercial real estate loans may be made in amounts up to 75% of the appraised
value of the property to a maximum of generally $4 million. The Bank currently
originates commercial real estate loans with terms of up to twenty five years
with fixed or adjustable rates which are indexed to a margin above the one-,
three-, or five-year U.S. Treasury constant maturity yield. In reaching its
decision on whether to make a commercial real estate
61
<PAGE>
loan, the Bank considers the net operating income of the property and the
borrower's expertise, credit history and profitability. The Bank has generally
required that the properties securing commercial real estate loans have debt
service coverage ratios of at least 120%. Properties securing a loan are
appraised by an independent appraiser and title insurance is required on all
loans. The Bank typically requires the personal guarantee of the principal
borrowers for all commercial real estate loans. The Bank's commercial real
estate loan portfolio at December 31, 1995 was $10.0 million, or 1.6% of total
loans. The largest commercial real estate loan in the Bank's portfolio at
December 31, 1995 was a 10.4% participation in a performing loan for which the
Bank had an outstanding carrying balance of $1.6 million, which was secured by a
200,000 square foot office building located in Fairfield, New Jersey.
The Bank originates multi-family mortgage loans generally secured by
buildings with five or more housing units located in the Bank's primary market
area. As a result of market conditions in its primary market area, the Bank
currently originates multi-family loans on a limited and highly selective basis.
In reaching its decision on whether to make a multi-family loan, the Bank
considers the qualifications of the borrower as well as the underlying property.
Some of the factors to be considered are: the net operating income of the
mortgaged premises before debt service and depreciation; the debt service ratio;
and the ratio of loan amount to appraised value. Pursuant to the Bank's current
underwriting policies, a multi-family adjustable-rate mortgage loan may only be
made in an amount up to 75% of the appraised value of the underlying property to
a maximum amount of generally $4 million. In addition, the Bank generally
requires a debt service ratio of 120%. Properties securing a loan are appraised
by an independent appraiser and title insurance is required on all loans. The
Bank's multi-family loan portfolio at December 31, 1995, totalled $4.5 million.
The Bank's largest multi-family loan at December 31, 1995, had an outstanding
balance of $2.3 million and was secured by a 125-unit affordable-housing
apartment complex located in Toms River, New Jersey. To a significantly lesser
extent, the Bank also originates land loans. Such loans totalled $421,000 at
December 31, 1995.
Loans secured by commercial real estate and multi-family residential
properties are generally larger and involve a greater degree of risk than one-
to four-family residential mortgage loans. Because payments on loans secured by
multi-family properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Bank seeks to minimize these risks through its underwriting policies, which
require such loans to be qualified at origination on the basis of the property's
income and debt coverage ratio.
Construction Lending. At December 31, 1995, construction loans totalled
--------------------
$8.2 million, or 1.3%, of the Bank's total loans outstanding. The Bank
originates single-family construction loans primarily on a
construction/permanent basis with such loans converting to an amortizing loan
following the completion of the construction phase. Most of the Bank's
construction loans are made to individuals building their primary residence,
while, to a lesser extent, loans are made to developers known to the Bank in
order to build single-family houses under contract for sale, which loans become
due and payable over terms not exceeding 18 months. The current policy of the
Bank is to charge interest rates on its construction loans which float at
margins which are generally 2.0% above the prime rate (as published in the Wall
Street Journal). The Bank's construction loans improve the interest rate
sensitivity of its earning assets. At December 31, 1995, the Bank had 47
construction loans, with the largest loan balance being approximately $895,000.
Although current in payments, this loan was classified as substandard by the
Bank due to the borrower's postponement of construction on the property. At
December 31, 1995, all of the Bank's construction lending portfolio consisted of
loans secured by property located in the State of New Jersey, for the purpose of
constructing one- to four-family homes. The Bank may originate construction
loans to individuals and contractors on approved building lots in amounts up to
75% of the appraised value of the land. The terms to maturity of the Bank's
construction/permanent loans are similar to the Bank's other one- to four-family
mortgage products. The Bank requires an appraisal of the property, credit
reports, and financial statements on all principals and guarantors, among other
items, for all construction loans.
Construction lending, by its nature, entails additional risks compared to
one- to four-family mortgage lending, attributable primarily to the fact that
funds are advanced upon the security of the project under
62
<PAGE>
construction prior to its completion. As a result, construction lending often
involves the disbursement of substantial funds with repayment dependent on the
success of the ultimate project and the ability of the borrower or guarantor to
repay the loan. Because of these factors, the analysis of prospective
construction loan projects requires an expertise that is different in
significant respects from that which is required for residential mortgage
lending. The Bank has attempted to address these risks through its underwriting
procedures. With the exception of the one loan noted above, which was current at
December 31, 1995 but classified internally as substandard, none of the Bank's
other construction loans were classified.
Consumer Loans. The Bank also offers consumer loans. At December 31, 1995,
--------------
the Bank's consumer loans totalled $26.9 million, or 4.3% of the Bank's total
loan portfolio. Of that amount, home equity loans comprised $13.2 million, or
49.0%; home equity lines of credit comprised $12.0 million, or 44.8%; loans on
savings accounts totalled $1.2 million, or 4.3%; and automobile and student
loans totalled $521,000, or 1.9%.
The Bank originates home equity loans secured by one- to four-family
residences. These loans are originated as either adjustable-rate or fixed-rate
loans with terms ranging from 10 to 20 years. Home equity loans are typically
made on owner-occupied, one- to four-family residences and generally to the
Bank's first mortgage customers. These loans are subject to a 75% loan-to-value
limitation, including any other outstanding mortgages or liens.
The Bank also offers a variable rate home equity line of credit which
extends a credit line based on the applicant's income and equity in the home.
Generally, the credit line, when combined with the balance of the first mortgage
lien, may not exceed 75% of the appraised value of the property at the time of
the loan commitment. Home equity lines of credit are secured by a mortgage on
the underlying real estate. The Bank presently charges no origination fees for
these loans, but may in the future charge origination fees for its home equity
lines of credit. A borrower is required to make monthly payments of principal
and interest, at a minimum of $50, based upon a 10 or 15 year amortization
period. Generally, the adjustable rate of interest charged is the prime rate of
interest (as published in the Wall Street Journal) plus up to 1.75%. The loans
have an 18% lifetime cap on interest rate adjustments. The Bank's home equity
lines of credit outstanding at December 31, 1995 totalled $12.0 million.
Commercial Lending. As part of its overall strategy, the Bank plans to
------------------
diversify its loan portfolio to include commercial lending in its primary market
area. The Bank is presently considering offering such loan products as secured
and unsecured commercial business loans, including possibly credit lines to
support fluctuations in accounts receivable and inventory, conventional term
loans (including both owner-occupied and investment real estate loans), working
capital loans, business acquisition loans and small business loans. In making
commercial loans, the Bank will consider primarily the value of the collateral
if the loan is secured, the financial history and resources of the borrower, the
borrower's ability to repay the loan out of net operating income, and the Bank's
lending history with the borrower. Unsecured commercial business lending is
generally considered to involve a higher degree of risk than secured commercial
and real estate lending. Risk of loss on an unsecured commercial business loan
is dependent largely on the borrower's ability to remain financially able to
repay the loan out of ongoing operations. If the Bank's estimate of the
borrower's financial ability is inaccurate, the Bank may be confronted with a
loss of principal on the loan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Management Strategy."
Loan Approval Procedures and Authority. The Board of Directors establishes
--------------------------------------
the loan approval policies of the Bank. The Board of Directors has authorized
the approval of loans secured by real estate up to $400,000 by various employees
of the Bank, on a scale which requires approval by personnel with progressively
higher levels of responsibility as the loan amount increases. A minimum of two
employees' signatures are required to approve loans over $100,000. Loans in
amounts over $400,000 require approval by the Loan Committee of the Board of
Directors. The Bank's policy is to refrain from making loans to a single
borrower that in the aggregate exceed $3.0 million. Pursuant to OTS regulations,
loans to one borrower generally cannot exceed 15% of the Bank's core capital,
which at December 31, 1995 amounted to $13.5 million.
63
<PAGE>
Loan Servicing. Loan servicing includes collecting and remitting loan
--------------
payments, accounting for principal and interest, making inspections as required
of mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
making certain insurance and tax payments on behalf of the borrowers and
generally administering the loans. The Bank also services mortgage loans for
others. All of the loans currently being serviced for others are loans which
have been sold by the Bank. At December 31, 1995, the Bank was servicing $143.1
million of loans for others. For the years ended December 31, 1995 and 1994 and
1993, loan servicing fees totalled $522,000, $633,000 and $621,000,
respectively.
Delinquencies and Classified Assets. The Board of Directors performs a
-----------------------------------
monthly review of all delinquent loans which includes loans sixty days or more
past due, all loans thirty days or more past due that were originated within the
past year, and all mortgage loans referred to foreclosure within the previous
month. In addition, management prepares a quarterly list of all classified loans
and a narrative report of classified major loans (i.e., any mortgage or
construction loan secured by other than a one- to four-family residence.) The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan and period of delinquency. When a borrower fails to make a
required payment on a loan, the Bank takes a number of steps to have the
borrower cure the delinquency and restore the loan to current status. The Bank
generally sends the borrower a written notice of non-payment after the loan is
first past due. In the event payment is not then received, additional letters
and phone calls generally are made. If the loan is still not brought current and
it becomes necessary for the Bank to take legal action, which typically occurs
after a loan is delinquent at least 30 days or more, the Bank will commence
foreclosure proceedings against any real property that secures the loan. If a
foreclosure action is instituted and the loan is not brought current, paid in
full, or an acceptable workout accommodation is not agreed upon before the
foreclosure sale, the real property securing the loan generally is sold at
foreclosure.
The Bank's Internal Asset Classification Committee, which is chaired by an
officer who reports directly to the Audit Committee of the Board of Directors,
reviews and classifies the Bank's assets quarterly and reports the results of
its review to the Board of Directors. The Bank classifies assets in accordance
with certain regulatory guidelines established by the OTS which are applicable
to all savings associations. See "Regulation - Federal Savings Institution
Regulation - Classified Assets" for a discussion of those classifications. At
December 31, 1995, the Bank had $11.5 million of assets, including all REO,
classified as Substandard, $13,000 of assets classified as Doubtful and no
assets classified as Loss. Loans and other assets may also be placed on a watch
list as "Special Mention" assets. Assets which do not currently expose the
insured institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"Special Mention." Special Mention assets totalled $4.1 million at December 31,
1995, and consisted primarily of loans secured by single-family, owner-occupied
residences. These loans are classified as Special Mention due to past
delinquencies or other identifiable weaknesses. At December 31, 1995, the
largest loan classified as Special Mention had a loan balance of $247,000 and
the largest loan classified as Substandard had a balance of $895,000.
64
<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio as of
the dates indicated.
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1994
-------------------------------------------------- -----------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------------ ---------------------- ---------------------- ----------------------
Principal Principal Principal Principal
Number of Balance of Number of Balance of Number Balance of Number Balance of
Loans Loans Loans Loans of Loans Loans of Loans Loans
--------- ---------- --------- ---------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family.......... 27 $1,634 80 $7,675 19 $1,503 92 $9,396
Commercial real
estate, multi-family
and land.................... -- -- 1 154 -- -- 1 96
Construction................. -- -- -- -- -- -- 2 265
Consumer loans............... 6 111 9 209 -- -- 10 293
-- ------ -- ----- -- ---- --- ------
Total........................ 33 $1,745 90 $8,038 19 $1,503 105 $10,050
Delinquent loans to total == ====== == ====== == ====== === =======
loans....................... .28% 1.29% .25% 1.67%
==== ===== ==== =====
<CAPTION>
At December 31, 1995
--------------------------------------------------
60-89 Days 90 Days or More
------------------------ ----------------------
Principal Principal
Number of Balance of Number of Balance of
Loans Loans Loans Loans
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family.......... 23 $1,950 96 $9,382
Commercial real
estate, multi-family
and land.................... -- -- 2 315
Construction................. -- -- 1 250
Consumer loans............... 1 7 7 224
-- -- -- ------
Total........................ 24 $1,957 106 $10,171
Delinquent loans to total == ====== === =======
loans....................... .35% 1.84%
==== =====
</TABLE>
65
<PAGE>
Non-Accrual Loans and REO
- -------------------------
The following table sets forth information regarding non-accrual loans and
REO. The Bank had no troubled-debt restructured loans within the meaning of
SFAS 15, and 26 REO properties at December 31, 1995. It is the policy of the
Bank to cease accruing interest on loans 90 days or more past due or in the
process of foreclosure. For the years ended December 31, 1995, 1994, 1993, 1992
and 1991, respectively, the amount of interest income that would have been
recognized on nonaccrual loans if such loans had continued to perform in
accordance with their contractual terms was $428,000, $607,000, $642,000,
$1,479,000 and $1,450,000, none of which was recognized.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Real estate:
One- to four-family.......... $ 8,296 $10,280 $9,705 $13,694 $14,678
Commercial real estate,
multi-family and land...... 154 96 315 145 2,330
Construction................. -- 265 250 337 2,241
Consumer........................ 221 298 224 330 1,333
------ ------ ------ ------ ------
Total........................ 8,671 10,939 10,494 14,506 20,582
REO, net(1)....................... 1,367 1,580 3,056 3,927 1,727
------ ------ ------ ------ ------
Total non-performing
assets.................... $10,038 $12,519 $13,550 $18,433 $22,309
======= ======= ======= ======= =======
Allowance for loan losses as a
percent of total loans
receivable(2)................... .97% .94% 1.01% 1.10% 1.13%
Allowance for loan losses as a
percent of total non-performing
loans(3)........................ 69.21% 51.27% 52.45% 39.55% 27.61%
Non-performing loans as a
percent of total loans
receivable(2)(3)................ 1.40% 1.83% 1.92% 2.79% 4.09%
Non-performing assets
as a percent of total
assets(3)....................... .97% 1.29% 1.45% 2.08% 2.84%
</TABLE>
- -------------------------------------
(1) REO balances are shown net of related loss allowances.
(2) Total loans includes loans receivable and mortgage loans held for sale,
less undisbursed loan funds, deferred loan fees and unamortized premiums
and discounts.
(3) Non-performing assets consist of non-performing loans and REO. Non-
performing loans consist of all loans 90 days or more past due and other
loans in the process of foreclosure.
66
<PAGE>
Allowance for Loan Losses. The allowance for loan losses is established
-------------------------
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers sufficient to
provide for estimated losses based on evaluating known and inherent risks in the
loan portfolio based upon management's continuing analysis of the factors
underlying the quality of the loan portfolio. These factors include changes in
the size and composition of the loan portfolio, actual loan loss experience,
current and anticipated economic conditions, detailed analysis of individual
loans for which full collectibility may not be assured, and the determination of
the existence and realizable value of the collateral and guarantees securing the
loan. Additions to the allowance are charged to earnings. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to make additional provisions for loan losses based upon
judgments different from those of management. As of December 31, 1995 and 1994,
the Bank's allowance for loan losses was .97% and .94%, respectively, of total
loans. The Bank had non-accrual loans of $8.7 million and $10.9 million at
December 31, 1995 and 1994, respectively. The Bank will continue to monitor and
modify its allowances for loan losses as conditions dictate.
The following table sets forth activity in the Bank's allowance for
estimated loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $5,608 $5,504 $5,737 $5,682 $3,904
Provision for loan losses........... 950 1,129 1,300 1,220 1,847
Charge-offs:
Real Estate:
One- to four-family............ 510 907 1,080 1,007 98
Commercial real estate,
multi-family and land........ 28 141 334 106 --
Construction................... -- -- 11 32 --
Consumer.......................... 30 5 122 25 --
----- ----- ----- ----- -----
Total........................ 568 1,053 1,547 1,170 98
Recoveries.......................... 11 28 14 5 29
----- ----- ----- ----- -----
Balance at end of period............ $6,001 $5,608 $5,504 $5,737 $5,682
====== ====== ====== ====== ======
</TABLE>
67
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance and the percent of loans to total loans in each of the
categories listed at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------- --------------------------------- --------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Percent of Each Percent of Each Percent of Each
Allowance Category Allowance Category Allowance Category
to Total to Total to Total To Total to total To Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ---------- ------ --------- ---------- ------ --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to
four-family....... $2,790 46.49% 92.01% $2,809 50.09% 91.63% $2,941 53.43% 91.66%
Commercial real
estate, multi-
family and land... 556 9.27 2.39 483 8.61 2.30 506 9.19 2.08
Construction....... 41 .68 1.30 79 1.41 1.74 49 .89 1.47
Consumer........... 273 4.55 4.30 268 4.78 4.33 275 5.00 4.79
Unallocated........ 2,341 39.01 -- 1,969 35.11 -- 1,733 31.49 --
------ ------ ---- ------ ------ ----- ------ ----- -----
Total.............. $6,001 100.00% 100.00% $5,608 100.00% 100.00% $5,504 100.00% 100.00%
====== ======= ======= ====== ======= ======= ====== ======= =======
At December 31,
------------------------------------------------------------------------
1992 1991
--------------------------------- ---------------------------------
Percent of Percent of
Loans in Loans in
Percent of Each Percent of Each
Allowance Category Allowance Category
to Total to Total to Total To Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ---------- ------ --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to
four-family....... $3,354 58.46% 90.75% $2,734 48.12% 89.92%
Commercial real
estate, multi-
family and land... 1,261 21.98 1.56 1,888 33.23 1.83
Construction....... 47 .82 2.37 82 1.44 2.34
Consumer........... 346 6.03 5.32 545 9.59 5.91
Unallocated........ 729 12.71 -- 433 7.62 --
----- ----- ----- ----- ----- -----
Total.............. $5,737 100.00% 100.00% $5,682 100.00% 100.00%
====== ======= ======= ====== ======= =======
</TABLE>
68
<PAGE>
Investment Activities
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
"Regulation - Federal Savings Institution Regulation - Liquidity." Historically,
the Bank has maintained liquid assets above the minimum OTS requirements and at
a level considered to be adequate to meet its normal daily activities.
The investment policy of the Bank as established by the Board of Directors
attempts to provide and maintain liquidity, generate a favorable return on
investments without incurring undue interest rate and credit risk, and
complement the Bank's lending activities. Specifically, the Bank's policies
generally limit investments to government and federal agency-backed securities
and other non-government guaranteed securities, including corporate debt
obligations, that are investment grade. The Bank's policies provide that all
investment purchases must be approved by two officers (either the Senior Vice
President/Treasurer, Executive Vice President/Chief Financial Officer or the
President and Chief Executive Officer) and be ratified by the Board of
Directors. In December 1995, the Bank reassessed its investment portfolio and
reclassified all of its investment and mortgage-backed securities, totalling in
the aggregate $382.7 million, from held-to-maturity to available for sale. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of New Accounting Standards."
Mortgage-backed Securities. Mortgage-backed securities represent a
--------------------------
participation interest in a pool of single-family or multi-family mortgages, the
principal and interest payments on which, in general, are passed from the
mortgage originators, through intermediaries that pool and repackage the
participation interests in the form of securities, to investors such as the
Bank. Such intermediaries may be private issuers, or agencies including FHLMC,
FNMA and GNMA that guarantee the payment of principal and interest to investors.
Mortgage-backed securities typically are issued with stated principal amounts,
and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed- or ARM loans.
The actual maturity of a mortgage-backed security varies, depending on when
the mortgagors repay or prepay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the security, thereby affecting its
yield to maturity and the related market value of the mortgage-backed security.
The prepayments of the underlying mortgages depend on many factors, including
the type of mortgages, the coupon rates, the age of mortgages, the geographical
location of the underlying real estate collateralizing the mortgages, general
levels of market interest rates, and general economic conditions. GNMA mortgage-
backed securities that are backed by assumable Federal Housing Authority ("FHA")
or the Department of Veterans Affairs ("VA") loans generally have a longer life
than conventional non-assumable loans underlying FHLMC and FNMA mortgage-backed
securities. During periods of falling mortgage interest rates, prepayments
generally increase, as opposed to periods of increasing interest rates when
prepayments generally decrease. If the interest rate of underlying mortgages
significantly exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages. Prepayment experience is more difficult to estimate for
adjustable-rate mortgage-backed securities.
The Bank has significant investments in mortgage-backed securities and has
utilized such investments to complement its mortgage lending activities. At
December 31, 1995, mortgage-backed securities totalled $265.1 million, or 25.6%
of total assets, all of which were classified as available for sale. The Bank
invests in a large variety of mortgage-backed securities, including ARM, balloon
and fixed-rate mortgage-backed securities, the majority of which are directly
insured or guaranteed by FHLMC, GNMA and FNMA. At such date, the mortgage-backed
securities portfolio had a weighted average interest rate of 6.81%.
69
<PAGE>
The Bank generally purchases short-term, straight sequential or planned
amortization class collateralized mortgage obligations ("CMOs"). CMOs are
securities created by segregating or portioning cash flows from mortgage pass-
through securities or from pools of mortgage loans. CMOs provide a broad range
of mortgage investment vehicles by tailoring cash flows from mortgages to meet
the varied risk and return preferences of investors. These securities enable the
issuer to "carve up" the cash flows from the underlying securities and thereby
create multiple classes of securities with different maturity and risk
characteristics. The Bank invests in U.S. Government and agency-backed CMOs and,
to a lesser extent, privately issued CMOs, all of which have agency-backed
collateral. All of the Bank's CMOs and mortgage-backed securities are currently
rated "AAA". Prior to purchasing mortgage-backed securities, each security is
tested for Federal Financial Institutions Examination Council ("FFIEC")
qualification. At December 31, 1995, the Bank's investment in CMOs had an
amortized cost of $9.6 million, and a carrying value and estimated market value
of $9.8 million.
70
<PAGE>
The following table sets forth the composition of the Bank's mortgage-
backed securities portfolio in dollar amounts and in percentages of the
respective portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------
1995 1994 1993
------------------------- -------------------------- -----------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
-------- ------------ -------- ------------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC................................... $223,884 84.45% $183,424 81.68% $182,216 75.55%
FNMA.................................... 27,624 10.42 21,602 9.62 25,237 10.46
GNMA.................................... 3,763 1.42 4,586 2.04 5,830 2.42
CMOs.................................... 9,842 3.71 14,957 6.66 27,905 11.57
------- ----- ------- ----- ------- ------
Total mortgage-backed securities $265,113 100.00% $224,569 100.00% $241,188 100.00%
======== ======= ======== ======= ======== =======
</TABLE>
71
<PAGE>
The following table sets forth the Bank's mortgage-backed securities
activities for the periods indicated.
<TABLE>
<CAPTION>
For the Year
Ended December 31,
--------------------------------------
1995 1994 1993
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Beginning balance.......................... $224,569 $241,188 $205,958
Mortgage-backed securities
purchased.............................. 88,490 50,042 116,992
Less: Principal repayments................ (50,193) (65,978) (81,601)
(Amortization of premium)/accretion of
discount.................................. (612) (683) (161)
Unrealized gain on mortgage-backed
securities available for sale............. 2,859 -- --
------- ------- -------
Ending balance............................. $265,113 $224,569 $241,188
======== ======== ========
</TABLE>
The following table sets forth certain information regarding the amortized
cost and market value of the Bank's mortgage-backed securities at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- ---------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC................................... $221,822 $223,884 $183,424 $178,542 $182,216 $186,084
FNMA.................................... 27,307 27,624 21,602 21,445 25,237 26,106
GNMA.................................... 3,561 3,763 4,586 4,588 5,830 6,126
CMOs.................................... 9,564 9,842 14,957 14,999 27,905 28,810
------- ------- ------- ------- ------- -------
Total mortgage-backed
securities............................. $262,254 $265,113 $224,569 $219,574 $241,188 $247,126
======== ======== ======== ======== ======== ========
</TABLE>
72
<PAGE>
Investment Securities. Investment securities identified as held to maturity
---------------------
are carried at cost, adjusted for amortization of premium and accretion of
discount, which are recognized as adjustments to interest income. Management
determines the appropriate classification of securities at the time of purchase.
If management has the intent and the Bank has the ability at the time of
purchase to hold securities until maturity, they are classified as held to
maturity. Debt securities to be held for indefinite periods of time and not
intended to be held to maturity are classified as available for sale. Securities
available for sale include securities that management intends to use as part of
its asset/liability management strategy. Such securities are carried at fair
value and unrealized gains and losses, net of related tax effect, are excluded
from earnings, but are included in retained earnings. At December 31, 1995, the
Bank had investment securities with an amortized cost of $114.5 million, and a
market value of $114.9 million, all of which were classified as available for
sale.
The following table sets forth certain information regarding the amortized
cost and market values of the Bank's investment securities at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government and agency
obligations......................... $112,956 $113,302 $122,278 $114,986 $112,270 $113,292
State and municipal obligations...... 1,549 1,579 2,173 2,158 3,733 3,738
Corporate obligations................ -- -- 3,000 3,000 10,996 11,102
------- ------- ------- ------- ------- -------
Total investment securities.......... $114,505 $114,881 $127,451 $120,144 $126,999 $128,132
======== ======== ======== ======== ======== ========
</TABLE>
73
<PAGE>
The table below sets forth certain information regarding the amortized
cost, weighted average yields and contractual maturities of the Bank's
investment and mortgage-backed securities as of December 31, 1995.
<TABLE>
<CAPTION>
At December 31, 1995
-------------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years
------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government and agency
obligations........................ $10,000 5.12% $83,956 6.25% $19,000 7.10% $ -- --%
State and municipal obligations (1).. 808 9.79 606 9.15 -- -- 135 8.71
------ ---- ------ ---- ------ --- ------- ----
Total investment securities............ $10,808 5.47% $84,562 6.27% $19,000 7.10% $ 135 8.71%
======= ======= ===== ======= ===== ======== =====
Mortgage-backed securities:
FHLMC................................ $ 3,547 8.29% $50,492 6.12% $ 3,387 9.58% $164,396 6.72%
FNMA................................. -- -- 3,626 8.83 12,464 6.42 11,217 7.51
GNMA................................. -- -- 172 8.03 2,386 8.91 1,003 11.46
CMOs................................. -- -- 3,308 8.05 6,211 8.25 45 6.82
------ ---- ------ ---- ------ --- ------- ----
Total mortgage-backed securities.... $ 3,547 8.29% $57,598 8.41% $24,448 7.57% $176,677 6.80%
======= ===== ======= ===== ======= ===== ======== =====
<CAPTION>
At December 31, 1995
------------------------------
Total
------------------------------
Weighted
Amortized Market Average
Cost Value Yield
--------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Investment securities:
U.S. Government and agency
obligations........................ $112,956 $113,302 6.29%
State and municipal obligations (1).. 1,549 1,579 9.44
------- ------- ----
Total investment securities............ $114,505 $114,881 6.34%
======== ======== =====
Mortgage-backed securities:
FHLMC................................ $221,822 $223,884 6.65%
FNMA................................. 27,307 27,624 7.19
GNMA................................. 3,561 3,763 9.58
CMOs................................. 9,564 9,842 8.17
------- ------ ----
Total mortgage-backed securities.... $262,254 $265,113 6.81%
======== ======== =====
</TABLE>
__________________________
(1) Tax equivalent yield.
74
<PAGE>
Sources of Funds
General. Deposits, loan repayments and prepayments, proceeds from sales of
-------
loans, investment maturities, cash flows generated from operations and FHLB
borrowings are the primary sources of the Bank's funds for use in lending,
investing and for other general purposes.
Deposits. The Bank offers a variety of deposit accounts with a range of
--------
interest rates and terms. The Bank's deposits consist of savings accounts, NOW
accounts, money market accounts and time deposits. For the year ended December
31, 1995, time deposits constituted 64.2% of total average deposits. The flow of
deposits is influenced significantly by general economic conditions, changes in
money market rates, prevailing interest rates and competition. The Bank's
deposits are obtained predominantly from the areas in which its branch offices
are located. The Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. Time
deposits in excess of $100,000 are not actively solicited by the Bank, nor does
the Bank use brokers to obtain deposits. See Note 9 of the Notes to the
Consolidated Financial Statements for a discussion of the types of deposit
accounts offered by the Bank.
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1995 1994 1993
-------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Net deposits (withdrawals) $23,097 $(20,261) $ 8,627
Interest credited on deposit accounts 36,041 29,220 30,534
------- -------- -------
Total increase in deposit accounts $59,138 $ 8,959 $39,161
======= ======== =======
</TABLE>
At December 31, 1995, the Bank had $41.2 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount Average Rate
-------------------------------------- -------- --------------
(Dollars in thousands)
<S> <C> <C>
Three months or less.................. $ 7,532 6.03%
Over three through six months......... 8,207 6.20
Over six through 12 months............ 6,801 6.03
Over 12 months........................ 18,696 6.43
-------
Total................................. $41,236 6.25%
======= =====
</TABLE>
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<PAGE>
The following table sets forth the distribution of the Bank's average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits presented.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------- -------------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Yield Balance Deposits Yield Balance Deposits Yield
--------- ---------- --------- --------- ---------- --------- --------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market deposit
accounts................... $ 68,987 7.71% 2.93% $ 78,288 9.02% 2.57% $ 82,620 9.78% 2.52%
Savings accounts............ 178,973 20.00 2.53 206,131 23.76 2.54 187,743 22.23 2.53
NOW accounts................ 69,330 7.74 2.14 69,934 8.06 2.14 59,672 7.07 2.14
Non-interest-bearing
accounts................... 2,902 .32 -- 1,694 .20 -- 2,017 .24 --
------- ----- ------- ----- ------- -----
Total..................... 320,192 35.77 2.49 356,047 41.04 2.45 332,052 39.32 2.44
------- ----- ---- ------- ----- ---- ------- ----- ----
Time deposits:
Six months or less........ 78,455 8.77 4.84 112,661 12.98 3.65 126,662 15.00 3.00
Over Six through 12
months................... 131,795 14.73 5.44 102,006 11.76 4.38 98,859 11.71 3.34
Over 12 through 24 months. 123,825 13.83 5.59 70,582 8.13 4.54 59,686 7.07 4.22
Over 24 months............ 127,205 14.21 6.19 118,601 13.67 6.01 118,027 13.98 6.43
IRA/KEOGH................. 113,564 12.69 6.39 107,784 12.42 5.97 109,089 12.92 6.42
------- ----- ------- ----- ------- -----
Total time deposits...... 574,844 64.23 5.70 511,634 58.96 4.95 512,323 60.68 4.66
------- ----- ---- ------- ----- ---- ------- ----- ----
Total average deposits.. $895,036 100.00% 4.59% $867,681 100.00% 3.99% $844,375 100.00% 3.76%
======== ======= ===== ======== ======= ===== ======== ======= =====
</TABLE>
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<PAGE>
The following table presents, by various rate categories, the amount of
time deposits outstanding at the dates indicated and the periods to maturity of
the certificate accounts outstanding at December 31, 1995.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1995 At December 31,
----------------------------------------------------------------------- ------------------------------
Less than One to Two to Three to Four to Over Five
One Year Two years Three Years Four years Five years Years 1995 1994 1993
--------- --------- ----------- ---------- ---------- --------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00%.............. $ 6,398 $ -- $ -- $ -- $ -- $ -- $ 6,398 $167,458 $272,592
4.01 to 5.00%........... 133,673 13,213 4,285 2,932 -- -- 154,103 152,576 53,918
5.01 to 6.00%........... 173,891 44,686 23,390 6,765 6,018 2,971 257,721 105,567 64,937
6.01 to 7.00%........... 62,072 23,691 12,183 16,959 6,661 8,178 129,744 51,716 44,015
7.01 to 8.00%........... 6,016 3,972 4,836 13 83 17,566 32,486 24,437 32,605
8.01 to 9.00%........... 4,522 7,029 -- -- -- -- 11,551 18,911 22,010
Over 9.01%.............. 13,155 57 -- -- -- -- 13,212 12,602 17,316
-------- ----- ----- ------ ----- ------ ------- ------- -------
Total $399,727 $92,648 $44,694 $26,669 $12,762 $28,715 $605,215 $533,267 $507,393
======== ======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
77
<PAGE>
Borrowings
From time to time the Bank has obtained advances from the FHLB as an
alternative to retail deposit funds and may do so in the future as part of its
operating strategy. FHLB advances may also be used to acquire certain other
assets as may be deemed appropriate for investment purposes. These advances are
collateralized primarily by certain of the Bank's mortgage loans and mortgage-
backed securities and secondarily by the Bank's investment in capital stock of
the FHLB. See "Regulation - Federal Home Loan Bank System." The Bank has an
available overnight line of credit with the FHLB-NY for $50.0 million which
expires November 25, 1996. When utilized, the line bears a floating interest
rate of 1/8% over the current federal funds rate and is secured by the Bank's
mortgage loans, mortgage-backed securities and U.S. Government securities. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with the policies of the OTS
and the FHLB. At December 31, 1995, the Bank had borrowed $10.4 million against
the FHLB line of credit, and had no other borrowings.
Subsidiary Activities
The Bank owns one subsidiary which is inactive.
Properties
The Bank currently conducts its business through its administrative office
located in Brick, and eight other full service offices located in Ocean and
Middlesex Counties. In addition to its current offices, the Bank has received
the approval of the OTS to establish three new branch offices, and is presently
negotiating to establish a fourth new branch. The Bank has also recently
acquired property in Toms River, New Jersey, which, upon completion of scheduled
renovations, is intended to become the new administrative office. The Bank's
current administrative office is being temporarily leased until the new office
becomes available. The renovations are scheduled to be completed in early 1997,
and are estimated to cost $6.5 million. In December 1995, the Bank entered into
a $5.8 million construction commitment for the planned renovations. The Company
believes that the Bank's current and proposed facilities, when combined with the
planned additions, will be adequate to meet the present and immediately
foreseeable needs of the Bank and the Company.
78
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
Original of Property or
Leased Year Date of Leasehold
or Leased or Lease Improvements at
Location Owned Acquired Expiration December 31, 1995
- ----------------------------------------- -------- --------- ---------- -----------------
(Dollars in
thousands)
<S> <C> <C> <C> <C>
Administrative Office:
74 Brick Boulevard Leased 1990 3/31/1997 $ --
Brick, New Jersey 08723
975 Hooper Avenue (1) Owned 1995 -- 3,304
Toms River, New Jersey 08753
Branch Offices:
Brick Office (2) Owned 1960 -- 1,396
321 Chambers Bridge Road
Brick, New Jersey 08723
Point Pleasant Beach: Owned 1937 -- 83
701 Arnold Avenue
Point Pleasant, New Jersey 08742
Point Pleasant Boro: Owned 1971 -- 703
2400 Bridge Avenue
Point Pleasant, New Jersey 08742
Whiting: Leased 1983 10/31/2007 73
Whiting Shopping Center
PO Box 20
Whiting, New Jersey 08759
Concordia: Leased 1985 07/31/2000 --
1 Concordia Shopping Mall
Box 3
Cranbury, New Jersey 08512
Berkeley: Leased 1984 08/31/2004 221
Holiday City Plaza
730 Jamaica Boulevard
Toms River, New Jersey 08757
Pavilion:
70 Brick Boulevard Leased 1989 09/30/2018 400
Brick, New Jersey 08723
Holiday City South: Leased 1991 05/11/2001 75
Holiday Plaza III
604 Mule Road
Toms River, New Jersey 08787
</TABLE>
_________________________________
(1) The Bank intends to relocate its administrative offices from its present
location to this site in 1996. Renovations to this new location are
estimated to cost $6.5 million.
(2) This property is adjoined by another lot owned by the Bank, where the
Bank's former loan center was located. The Loan Center is currently not in
use. The net book value of this property includes the adjacent lot and
building's value of $472,000 at December 31, 1995.
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<PAGE>
Legal Proceedings
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
other routine legal proceedings in the aggregate are believed by management to
be immaterial to the Company's financial condition or results of operations.
Personnel
As of December 31, 1995, the Bank had 209 full-time employees and 19 part-
time employees. The employees are not represented by a collective bargaining
unit and the Bank considers its relationship with its employees to be good. See
"Management of the Bank - Benefits" for a description of certain compensation
and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank will report their income on a calendar
year basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank has not been audited by the IRS in over 10 years.
Bad Debt Reserve. Savings institutions such as the Bank which meet certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") are permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, may be computed using an amount
based on the Bank's actual loss experience, or a percentage equal to 8% of the
Bank's taxable income, computed with certain modifications and reduced by the
amount of any permitted addition to the non-qualifying reserve. Use of the
percentage of taxable income method of calculating the Bank's deductible
addition to its bad debt reserve has the effect of reducing the marginal rate of
federal tax on the Bank's income to 32.2%, exclusive of any minimum or
environmental tax, compared to the generally applicable maximum corporate
federal income tax rate of 35%. The Bank's deduction with respect to non-
qualifying loans must be computed under the experience method which allows a
deduction based on the Bank's actual loss experience over a period of several
years. Each year the Bank selects the most favorable way to calculate the
deduction attributable to an addition to the tax bad debt reserve.
The Bank presently satisfies the qualifying thrift definitional tests. If
the Bank failed to satisfy such tests in any taxable year, it would be unable to
make additions to its bad debt reserve. Instead, the Bank would be required to
deduct bad debts as they occur and would additionally be required to recapture
its bad debt reserve deductions ratably over a multi-year period. Among other
things, the qualifying thrift definitional tests require the Bank to hold at
least 60% of its assets as "qualifying assets." Qualifying assets generally
include cash, obligations of the United States or any agency or instrumentality
thereof, certain obligations of a state or political subdivision thereof, loans
secured by interests in improved residential real property or by savings
accounts, student loans and property used by the Bank in the conduct of its
banking business. The Bank's ratio of qualifying assets to total assets exceeded
60% through December 31, 1995. Although there can be no assurance that the Bank
will satisfy the 60% test in the future, management believes that this level of
qualifying assets can be maintained by the Bank.
The amount of the addition to the reserve for losses on qualifying real
property loans under the percentage of taxable income method cannot exceed the
amount necessary to increase the balance of the reserve
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<PAGE>
for losses on qualifying real property loans at the close of the taxable year to
six percent of the balance of the qualifying real property loans outstanding at
the end of the taxable year. At December 31, 1994, the Bank's total reserve for
bad debts on qualifying real property loans was approximately $12.5 million,
less than six percent of its qualifying real property loans outstanding. Also,
if the qualifying thrift uses the percentage of taxable income method, then the
qualifying thrift's aggregate addition to its reserve for losses on qualifying
real property loans cannot, when added to the addition to the reserve for losses
on non-qualifying loans, exceed the amount by which: (i) 12 percent of the
amount that the total deposits or withdrawable accounts of depositors of the
qualifying thrift at the close of the taxable year exceeds (ii) the sum of the
qualifying thrift's surplus, undivided profits and reserves at the beginning of
such year. As of December 31, 1995, this overall limitation would not have
restricted the Bank's deduction for additions to its bad debt reserve. For a
discussion of the possible impact of proposed legislation on the Bank's bad debt
reserve, see "Risk Factors - Financial Institution Regulation and Possible
Legislation."
Legislation is pending before Congress that would generally repeal,
effective for taxable years beginning after 1995, the above-described bad debt
deduction rules available to thrift institutions such as the Bank, but would
generally retain the experience method for thrift institutions having assets
with average adjusted bases of $500 million or less. The proposed tax
legislation would not require the recapture of bad debt reserve deductions taken
prior to 1988, but would require the recapture of at least some of the bad debt
reserve deductions taken by an affected thrift institution after 1987. The
balance of pre-1988 bad debt reserves would continue to be subject to provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders. Bad debt reserve deductions required to be
recaptured would generally be taken into account ratably over the six-taxable
year period beginning with the first taxable year beginning after December 31,
1995. However, if an institution maintains its residential loans at a level
equal to the average level of such loans for a period preceding 1995, the
institution would be permitted to defer recapture of its reserves until 1998.
The Bank is not able to predict whether, or in what form, the proposed tax
legislation will be enacted or the effect that such enactment would have on the
Bank's federal income tax liability. In addition, there may be an impact on
state income tax liability as a result of the enactment of the proposed
legislation. If the Bank is required to convert from a federal savings bank to a
commercial bank charter, this would change the way the Bank is subject to tax in
New Jersey. Currently, the Bank is subject to a 3% tax rate under the Savings
Institution Tax. As a commercial bank, the Bank would be subject to tax at a 9%
tax rate under the Corporation Business Tax. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."
Distributions. To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's bad debt reserve. Thus,
any dividends to the Company that would reduce amounts appropriated to the
Bank's bad debt reserve and deducted for federal income tax purposes would
create a tax liability for the Bank. The amount of additional taxable income
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus,
if, after the Conversion, the Bank makes a "non-dividend distribution," then
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, assuming a 35% corporate income
tax rate (exclusive of state and local taxes). See "Regulation" and "Dividend
Policy" for limits on the payment of dividends of the Bank. The Bank does not
intend to pay dividends that would result in a recapture of any portion of its
bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
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<PAGE>
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers of which the Bank currently has none. AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). In addition, for taxable years beginning
after December 31, 1986 and before January 1, 1996, an environmental tax of .12%
of the excess of AMTI (with certain modifications) over $2.0 million is imposed
on corporations, including the Bank, whether or not an Alternative Minimum Tax
("AMT") is paid. The Bank does not expect to be subject to the AMT, but may be
subject to the environmental tax liability.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.
State and Local Taxation
New Jersey Taxation. The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including addition
of interest income on State and municipal obligations).
The Company will be required to file a New Jersey income tax return because
it will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income. For
this purpose, "taxable income" generally means Federal taxable income, subject
to certain adjustments (including addition of interest income on state and
municipal obligations). However, if the Company meets certain requirements, it
may be eligible to elect to be taxed as a New Jersey Investment Company at a tax
rate presently equal to 2.25% (25% of 9%) of taxable income.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
REGULATION
General
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its chartering agency, and the FDIC, as the deposit insurer. The
Bank is a member of the FHLB System and its deposit accounts are insured up to
applicable limits by the SAIF managed by the FDIC. The Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to test
the Bank's compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or the Congress, could have a material adverse impact on the
Company, the Bank and their operations. Assuming that the holding company form
of organization is utilized, the Company, as a savings and loan holding company,
will also be required to file certain reports with, and
82
<PAGE>
otherwise comply with the rules and regulations of the OTS and of the Securities
and Exchange Commission (the "SEC") under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the OTS, the FDIC or the Congress, could have a material
impact on the Company, the Bank, its operations or the Bank's Conversion.
Congress currently has under consideration various proposals to consolidate the
regulatory functions of the four federal banking agencies: the OTS, the FDIC,
the Office of the Comptroller of the Currency and the Board of Governors of the
Federal Reserve System. The outcome of efforts to effect regulatory
consolidation is uncertain. Therefore, the Bank is unable to determine the
extent to which legislation, if enacted, would affect its business. See "Risk
Factors - Financial Institution Regulation and Possible Legislation."
Certain of the regulatory requirements applicable to the Bank and to the
Company are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings associations set forth in this
Prospectus do not purport to be complete descriptions of such statutes and
regulations and their effects on the Bank.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDI Act") and the regulations
issued by the agencies to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which federal associations
may engage. In particular, many types of lending authority for federal
associations, e.g., commercial, non-residential real property loans, consumer
loans, are limited to a specified percentage of the institutions's capital or
assets.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus (as of December 31,
1995 this amount was $13.5 million), plus an additional 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and bullion. At
December 31, 1995, the Bank's self-imposed limit on loans to one borrower was
$3.0 million. At December 31, 1995, the Bank's largest aggregate amount of loans
to one borrower consisted of $2.3 million and the second largest borrower had an
aggregate balance of $1.8 million.
QTL Test. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of December 31,
1995, the Bank maintained 117.0% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. In the event the Bank's capital fell below its capital
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<PAGE>
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 5%) of its net withdrawable deposit accounts plus short-
term borrowings. OTS regulations also require each savings institution to
maintain an average daily balance of short-term liquid assets at a specified
percentage (currently 1%) of the total of its net withdrawable deposit accounts
and borrowings payable in one year or less. Monetary penalties may be imposed
for failure to meet these liquidity requirements. The Bank's liquidity ratio at
December 31, 1995 was 17.2%, which exceeded the then applicable requirements.
The Bank has never been subject to monetary penalties for failure to meet its
liquidity requirements.
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is computed upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the
years ended December 31, 1995 and 1994, totalled $200,000 and $196,000,
respectively.
Branching. OTS regulations permit federally chartered savings banks to
branch nationwide under certain conditions. Generally, federal savings banks may
establish interstate networks and geographically diversify their loan portfolios
and lines of business. The OTS authority preempts any state law purporting to
regulate branching by federal savings banks.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings institution's capital and
surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
generally requires that certain transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. Notwithstanding Sections 23A and 23B, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the Bank Holding Company Act ("BHC Act"). Further, no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder.
Among other things, these regulations require that such loans to be made on
terms and conditions substantially the same as those offered to unaffiliated
individuals and not involve more than the normal risk of repayment. Regulation O
also places individual and aggregate limits on the amount of loans the Bank may
make to such persons based, in part, on the Bank's capital position, and
requires certain board approval procedures be followed. The OTS regulations,
with certain minor variances, apply Regulation O to savings institutions.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a
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<PAGE>
capital directive or cease and desist order to removal of officers or directors,
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
$1 million per day in especially egregious cases. Under the FDI Act, the FDIC
has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies recently adopted a final regulation and Interagency
Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; and compensation, fees and benefits. The agencies
also adopted a proposed rule which proposes asset quality and earnings standards
which, if adopted in final, would be added to the Guidelines. If the appropriate
federal banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDI Act. The final regulation establishes deadlines for the
submission and review of such safety and soundness compliance plans.
Classification of Assets. Federal regulations and the Bank's Classification
of Assets Policy require that the Bank utilize an internal asset classification
system as a means of reporting problem and potential problem assets. The Bank
has incorporated the OTS internal asset classifications as a part of its credit
monitoring system. The Bank currently classifies problem and potential problem
assets as "Substandard," "Doubtful" or "Loss" assets. An asset is considered
"Substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
one or more assets, or portions thereof, as "Loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
recently adopted an interagency policy statement on the allowance for loan and
lease losses. The policy statement provides guidance for financial institutions
on both the responsibilities of management for the assessment and establishment
of adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and
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<PAGE>
controls to identify, monitor and address asset quality problems; that
management has analyzed all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and that management has established
acceptable allowance evaluation processes that meet the objectives set forth in
the policy statement. As a result of the declines in local and regional real
estate market values and the significant losses experienced by many financial
institutions, there has been a greater level of scrutiny by regulatory
authorities of the loan portfolios of financial institutions undertaken as part
of the examination of institutions by the OTS and the FDIC. While the Bank
believes that it has established an adequate allowance for loan losses, there
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to materially increase at that time its allowance for
loan losses, thereby negatively affecting the Bank's financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, actual losses are dependent
upon future events and, as such, further additions to the level of specific and
general loan loss allowances may become necessary.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain purchased mortgage servicing rights ("PMSRs") and credit card
relationships. The OTS regulations also require that, in meeting the leverage
ratio, tangible and risk-based capital standards institutions generally must
deduct investments in and loans to subsidiaries engaged in activities not
permissible for a national bank. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a leverage capital ratio
of less than 4% (3% for institutions receiving the highest CAMEL examination
rating) will be deemed to be "undercapitalized" and may be subject to certain
restrictions. See "- Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings banks with "above normal" interest rate risk exposure would be subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. A savings bank's interest rate risk is measured by the
decline in the net portfolio value of its assets (i.e., the difference between
incoming and outgoing discounted cash flows from assets, liabilities and off-
balance sheet contracts) that would result from a hypothetical 200-basis point
increase or decrease in market interest rates divided by the estimated economic
value of the bank's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings bank whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
bank's assets. That dollar amount is deducted from an bank's total capital in
calculating compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data. A savings bank with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that the
Director of the OTS may waive or defer an bank's interest rate risk component on
a case-by-case basis. The OTS has recently postponed the date that the component
will first be deducted from an institution's total capital until an
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<PAGE>
appeals process is developed for the measurement of an institution's interest
rate risk. If the Bank had been subject to an interest rate risk capital
component as of December 31, 1995, there would have been no material effect on
the Bank's risk-weighted capital.
At December 31, 1995, the Bank met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Bank's historical amounts and
percentages at December 31, 1995, and pro forma amounts and percentages based
upon the issuance of the shares within the Estimated Price Range and assuming
that a portion of the net proceeds are retained by the Company.
Prompt Corrective Regulatory Action
Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth,and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized,
(2) adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Assessment rates currently range from 23 basis points to 31 basis
points. The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank. The Bank's
assessment rate for 1995 was .23% of deposits. See "Risk Factors -
Recapitalization of SAIF and Its Impact on SAIF Premiums."
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
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<PAGE>
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at December 31, 1995, of $7.7
million. FHLB advances must be secured by specified types of collateral and all
long-term advances may only be obtained for the purpose of providing funds for
residential housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended December 31, 1995, 1994 and 1993,
dividends from the FHLB to the Bank amounted to $591,000, $548,000 and $582,000,
respectively. If dividends were reduced, or interest on future FHLB advances
increased, the Bank's net interest income would likely also be reduced. Further,
there can be no assurance that the impact of recent legislation on the FHLBs
will not also cause a decrease in the value of the FHLB stock held by the Bank.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $52.0 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts greater than $52.0 million, the reserve requirement is $1.6
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $52.0
million. The first $4.3 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing requirements. Because
required reserves must be maintained in the form of either vault cash, a non-
interest-bearing account at a Federal Reserve Bank or a pass-through account as
defined by the Federal Reserve Board, the effect of this reserve requirement is
to reduce the Bank's interest-earning assets. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve Board regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.
Holding Company Regulation
The Company, if utilized, will be a non-diversified unitary savings and
loan holding company within the meaning of the HOLA. As such, the Company will
be required to register with the OTS and will be subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Company and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. The Bank must notify the OTS 30 days before declaring any
dividend to the Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a QTL. See "-
Federal Savings Institution Regulation - QTL Test" for a discussion of the QTL
requirements. Upon any non-supervisory acquisition by the Company of another
savings association, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would be subject to extensive limitations on the types of business
activities in which it could engage. The HOLA limits the activities of a
multiple savings and loan holding company and its non-insured institution
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<PAGE>
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS,
and to other activities authorized by OTS regulation. Recently proposed
legislation would restrict the activities of unitary savings and loan holding
companies to those permissible for multiple savings and loan holding companies.
See "Risk Factors - Financial Institution Regulation and Possible Legislation."
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings, institution or holding company thereof,
without prior written approval of the OTS; and from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company, or a non-
subsidiary company engaged in activities other than those permitted by the HOLA;
or acquiring or retaining control of a depository institution that is not
insured by the FDIC. In evaluating applications by holding companies to acquire
savings institutions, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Federal Securities Laws
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes, each
of which comprises approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Garbarino, Curtin and Schlosser, has a term of office
expiring at the first annual meeting of stockholders, a second class, consisting
of Messrs. Feltz, Hyde and Knemoller, has a term of office expiring at the
second annual meeting of stockholders, and a third class, consisting of Messrs.
Barrett, McLaughlin and Snyder, has a term of office expiring at the third
annual meeting of stockholders. Their names and biographical information are set
forth under "Management of the Bank - Directors."
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The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names.
Name Position Held With Company
----------------------- ----------------------------------------------
John R. Garbarino Chairman of the Board, President and Chief
Executive Officer
Michael J. Fitzpatrick Executive Vice President and Chief Financial
Officer
John K. Kelly Senior Vice President and Corporate Secretary
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company.
Information concerning the principal occupations, employment and compensation of
the directors and officers of the Company during the past five years is set
forth under "Management of the Bank - Biographical Information."
MANAGEMENT OF THE BANK
Directors
The following table sets forth certain information regarding the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
Positions Held
With the Director Term
Name Age(1) Bank(2) Since Expires
- ---------------------- ------ -------------- -------- -------
<S> <C> <C> <C> <C>
John R. Garbarino 46 Chairman of 1984 1998
the Board,
President and
Chief
Executive
Officer
Michael E. Barrett 56 Director and 1989 1997
Executive Vice
President,
Director of
Loan Division
Thomas F. Curtin 64 Director 1991 1998
Carl Feltz, Jr. 57 Director 1990 1996
Roy M. Hyde 87 Director 1964 1996
Robert E. Knemoller 66 Director 1982 1996
Donald E. McLaughlin 48 Director 1985 1997
Frederick E. Schlosser 73 Director 1968 1998
James T. Snyder 61 Director 1991 1997
</TABLE>
- ----------------------------------
(1) As of December 31, 1995.
(2) All directors are also directors of Ocean Financial Corp.
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<PAGE>
Executive Officers who are not Directors
The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.
<TABLE>
<CAPTION>
Name Age(1) Position Held with the Bank
- ---------------------- ------ -------------------------------------------
<S> <C> <C>
Michael J. Fitzpatrick 40 Executive Vice President and Chief
Financial Officer
John K. Kelly 46 Senior Vice President and General Counsel
Robert J. Kroner 46 Senior Vice President and Director of
Operations
</TABLE>
______________________
(1) As of December 31, 1995.
Each of the executive officers of the Bank will retain his office in the
converted Bank until the annual meeting of the Board of Directors of the Bank,
held immediately after the first annual meeting of stockholders subsequent to
Conversion, and until their successors are elected and qualified or until they
are removed or replaced. Officers are re-elected by the Board of Directors
annually.
Biographical Information
Directors
John R. Garbarino has served in various capacities for the Bank since 1971,
and has been a member of the Bank's senior management since 1979. He served as
Executive Vice President of the Bank from 1983 to 1985, at which time he was
elected President and Chief Executive Officer. He has been a member of the
Bank's Board of Directors since 1984, and was appointed Chairman of the Board in
1989. Mr. Garbarino is also active in a number of industry related
organizations, including his past service as Chairman of the Board of Governors
of the New Jersey Savings League and current service on the Board of Directors
of America's Community Bankers. In 1995, Mr. Garbarino was elected to the Board
of Directors of the Federal Home Loan Bank of New York. He also serves on the
Boards of numerous local civic and charitable organizations.
Michael E. Barrett has served as an Executive Vice President and Director
of the Bank's Loan Division since 1987. He was elected to the Board of Directors
in 1989. Prior to 1987, he served as Executive Vice President in charge of
lending and operations for another savings institution for 12 years. In total,
Mr. Barrett has worked in the financial services industry for over 26 years.
Thomas F. Curtin is a partner with The Foristall Company, Inc., an investor
relations firm specializing in financial communications. He has been a member of
the Board of Directors since 1991.
Carl Feltz, Jr. is a registered architect and has been a principal in the
firm of Feltz Associates, Architects since its establishment in 1977. Mr. Feltz
has been a member of the Board of Directors since 1990.
Roy M. Hyde is a retired custom home builder. He serves on the boards of
numerous local building and planning organizations. He has served on the Bank's
Board of Directors since 1964.
Robert E. Knemoller is retired from the Bank, having served in numerous
capacities for over 30 years. He was President of the Bank from 1983 until 1985.
He has been a member of the Board since 1982.
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<PAGE>
Donald E. McLaughlin is a certified public accountant and President of
Donald E. McLaughlin, CPA P.C. He has worked as an accountant since 1970. Mr.
McLaughlin has been a member of Board since 1985.
Frederick E. Schlosser is a former management consultant for a chain of
department stores, and is now retired. Mr. Schlosser has served on the Board of
Directors since 1968.
James T. Snyder is retired. He was formerly a 50% owner of Wallach's, Inc.,
a New Jersey retail company. Mr. Snyder has served on the Board of Directors
since 1991.
Executive Officers Who Are Not Directors
Michael J. Fitzpatrick has served as Executive Vice President and Chief
Financial Officer of the Bank since 1992, and in that capacity, is responsible
for all financial activities of the Bank. Prior to 1992, Mr. Fitzpatrick, a
certified public accountant, was employed by KPMG Peat Marwick, LLP for 11
years, completing his tenure as a senior audit manager.
John K. Kelly, admitted to the practice of law in New Jersey and
Connecticut, has been Senior Vice President and General Counsel of the Bank
since 1988. In this position, Mr. Kelly oversees all legal, insurance and risk
assessment functions of the Bank. He has also served as the Bank's Compliance
Officer since 1989. Prior to joining the Bank, Mr. Kelly was associated with a
private law firm and was also a Deputy Attorney General of the New Jersey
Department of Law and Public Safety.
Robert J. Kroner has been with the Bank since 1983, and currently serves as
a Senior Vice President and Director of Operations. In that capacity, Mr. Kroner
is responsible for the operations of the Bank, including branch operations,
facilities management, information services and checking services. He has worked
in the financial services industry since 1972.
Committees and Meetings of the Board of Directors of the Bank and Company
The Board of Directors meets on a monthly basis and may have additional
special meetings upon the request of the Chairman of the Board. During the year
ended December 31, 1995, the Board of Directors met 13 times. No director
attended fewer than 90% of the total number of Board meetings held during this
period.
The Board of Directors of the Bank has established the following
committees:
The Audit Committee consists of Messrs. McLaughlin, Knemoller and
Schlosser. The Bank's Internal Auditor and Loan Review Officer report to this
committee. The purpose of this committee is to review audit and loan review
reports and management actions regarding the implementation of audit findings.
The committee also maintains a liaison with the outside auditors and reviews the
adequacy of internal controls. The committee generally meets on a quarterly
basis, and met five times in 1995.
The Loan Committee consists of Messrs. Barrett, Garbarino and three
directors on a rotating basis. The purpose of this committee is to review and
ratify all loans approved by management, and to approve large loan requests. The
committee meets on at least a monthly basis, and more often if necessary. This
committee met 13 times in 1995.
The Human Resources/Compensation Committee consists of Messrs. Knemoller,
Schlosser and Curtin. The purpose of this committee is to review and approve
compensation and benefits to be paid to employees of the Bank and management's
compliance with approved guidelines. This committee meets periodically, as
needed, and met five times in 1995.
The Budget and Planning Committee consists of Messrs. Hyde, Feltz and
Snyder. The Committee is responsible for the formulation, review and approval of
the annual and long-term business plans and budgets of
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the Bank, and for making recommendations to the Board on goals and strategies to
develop the Bank's business. This Committee meets as necessary, and met three
times in 1995.
Additionally, the Bank has a number of other management committees,
including the ALCO and Asset Classification Committees, consisting of members of
senior management.
The Board of Directors of the Company has established the following
committees: the Audit Committee, Nominating Committee, Pricing Committee and the
Compensation Committee.
Directors' Compensation
Fee Arrangements. Currently, all outside directors of the Bank and Company
receive an annual retainer of $15,000 for service on the Bank's Board and $5,000
for service on the Company's Board. All fees are paid to directors quarterly.
Outside directors of the Bank also receive a fee of $900 for each regular board
meeting attended, and $300 for each committee meeting attended. Committee
chairmen receive $500 per committee meeting attended. The Bank's directors are
also provided with medical and dental insurance.
Deferred Compensation Plan for Directors. The Bank maintains a deferred
compensation plan for the benefit of directors. The plan is a non-qualified
arrangement which offers participating directors the opportunity to defer
compensation through a reduction in fees in lieu of a promise of future
benefits. Such benefits are payable commencing at an age mutually agreed upon by
the Bank and the participating director (the "Benefit Age"). The benefits equal
the account balance of the director annuitized over a period of time mutually
agreed upon by the Bank and the director and then reannuitized at the beginning
of each calendar year thereafter. Lump sum payouts are also available upon
eligibility for distribution of benefits or in the event of the death of the
director. The account balance equals deferrals and interest. Currently the plan
credits interest on deferrals at a rate equal to the sum of (i) the "Stable
Fund" investment option in the Bank's qualified 401(k) plan and (ii) 200 basis
points. The plan offers a death benefit which may be funded through the proceeds
of Corporate Owned Life Insurance ("COLI") which is equal to the estimated
benefit which would have been payable if the director had participated in the
plan for the entire period up to the Benefit Age. Early distribution of benefits
may occur under certain circumstances which include, change in control,
financial hardship, termination for cause or disability.
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<PAGE>
Executive Compensation
Cash Compensation. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the year ended
December 31, 1995, to the Chief Executive Officer and four other executive
officers who received compensation in excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation(1)
-----------------------------------------------
Other
Annual
Name and Principal Compensation
Positions Year Salary(s) Bonus($)(2) ($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Garbarino, 1995 $225,600 $63,099 $--
President and Chief Executive Officer
Michael E. Barrett, 1995 138,200 24,108 --
Executive Vice President
Michael J. Fitzpatrick, 1995 118,200 30,534 --
Executive Vice President and Chief
Financial Officer
John K. Kelly, 1995 105,700 22,042 --
Senior Vice President and General
Counsel
Robert J. Kroner, 1995 102,300 24,531 --
Senior Vice President
Long-Term Compensation
---------------------------------------------------------
Awards Payouts
---------------------------------------------------------
(i)
Securities
Underlying All Other
Restricted Options/ LTIP Compensation
Stock Awards SARS Payouts ($)(7)
($)(4) (#)(5) ($)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Garbarino, $-- $-- $158,600 $11,625
President and Chief Executive Officer
Michael E. Barrett, -- -- 74,996 10,819
Executive Vice President
Michael J. Fitzpatrick, -- -- 63,200 6,750
Executive Vice President and Chief
Financial Officer
John K. Kelly, -- -- 45,948 5,812
Senior Vice President and General
Counsel
Robert J. Kroner, -- -- 46,120 5,755
Senior Vice President
</TABLE>
- --------------------------------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the named executive officer pursuant to the Bank's 401(k) Plan
and Deferred Compensation Plan as hereinafter defined.
(2) Consists of bonuses paid pursuant to the Bank's Performance Achievement
Awards Program, which awards bonuses based on the attainment of certain
predetermined annual performance goals.
(3) For 1995, there were no (a) prerequisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1995, the Bank had no restricted stock or stock
related plans in existence.
(4) Does not include awards pursuant to the Stock Programs, which may be
granted in conjunction with a meeting of stockholders of the Company,
subject to OTS and stockholder approval, as such awards were not earned,
vested or granted in fiscal 1995. For a discussion of the terms of the
Stock Programs, see "- Benefits - Stock Programs." For 1995, the Bank had
no restricted stock plans in existence.
(5) Does not include options which may be granted under the Stock Option Plans
in conjunction with a meeting of stockholders of the Company, subject to
OTS and stockholder approval, as such options were not earned or granted in
1995. For a discussion of the terms of the Stock Option plans, see "-
Benefits - Stock Option Plans."
(6) Represents the payout for the first three-years performance period and for
the first year of the second performance period under the Bank's Long-Term
Award Program. This Program was terminated as of December 31, 1995. See "--
Long-Term Incentive Plan."
(7) Includes $6,750, $6,750, $6,750, $5,812 and $5,755 contributed by the Bank
to the accounts of Messrs. Garbarino, Barrett, Fitzpatrick, Kelly and
Kroner, respectively, under the Bank's 401(k) Plan.
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Long-Term Incentive Plan. In 1992, the Bank implemented the Ocean Federal
Savings Bank Long-Term Award Program, which awarded compensation to participants
based upon the financial performance of the Bank measured over three-year
periods. The first three-year performance period under the Program concluded as
of December 31, 1995. The payouts for that performance period are reflected in
the Summary Compensation table above. In connection with the Bank's Conversion,
and the proposed implementation of certain stock-based benefit plans at least
six months following Conversion, pending stockholder approval, the Long-Term
Award Program was terminated by the Bank as of December 31, 1995. A second
performance period had begun under the Program as of January 1, 1995. Payouts
for the partial one-year period ended December 31, 1995 have been funded and
distributed, and are also reflected in the Summary Compensation Table above.
Employment Agreements
It is anticipated that subsequent to the Conversion, the Bank and the
Company intend to enter into employment agreements with Messrs. Garbarino and
Fitzpatrick (individually, the "Executive"). These agreements are subject to the
review and approval of the Company, the Bank and the OTS and may be amended as a
result of such review. The employment agreements are intended to ensure that the
Bank and the Company will be able to maintain a stable and competent management
base after the Conversion. The continued success of the Bank and the Company
depends to a significant degree on the skills and competence of Messrs.
Garbarino and Fitzpatrick.
The proposed employment agreements are expected to provide for a three-year
term for both Executives. It is expected that the Bank's employment agreements
would provide that, commencing on the first anniversary date and continuing each
anniversary date thereafter, the Board of Directors of the Bank would review the
agreements and the Executive's performance for purposes of determining whether
to extend the agreements with the Bank for an additional year such that the
remaining terms would be the amount of the original terms. It is expected that
the agreements with the Company would automatically extend daily, such that the
remaining terms would be the amount of the original term unless written notice
of non-renewal is given by the Board of Directors of the Company after
conducting a performance evaluation of the executive. In addition to the base
salary, the proposed agreements would provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. The agreements would provide for termination by the Bank or
the Company for cause, as would be defined in the agreements, at any time. In
the event the Bank or the Company would choose to terminate the Executive's
employment for reasons other than for cause, or in the event of the Executive's
resignation from the Bank and the Company upon: (i) failure to re-elect the
Executive to his current offices; (ii) a material change in the Executive's
functions, duties or responsibilities; (iii) a relocation of the Executive's
principal place of employment by more than 25 miles; (iv) liquidation or
dissolution of the Bank or the Company; or (v) a breach of the agreement by the
Bank or the Company, the Executive or, in the event of death, his beneficiary,
would be entitled to receive the remaining base salary payments due to the
Executive and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank or the Company during the
remaining term of the agreement. The Bank and the Company would also continue
and pay for the Executive's life, health and disability coverage for the
remaining term of the Agreement.
Under the proposed agreements, if voluntary or involuntary termination
follows a "change in control" of the Bank or the Company, as defined in the
proposed employment agreements, it is expected that the Executive or, in the
event of death, his beneficiary, would be entitled to a payment equal to the
greater of: (1) the payments due for the remaining term of the agreement; or (2)
a severance payment equal to three times the average of the five preceding
taxable years' compensation. It is also expected that the Bank and the Company
would also continue the Executive's life, health, and disability coverage for 36
months. Notwithstanding that both agreements would provide for a severance
payment in the event of a change in control, the Executive would only be
entitled to receive a severance payment under one agreement.
Payments to the Executive under the Bank's proposed agreements are expected
to be guaranteed by the Company in the event that payments or benefits are not
paid by the Bank. Payment under the Company's
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agreements would be made by the Company. All reasonable costs and legal fees
paid or incurred by the Executive pursuant to any dispute or question of
interpretation relating to the agreements would be paid by the Bank or Company,
respectively, if the Executive is successful on the merits pursuant to a legal
judgment, arbitration or settlement. It is also expected that the employment
agreements would provide that the Bank and Company would indemnify the Executive
to the fullest extent allowable under federal and Delaware law, respectively. In
the event of a change in control of the Bank or Company, the total amount of
payments that would be due under the Agreements, based solely on cash
compensation paid to Messrs. Garbarino and Fitzpatrick over the past three
fiscal years and excluding any benefits under any employee benefit plan which
may be payable, would be approximately $1.4 million.
Change in Control Agreements
It is anticipated that subsequent to the Conversion, the Company and the
Bank will enter into two-year Change in Control Agreements ("CIC Agreement")
with Messrs. Barrett, Kelly and Kroner. The proposed CIC Agreement is expected
to provide that commencing on the first anniversary date and continuing on each
anniversary thereafter, the Bank's CIC Agreements may be renewed by the Board of
Directors for an additional year while the term of the Company's CIC Agreements
shall be extended on a daily basis unless written notice of non-renewal is given
by the Board of Directors of the Company. It is also expected that the CIC
Agreements with the Company will provide that in the event voluntary or
involuntary termination follows a change in control of the Bank or the Company,
the officer would be entitled to receive a severance payment equal to two times
the officer's average annual compensation for the five years preceding
termination. It is also expected that the Bank's CIC Agreement would have a
similar change in control provision; however, the officer would only be entitled
to receive a severance payment under one agreement. The Company and the Bank
would also continue, and pay for, the officer's life, health and disability
coverage for 36 months following termination. Payments to the officer under the
Bank's CIC Agreements would be guaranteed by the Company in the event that
payments or benefits are not paid by the Bank. In the event of a change in
control of the Bank or Company, the total payments that would be due under the
CIC Agreements, based solely on the cash compensation paid to the three officers
covered by the CIC Agreements over the past two fiscal years and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $1.0 million.
Employee Severance Compensation Plan
It is anticipated that the Bank's Board of Directors will, subsequent to
the Conversion, establish the Ocean Federal Savings Bank Employee Severance
Compensation Plan ("Severance Plan") which would provide eligible employees with
severance pay benefits in the event of a change in control of the Bank or the
Company following Conversion. Management personnel with employment or CIC
agreements would not be eligible to participate in the Severance Plan.
Generally, all employees would be eligible to participate in the Severance Plan.
It is expected that the Severance Plan would vest in each participant a
contractual right to the benefits such participant is entitled to thereunder. It
is expected that under the Severance Plan, in the event of a change in control
of the Bank or the Company, eligible employees who are terminated from or
terminate their employment within one year of the change in control (for reasons
specified under the Severance Plan), would be entitled to receive a severance
payment. The participant would be entitled to a cash severance payment equal to
one-twelfth of annual compensation for each year of service up to a maximum of
100% of annual compensation. Those holding title of Vice President or above
would receive a benefit of one year's salary regardless of service. Such
payments may tend to discourage takeover attempts by increasing costs to be
incurred by the Bank in the event of a takeover. In the event the provisions of
the Severance Plan were triggered, the total amount of payments that would be
due thereunder, based solely upon current salary levels at December 31, 1995,
would be approximately $2.6 million.
Insurance Plans
All full-time employees, after three months of employment with the Bank are
covered as a group for comprehensive hospitalization, including major medical,
long-term disability, accidental death and
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dismemberment insurance. In addition, the Bank maintains a health care and
dependent care reimbursement account plan for employees on a pre-tax basis, for
the payment of medical and dependent care expenses, as well as the payment of
certain insurance premiums.
Benefits
Retirement Plan. The Bank maintains a defined benefit plan (the "Retirement
Plan") for salaried employees who have attained the age of 21 and have completed
one year of service. Benefits vest after a participant is credited with five
years of service. The Retirement Plan is designed to comply with the
requirements under Section 401(a) of the Code.
The Retirement Plan provides for a monthly benefit to the employee upon
retirement at the age of 65, or if later, the fifth anniversary of the
employee's initial participation in the Retirement Plan ("Normal Retirement
Age"). The Retirement Plan also provides for a monthly benefit upon the
Participant's death, disability and early retirement. Early retirement is
conditioned upon the attainment of the age of 55, and the completion by the
Participant of 10 years of service. Benefits under the Plan are determined
taking into account the participant's final average earnings and years of
credited service under the Retirement Plan Benefits are not calculated to
include social security benefits. About the time of the Conversion, the Board
may freeze or reduce the future accrual of benefits under the Retirement Plan in
coordination with the adoption or amendment of other qualified employee benefit
plans.
The following table sets forth the estimated annual benefits payable upon
retirement at age 65 for the year ended December 31, 1995, expressed in the form
of a 10 year certain and continuous benefit, for the final average salary and
benefit service classifications specified.
<TABLE>
<CAPTION>
Ocean Federal Savings Bank Employee Pension Plan
------------------------------------------------
Final Average Years of Service
----------------
Compensation 15 20 25 30 35
- ------------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 7,500 $10,000 $12,500 $15,000 $17,500
100,000 15,000 20,000 25,000 30,000 35,000
150,000 22,500 30,000 37,500 45,000 52,500
200,000 22,500 30,000 37,500 45,000 52,500
250,000 22,500 30,000 37,500 45,000 52,500
300,000 22,500 30,000 37,500 45,000 52,500
350,000 22,500 30,000 37,500 45,000 52,500
</TABLE>
Compensation under the Retirement Income Plan includes all regular pay,
overtime and regular bonuses as set forth under "- Cash Compensation." The
benefit amounts listed above were computed on a 10 year certain and continuous
benefit basis, which is the normal form under the plan. Participants of the
plan, however, have the option of electing benefits to be paid on a single life
annuity basis.
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The approximate years of service, as of December 31, 1995, for the named
executive officers are as follows:
<TABLE>
<CAPTION>
Name Service
---- -------
<S> <C>
John R. Garbarino 24
Michael E. Barrett 8
Michael J. Fitzpatrick 3
John K. Kelly 8
Robert J. Kroner 12
</TABLE>
Employees' Profit Sharing Plan. The Bank maintains the Retirement Plan for
Ocean Federal Savings Bank (the "401(k) Plan"), designed to be qualified under
Section 401(k) of the Code. The 401(k) Plan covers all full-time employees of
the Bank. An employee is eligible to participate in the 401(k) Plan following
the attainment of age 21 and the completion of six months of service (1,000
hours within a twelve-month period) with the Bank. Under the 401(k) Plan,
subject to the limitations imposed under Section 401(k) and Section 415 of the
Code, a participant may elect to defer not more than 15% of his compensation by
directing the Bank to contribute such amount to the 401(k) Plan on such
employee's behalf. The Bank currently makes matching contributions applicable to
its 401(k) Plan equal to 75% of the first 6% of the participant's monthly
contribution. The Board reviews the match on an annual basis. When an Employer
Contribution is made, it will be made in the form of a cash contribution into
the Employer Stock Fund. Twenty-five percent (measured on the first day of each
plan year) of the amount attributable to the Employer Contribution may be
reallocated once per year. "Compensation" for purposes of the 401(k) Plan is
defined as a participant's compensation from the Bank on which federal
withholding would be required, including contributions to the 401(k) Plan by the
employee, and contributions made by the Bank to any other pension, insurance,
welfare or any other employee benefit plan. Under the 401(k) Plan, a separate
account is established for each participant. Participants are always 100% vested
in their contributions and in the earnings thereon. Participants in the 401(k)
Plan become vested at the rate of 20% per year commencing with the second year
of service, in employer contributions and earnings thereon. Participants will
become 100% vested in the employer contributions and earnings thereon in the
event of death, disability or attainment of age 65 while employed by the Bank.
The 401(k) Plan provides for in-service hardship distributions of elective
deferrals. Distributions from the 401(k) Plan are made upon termination of
service in a lump sum or in annual installments over a period of years at the
election of the Participant with the right to take a lump sum payment at any
time during such period.
The 401(k) Plan has been amended to increase the number of investment
options provided to participants, by including an Employer Stock Fund. The
401(k) Plan, as amended, permits participants to direct that all or a portion of
their account be invested in such fund. Each participant who directs the trustee
to invest all or part of his account in the Employer Stock Fund will have assets
in his account applied to the purchase of shares of the Common Stock. A
participant in the 401(k) Plan who elects to purchase Common Stock in the
Conversion through the 401(k) Plan will receive the same subscription priority,
and be subject to the same individual purchase limitations, for such a purchase
as if such participant had elected to purchase Common Stock in the Conversion
using funds not in the 401(k) Plan. See "The Conversion - Limitations on Common
Stock Purchases." As of December 31, 1995, the 401(k) Plan had approximately
$3.6 million in assets.
Supplemental Executive Retirement Plan. The Bank has implemented a non-
qualified Supplemental Executive Retirement Plan ("SERP") to provide a select
group of management and highly compensated employees with additional retirement
benefits. The benefits provided under the SERP will make up the difference
between an amount up to 70% of final base compensation and the benefits provided
from Bank funding of the Bank's tax qualified retirement plan and 401(k) Plan.
In addition, the SERP will provide a benefit equal to the benefit lost from the
ESOP due to the application of limitations imposed by the Code on compensation
and maximum benefits under the ESOP.
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The Bank intends to establish an irrevocable trust in connection with the
SERP. This trust would be funded with contributions from the Bank for the
purpose of providing the benefits promised under the terms of the SERP. The
assets of the trust will be beneficially owned by the SERP participants, who
will recognize income as contributions are made to the trust. Earnings on the
trust's assets are taxable to the participants. The trustee of the trust may
invest the trust's assets in the Company's stock and may purchase life insurance
on the life of the participants with assets of the trust.
Deferred Compensation Plan for Officers. This plan is a non-qualified
arrangement which offers participating officers the opportunity to defer
compensation through a reduction in salary in lieu of a promise of future
benefits. Such benefits are payable commencing at an age mutually agreed upon by
the Bank and the participating officer (the "Benefit Age"). The benefits equal
the account balance of the officer annuitized over a period of time mutually
agreed to by the Bank and the officer and then reannuitized at the beginning of
each calendar year thereafter. Lump sum payouts are also available upon
eligibility for distribution of benefits or in the event of the death of the
officer. The account balance equals deferrals and interest. Currently the plan
credits interest on deferrals at a rate equal to the sum of (i) the "Stable
Fund" investment option in the Bank's qualified 401(k) plan and (ii) 200 basis
points. The plan offers a death benefit which may be funded through the proceeds
of COLI which is equal to the estimated benefit which would have been payable if
the officer had participated in the plan for the entire period up to the Benefit
Age. Early distribution of benefits may occur under certain circumstances which
include change in control, financial hardship, termination for cause or
disability.
Employee Stock Ownership Plan and Trust. The Bank has established for
eligible employees an ESOP and related trust to become effective upon
Conversion. Full-time employees employed with the Bank as of January 1, 1996 and
full-time employees of the Company or the Bank employed after such date, who
have been credited with at least 1,000 hours during a twelve month period and
who have attained the age of twenty-one will become participants. The ESOP
intends to purchase 8% of the Common Stock issued in the Conversion. As part of
the Conversion and in order to fund the ESOP's purchase of the Common Stock to
be issued in the Conversion, the ESOP intends to borrow funds from the Company
equal to 100% of the aggregate purchase price of the Common Stock. In either
case, the loan will be repaid principally from the Company's or the Bank's
contributions to the ESOP over a period of 12 years, provided that such term may
be accelerated or extended and the collateral for the loan will be the Common
Stock purchased by the ESOP. Subject to receipt of any necessary regulatory
approvals or opinions, the Bank may make contributions to the ESOP for repayment
of the loan since the participants are all employees of the Bank or to reimburse
the Company for contributions made by it. Contributions to the ESOP will be
discretionary; however, the Company or the Bank intend to make annual
contributions to the ESOP in an aggregate amount at least equal to the principal
and interest requirement on the debt. The interest rate for the loan is the
prime rate of interest, currently 8.25%. There can be no assurance that the OTS
will permit the Company to make the loan to the ESOP, or guarantee and provide
additional collateral in the event the ESOP loan is obtained from a third party.
Shares purchased by the ESOP will initially be pledged as collateral for
the loan, and will be held in a suspense account until released for allocation
among participants as the loan is repaid. The pledged shares will be released
annually from the suspense account in an amount proportional to the repayment of
the ESOP loan for each plan year. The released shares will be allocated among
the accounts of participants on the basis of the participant's compensation for
the year of allocation. Participants generally become 100% vested in their ESOP
account after five years of credited service or if their service was terminated
due to death, early retirement, permanent disability or a change in control.
Prior to the completion of five years of credited service, a participant who
terminates employment for reasons other than death, retirement, disability, or
change in control of the Bank or Company will not receive any benefit.
Forfeitures will be reallocated among remaining participating employees, in the
same proportion as contributions. Benefits may be payable upon death,
retirement, early retirement, disability or separation from service. The
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
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In connection with the establishment of the ESOP, the Human
Resources/Compensation Committee of the Board of Directors was appointed to
administer the ESOP (the "Committee"). An unrelated corporate trustee for the
ESOP will be appointed prior to the Conversion and continuing thereafter. The
Committee may instruct the trustee regarding investment of funds contributed to
the ESOP. The ESOP trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the instructions of the
participating employees. Under the ESOP, unallocated shares will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock as long as such vote is in
accordance with the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
Stock Option Plans. Following the Conversion, the Board of Directors of the
Company intends to adopt stock-based benefit plans which would provide for the
granting of stock options to eligible officers, employees and directors of the
Company and the Bank. Stock options are intended to be granted under either a
separate stock option plan for officers and employees (the "Incentive Option
Plan") and a separate option plan for outside directors (the "Directors' Option
Plan") (collectively, the "Option Plans") or under a single Master Stock-Based
Benefit Plan which would incorporate the benefits and features of the Incentive
Option Plan, Directors Option Plan and potentially, the Stock Programs described
below. At a meeting of stockholders of the Company following the Conversion,
which under applicable OTS regulations, may be held no earlier than six months
after the completion of the Conversion, the Board of Directors intends to
present the Option Plans or the Master Stock-Based Benefit Plan to stockholders
for approval and has reserved an amount equal to 10.0% of the shares of Common
Stock issued in the Conversion or 729,398 shares (based upon the issuance of
7,293,981 shares), for issuance under the Option Plans or the Master Stock-Based
Benefit Plan. OTS regulations provide that no individual officer or employee of
the Bank may receive more than 25% of the options granted under the Option Plans
or Master Stock-Based Benefit Plan and non-employee directors may not receive
more than 5% individually, or 30% in the aggregate of the options granted under
the Option Plans.
The stock option benefits provided under the Incentive Option Plan or
Master Stock-Based Benefit Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a propriety
interest in the Company as an incentive to contribute to the success of the
Company and reward key employees for outstanding performance. All employees of
the Company and its subsidiaries will be eligible to participate in such plans.
The Incentive Option Plan or Master Stock-Based Benefit Plan will provide for
the grant of: (i) options to purchase the Company's Common Stock intended to
qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) Limited Rights (discussed below) which will be exercisable
only upon a change in control of the Bank or the Company. Unless sooner
terminated, the Incentive Option Plan or Master Stock-Based Benefit Plan will be
in effect for a period of ten years from the earlier of adoption by the Board of
Directors or approval by the Company's Stockholders. Subject to stockholder
approval, the Company intends to grant options with Limited Rights under the
Incentive Option Plan or Master Stock-Based Benefit Plan at an exercise price
equal to the fair market value of the underlying Common Stock on the date of
grant. Upon exercise of "Limited Rights" in the event of a change in control,
the employee will be entitled to receive a lump sum cash payment equal to the
difference between the exercise price of the related option and the fair market
value of the shares of common stock subject to the option on the date of
exercise of the right in lieu of purchasing the stock underlying the option. In
addition, the Company intends to provide a Dividend Equalization Benefit ("DEB")
which will provide option holders a payment equal to the product of (i) the
number of shares upon which options are held, and (ii) the per share amounts of
any extraordinary dividends declared by the Board of Directors. It is
anticipated that all options granted to officers and employees contemporaneously
with stockholder approval of such plans will be intended to be Incentive Stock
Options to the extent permitted under Section 422 of the Code.
Under the Incentive Option Plan, or Master Stock-Based Benefit Plan, it is
expected that the Compensation Committee will determine which officers and
employees will be granted options and Limited Rights, whether such options will
be incentive or non-statutory stock options, the number of shares subject to
each option, the exercise price of each non-statutory stock option, whether such
options may be exercised by
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delivering other shares of Common Stock and when such options become
exercisable. It is expected that the per share exercise price of an incentive
stock option will be required to be at least equal to the fair market value of a
share of Common Stock on the date the option is granted.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is adopted
in the form described above, an employee will not be deemed to have received
taxable income upon grant or exercise of any Incentive Stock Option, provided
that such shares received through the exercise of such option are not disposed
of by the employee for at least one year after the date the stock is received in
connection with the option exercise and two years after the date of grant of the
option. No compensation deduction would be able to be taken by the Company as a
result of the grant or exercise of Incentive Stock Options, provided such shares
are not disposed of before the expiration of the period described above (a
"disqualifying disposition"). In the case of a Non-Statutory Stock Option and in
the case of a disqualifying disposition of an Incentive Stock Option, an
employee will be deemed to receive ordinary income upon exercise of the stock
option in an amount equal to the amount by which the exercise price is exceeded
by the fair market value of the Common Stock purchased by exercising the option
on the date of exercise. The amount of any ordinary income deemed to be received
by an optionee upon the exercise of a Non-Statutory Stock Option or due to a
disqualifying disposition of an Incentive Stock Option would be a deductible
expense for tax purposes for the Company. In the case of Limited Rights, upon
exercise or upon the payment of a DEB, the option holder would have to include
the amount paid to him or her upon exercise in his gross income for federal
income tax purposes in the year in which the payment is made and the Company
would be entitled to a deduction for federal income tax purposes of the amount
paid.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is adopted
in the form described above, stock options would become vested and exercisable
in the manner specified by the Company, subject to applicable OTS regulations,
which require that options begin vesting no earlier than one year from the date
of shareholder approval of the Incentive Option Plan or Master Stock-Based
Benefit Plan and thereafter vest at a rate of no more than 20% per year. Options
granted in connection with the Incentive Option Plan or Master Stock-Based
Benefit Plan could be exercisable for three months following the date on which
the employee ceases to perform services for the Bank or the Company, except that
in the event of death or disability, options accelerate and become fully vested
and may be exercisable for up to one year thereafter or such longer period as
determined by the Company. However, any Incentive Stock Options exercised more
than three months following the date the employee ceases to perform services as
an employee shall be treated as a Non-Statutory Stock Option as described above.
In the event of retirement, any unvested stock options shall be terminated and
remain unearned unless the optionee continues to perform services on behalf of
the Bank, the Company or an affiliate, in which case unvested options would
continue to vest in accordance with their original vesting schedule. If the
Incentive Option Plan or Master Stock-Based Benefit Plan is adopted in the form
described above, in the event of death, disability or normal retirement, the
Company, if requested by the optionee, could elect, in exchange for vested
options, to pay the optionee, or beneficiary in the event of death, the amount
by which the fair market value of the Common Stock exceeds the exercise price of
the options on the date of the employee's termination of employment.
Under the Directors' Option Plan or Master Stock-Based Benefit Plan
contemplated, the exercise price per share of each option granted could be equal
to the fair market value of the shares of Common Stock on the date the option is
granted. All Options granted to outside directors under the Directors' Option
Plan would be Non-Statutory Stock Options and, pursuant to applicable OTS
regulations, would vest and become exercisable commencing one year after the
date of shareholder approval of the Directors Option Plan at the rate of 20% per
year, and would expire upon the earlier of ten years following the date of grant
or one year following the date the optionee ceases to be a director or
consulting director. In the event of the death or disability of a participant,
all previously granted options would immediately vest and become fully
exercisable.
Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of stock options granted under a plan adopted
within one year after conversion. If permitted by OTS regulations in effect at
the time a change in control occurs, the Incentive Option Plan and the Directors
Option Plan or Master Stock-Based Benefit Plan described above would provide for
accelerated vesting of previously
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granted options in the event of a change in control of the Company or the Bank.
A change in control would be defined in the contemplated Incentive Option Plan,
Master Stock-Based Benefit Plan or the Directors' Option Plan generally to occur
when a person or group of persons acting in concert acquires beneficial
ownership of 20% or more of any class of equity security of the Company or the
Bank or in the event of a tender or exchange offer, merger or other form of
business combination, sale of all or substantially all of the assets of the
Company or the Bank or contested election of directors which results in the
replacement of a majority of the Board of Directors by persons not nominated by
the directors in office prior to the contested election.
Stock Programs. Following the Conversion, the Company or the Bank intends
to establish performance based Stock Programs as a method of providing officers,
employees and non-employee directors of the Bank and Company with a proprietary
interest in the Company in a manner designed to encourage such persons to remain
with the Bank or the Company. The benefits intended to be granted under the
Stock Programs may be provided for under either a separate plan for officers and
employees and a separate plan for outside directors or under the Master Stock-
Based Benefit Plan which would incorporate the benefits and features of such
separate Stock Program plans or could additionally include (but not duplicate)
the types of benefits described above in the section captioned "Stock Option
Plans." The Company intends to present the Stock Programs or Master Stock-Based
Benefit Plan for stockholder approval at a meeting of stockholders, which
pursuant to applicable OTS regulations, may be held no earlier than six months
after the completion of the Conversion.
Subject to stockholder approval, the Bank or the Company expects to
contribute funds to the Stock Programs or Master Stock-Based Benefit Plan to
enable such plans to acquire, in the aggregate, an amount equal to 4% of the
shares of common Stock issued in the Conversion, or 291,759 shares (based upon
the issuance of 7,293,981 shares). These shares would be acquired through open
market purchases, if permitted, or from authorized but unissued shares. Although
no specific award determinations have been made, the Company anticipates that,
if stockholder approval is obtained, it would provide awards to its directors
and employees to the extent permitted by applicable regulations. OTS regulations
provide that no individual employee may receive more than 25% of the shares of
any plan and non-employee directors may not receive more than 5% of any plan
individually or 30% in the aggregate for all directors.
The Human Resources/Compensation Committee of the Bank's Board of Directors
would administer the Stock Programs or Master Stock-Based Benefit Plan described
above. The Stock Programs or Master Stock-Based Benefit Plan are expected to be
self-administered for grants or allocations made to non-employee directors,
which would not be performance-based. Under the Stock Programs or Master Stock-
Based Benefit Plan, awards would be granted in the form of shares of Common
Stock held by such plans. Awards will be non-transferable and non-assignable.
The Board intends to appoint an independent fiduciary to serve as trustee of the
trust to be established pursuant to the Stock Programs or Master Stock-Based
Benefit Plan. Allocations and grants to officers and employees under the Stock
Programs or Master Stock-Based Benefit Plan may be made in the form of base
grants and allocations based on performance goals established by the Human
Resources/Compensation Committee. In establishing such goals, the Committee may
utilize the annual financial results of the Company and the Bank, actual
performance of the Company and the Bank as compared to targeted goals such as
the ratio of the Company and the Bank's net worth to total assets, the Company's
and the Bank's return on average assets, or such other performance standard as
determined by the Committee with the approval of the Board of Directors.
Performance allocations would be granted upon the achievement of performance
goals and base grants and performance allocations would vest in annual
installments established by the Committee. Pursuant to applicable OTS
regulations, base grants and allocations will commence vesting one year after
the date of shareholder approval of the plan and thereafter at the rate of 20%
per year.
In the event of death, grants would be 100% vested. In the event of
disability, grants would be 100% vested upon termination of employment of an
officer or employee, or upon termination of service as a director. In the event
of retirement, the participant continues to perform services on behalf of the
Bank, the Company or an affiliate or, in the case of a retiring director, as a
consulting director, unvested grants would continue to vest in accordance with
their original vesting schedule until the recipient ceases to perform such
services at which time any unvested grants would lapse.
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Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of shares granted under the Stock Programs or
Master Stock-Based Benefit Plan described above. If permitted by OTS regulations
at the time a change in control occurs, the Stock Programs or Master Stock-Based
Benefit Plan would provide for accelerated vesting in the event of a change in
control of shares granted under the Stock Programs or Master Stock-Based Benefit
Plan. A change in control is expected to be defined in the Stock Programs or
Master Stock-Based Benefit Plan generally to occur when a person or group of
persons acting in concert acquires beneficial ownership of 20% or more of a
class of equity securities of the Company or the Bank or in the event of a
tender or exchange offer, merger or other form of business combination, sale of
all or substantially all of the assets of the Company or the Bank or contested
election of directors which results in the replacement of a majority of the
Board of Directors by persons not nominated by the directors in office prior to
the contested election.
When shares become vested in accordance with the Stock Programs or Master
Stock-Based Benefit Plan described above, the Participants would recognize
income equal to the fair market value of the Common Stock at that time. The
amount of income recognized by the participants would be a deductible expense
for tax purposes for the Bank and the Company. When shares become vested and are
actually distributed in accordance with the Stock Programs or Master Stock-Based
Benefit Plan, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of grants could
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance and high
performance goals will be voted by the trustee of the Stock Programs or Master
Stock-Based Benefit Plan in proportion to the directions provided with respect
to shares subject to grants. Vested shares are distributed to recipients as soon
as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are acquired by
the Stock Programs or Master Stock-Based Benefit Plan after the Conversion, the
interests of existing shareholders would be diluted. See "Pro Forma Data."
Profit Sharing Bonus Plan. The Bank has maintained a practice of paying a
bonus at the annual direction of the Board of Directors to non-management
employees. The bonus is calculated as a percentage of salary with the percentage
being determined by job classification. It is the policy of the Board not to
approve a bonus for a year when after-tax profits are less than $1.0 million.
Total non-management employee bonuses have varied between 2.7% and 3.6% of
after-tax profits over the last three fiscal years.
Transactions With Certain Related Persons
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, loans made
to a director or executive officer in excess of the greater of $25,000 or 5% of
the Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
The Bank currently makes loans to executive officers and directors on the
same terms and conditions offered to the general public. The Bank's policy
provides that all loans made by the Bank to its executive officers and directors
be made in the ordinary course of business, on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk of
collectibility or present other unfavorable features. The Bank offers to its
other employees loans which are made on substantially the same terms and
conditions offered to the general public with the exception of providing a 100
basis point discount on the interest rate. At December 31, 1995, all loans to
executive officers were made by the Bank in the ordinary course of business,
with no favorable terms, and such loans did not involve more than the normal
risk of collectibility or present unfavorable terms.
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The Company intends that all transactions in the future between the Company
and its executive officers, directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arm's-length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
Subscriptions by Executive Officers and Directors
The following table sets forth the number of shares of Common Stock the
Bank's executive officers and directors propose to purchase, assuming shares of
Common Stock are issued at the minimum and maximum of the Estimated Price Range
and that sufficient shares will be available to satisfy their subscriptions. The
table also sets forth the total expected beneficial ownership of Common Stock as
to all directors and executive officers as a group.
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated Price Range(1) of the Estimated Price Range(1)
------------------------------- -------------------------------
As a Percent As a Percent
Number of Shares Number of Shares
Name Amount of Shares Offered of Shares Offered
- ---------------------------- ---------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
John R. Garbarino $ 325,000 16,250 0.30% 16,250 0.22%
Michael E. Barrett 150,000 7,500 0.14 7,500 0.10
Thomas F. Curtin 225,000 11,250 0.21 11,250 0.15
Carl Feltz, Jr. 50,000 2,500 0.05 2,500 0.03
Roy M. Hyde 250,000 12,500 0.23 12,500 0.17
Robert E. Knemoller 100,000 5,000 0.09 5,000 0.07
Donald E. McLaughlin 25,000 1,250 0.02 1,250 0.02
Frederick E. Schlosser 200,000 10,000 0.19 10,000 0.14
James T. Snyder 225,000 11,250 0.21 11,250 0.15
Michael J. Fitzpatrick 200,000 10,000 0.19 10,000 0.14
John K. Kelly 250,000 12,500 0.23 12,500 0.17
Robert J. Kroner 100,000 5,000 0.09 5,000 0.07
---------- ------ ---- ------ ----
All Directors and Executive
Officers as a group
(12 persons)........ $2,100,000 105,000 1.95% 105,000 1.44%
========== ======= ==== ======= ====
</TABLE>
_______________________
(1) Includes proposed subscriptions, if any, by associates. Also includes
funds from the Bank's 401(k) Plan which may be used to purchase shares of
Common Stock under such plan's new employer stock fund investment option.
See "- Benefits - Employees' Profit Sharing Plan." Does not include
subscription order by the ESOP. The intended purchase by the ESOP is
expected to be 8% of the shares issued in the Conversion. See "-
Directors' Compensation" and "- Executive Compensation."
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK AND THE OTS HAVE APPROVED THE PLAN OF
CONVERSION, SUBJECT TO APPROVAL BY THE MEMBERS OF THE BANK ENTITLED TO VOTE ON
THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH OTS APPROVAL,
HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY SUCH
AGENCY. THE OTS HAS NEITHER APPROVED NOR DISAPPROVED THE ESTABLISHMENT OF THE
OCEAN FEDERAL FOUNDATION.
General
On August 17, 1995, the Bank's Board of Directors unanimously adopted,
subject to approval by the OTS, the Plan, pursuant to which the Bank will be
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank. The Plan was subsequently amended on November 22,
1995, March 20, and May 7, 1996, to provide for, among other things, the
establishment and funding of a charitable foundation in connection with the
Conversion. It is currently intended that all of the outstanding capital stock
of the Bank will be held by the Company, which is incorporated under Delaware
law. The Plan was approved by the OTS, subject to, among other things, approval
of both the Plan and the establishment of the Foundation by the Bank's members.
A special meeting of members has been called for this purpose to be held on
_______________, 1996.
The Company filed an application with the OTS to become a savings bank
holding company and to acquire all of the Common Stock of the Bank to be issued
in the Conversion. The Company plans to retain 50% of the net proceeds from the
sale of the Common Stock and to use the remaining 50% of the net proceeds to
purchase all of the then to be issued and outstanding capital stock of the Bank.
The Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company or the Bank, if the Company's form of
organization is not utilized, to be issued pursuant to the Plan.
The Plan provides that the Board of Directors of the Bank may, at any time
prior to the issuance of the Common Stock and for any reason, decide not to use
a holding company form. Such reasons may include possible delays resulting from
overlapping regulatory processing or policies which could adversely affect the
Bank's or the Company's ability to consummate the Conversion and transact its
business as contemplated herein and in accordance with the Bank's operating
policies. In the event such a decision is made, the Bank will withdraw the
Company's registration statement from the SEC and take steps necessary to
complete the Conversion without the Company, including filing any necessary
documents with the OTS. In such event, and provided there is no regulatory
action, directive or other consideration upon which basis the Bank determines
not to complete the Conversion, if permitted by the OTS, the Bank will issue and
sell the Common Stock of the Bank and subscribers will be notified of the
elimination of a holding company and resolicited (i.e., be permitted to affirm
their orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
funds will be promptly refunded with interest at the Bank's passbook rate of
interest; or be permitted to modify or rescind their subscriptions), and
notified of the time period within which the subscriber must affirmatively
notify the Bank of his intention to affirm, modify or rescind his subscription.
In the event that a holding company form of organization is not used, all other
pertinent terms of the Plan as described below will apply to the conversion of
the Bank from the mutual to stock form of organization and the sale of the
Bank's common stock.
The Plan provides generally that: (i) the Bank will convert from a mutual
savings bank to a capital stock savings bank; (ii) the Company will offer shares
of Common Stock for sale in the Subscription Offering to the Bank's Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, and Other
Members; and (iii) the Company will offer shares for sale in the Community
Offering to certain members of the general public, with preference given to
natural persons residing in Ocean, Middlesex and Monmouth Counties, New Jersey,
subject to the prior rights of holders of subscription rights. It is anticipated
that all shares not subscribed for in the Subscription and Community Offerings
will be offered for sale by the Company to the general public
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in a Syndicated Community Offering. The Bank has the right to accept or reject,
in whole or in part, any orders to purchase shares of the Common Stock received
in the Community Offering or in the Syndicated Community Offering. See "-
Community Offering" and "-Syndicated Community Offering."
The aggregate price of the shares of Common Stock to be offered for sale in
the Conversion within the Estimated Price Range, currently estimated to be
between $107.8 million and $145.9 million, will be determined based upon an
independent appraisal, prepared by RP Financial, of the estimated pro forma
market value of the Common Stock of the Company. All shares of Common Stock to
be issued and sold in the Conversion will be sold at the same price. The
independent appraisal will be affirmed or, if necessary, updated at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
appraisal has been performed by RP Financial, a consulting firm experienced in
the valuation and appraisal of savings institutions. See "- Stock Pricing" for
additional information as to the determination of the estimated pro forma market
value of the Common Stock.
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the Bank
and at the Northeast Region and Washington, D.C. offices of the OTS. The Plan is
also filed as an Exhibit to the Registration Statement of which this Prospectus
is a part, copies of which may be obtained from the SEC. See "Additional
Information."
Establishment of Charitable Foundation
General. In furtherance of the Bank's long-standing commitment to its
local community, the Bank's Plan of Conversion provides for the establishment of
a charitable foundation in connection with the Bank's Conversion. The Plan
provides that the Bank and the Company will establish the Foundation, which was
recently incorporated under Delaware law as a non-stock corporation, and will be
funded with Common Stock of the Company, as further described below. The Company
and the Bank believe that the funding of the Foundation with Common Stock of the
Company is a means of establishing a common bond between the Bank and its
community and thereby enables the Bank's community to share in the growth and
success of the Company over the long term. By further enhancing the Bank's
visibility and reputation in its local community, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise.
The Foundation would be dedicated to charitable purposes within Ocean
County, New Jersey and its neighboring communities, including, but not limited
to, providing housing assistance, scholarships, local education, not-for-profit
medical facilities, assistance to community groups, and other similar types of
organizations or projects. Establishment of the Foundation is subject to the
approval of the Bank's members at the special meeting being held to consider the
Conversion. The Foundation will be considered as a separate matter from approval
of the Plan of Conversion. If the Bank's members approve the Plan of Conversion,
but not the Foundation, the Bank intends to complete the Conversion without the
establishment of the Foundation. Failure to approve the establishment of the
Foundation may materially affect the pro forma market value of the Common Stock.
In such an event, the Bank may establish a new Estimated Price Range and
commence a resolicitation of subscribers. In the event of a resolicitation,
unless an affirmative response is received within a specified period of time,
all funds will be promptly returned to investors, as described elsewhere herein.
See "--Stock Pricing."
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes within Ocean County and its neighboring
communities. The Bank has long emphasized community lending and community
development activities and has received an outstanding Community Reinvestment
Act ("CRA") rating in its last two CRA examinations. The Foundation is being
formed as a complement to the Bank's existing community activities, not as a
replacement for such activities. Indeed, the Bank intends to continue to
emphasize community lending and community development activities following the
Conversion. However, such activities are not the Bank's sole corporate
purpose.
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The Foundation, conversely, will be completely dedicated to community activities
and the promotion of charitable causes, and may be able to support such
activities in ways that are not presently available to the Bank. Since the Bank
has an outstanding record of serving its community under the CRA and already
engages in community development activities, the Bank believes that the
Foundation will enable the Company and the Bank to assist their local community
in areas beyond community development and lending. In this regard, the Board of
Directors believes the establishment of a charitable foundation is consistent
with the Bank's commitment to community service. The Board also believes that
the funding of the Foundation with Common Stock of the Company is a means of
enabling the Bank's community to share in the growth and success of the Company
long after completion of the Conversion. The Foundation accomplishes that goal
by providing for continued ties between the Foundation and Bank, thereby forming
a partnership with the Bank's community. The establishment of the Foundation
would also enable the Company and the Bank to develop a unified charitable
donation strategy and would centralize the responsibility for administration and
allocation of corporate charitable funds. The Bank, however, does not expect the
contribution to the Foundation to take the place of the Bank's traditional
community lending and charitable activities. The Bank expects in future periods
to continue making its ordinary charitable contributions within its communities.
Such ordinary contributions typically range between $32,000 and $40,000 per
year.
Structure of the Foundation. The Foundation has been incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's bylaws,
the Foundation's board of directors initially will be comprised of 19 members, a
majority of whom must be civic and community leaders in the Bank's local
community, who are unaffiliated with either the Bank or the Company, or their
officers and directors ("Disinterested Directors"). The remaining members of the
board of directors will be comprised of existing directors of the Company or the
Bank. A Nominating Committee of the Board, which is to be comprised of a minimum
of any three members of the board, will nominate individuals eligible for
election to the board of directors. The members of the Foundation, who are
comprised of its board members, will elect the directors at the annual meeting
of the Foundation from those nominated by the Nominating Committee. Directors
will be divided into three classes with each class appointed for three-year
terms. While the Disinterested Directors have not been selected as of this time,
all directors will be appointed prior to the contribution to the Foundation of
the Common Stock of the Company pursuant to the qualifications required by the
Foundation's bylaws. It is expected that all of the Company's directors will
serve on the initial board of directors of the Foundation. The bylaws provide
that the size of the Foundation's board of directors will be reduced from
nineteen (19) members to fifteen (15) members over a three-year period by
eliminating two (2) board seats in 1997, one board seat in 1998, and one board
seat in 1999. Following the third annual meeting of the Foundation in 1999, the
board will be comprised of fifteen (15) board members, nine of whom will be
Disinterested Directors and the remaining six members of the board will be
individuals who also serve on the board of directors of the Company. Only
persons serving as directors qualify as members of the Foundation, with voting
authority. The certificate of incorporation of the Foundation provides that the
corporation is organized exclusively for charitable and educational purposes as
set forth in Section 501(c)(3) of the Code. The Foundation's certificate of
incorporation further provides that no part of the net earnings of the
Foundation will inure to the benefit of, or be distributable to its directors,
officers or members.
The members of the Foundation will be the board of directors, a majority of
whom must be Disinterested Directors. The authority for the affairs of the
Foundation will be vested in the board of directors of the Foundation. The
directors of the Foundation will be responsible for establishing the policies of
the Foundation with respect to grants or donations by the Foundation, consistent
with the stated purposes for which the Foundation was established. The directors
will also be responsible for directing the assets of the Foundation, including
the Common Stock of the Company held by the Foundation and the voting of such
Common Stock. Pursuant to the Foundation's bylaws, only a Special Committee of
the board of directors, comprised solely of Disinterested Directors, will be
permitted to direct the timing of any sales of Common Stock held by the
Foundation. Furthermore, there will be no agreements or understandings with
directors of the Foundation regarding the exercise of control, directly or
indirectly, over the management or policies of the Company or the
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Bank, including agreements related to voting, acquisition or disposition of the
Company's stock. As a result, the Company and the Bank cannot exercise control
over the actions and decisions of the Foundation's board of directors. As
directors of a nonprofit corporation, directors of the Foundation will at all
times be bound by their fiduciary duty to advance the Foundation's charitable
goals, to protect the assets of the Foundation and to act in a manner consistent
with the charitable purpose for which the Foundation is established. The
Foundation's place of business will be located at the Bank's administrative
offices and initially the Foundation is expected to have no employees but will
utilize the members of the Bank's staff to provide administrative support
services which are ministerial in nature.
The Company proposes to capitalize the Foundation with Company Common Stock
in an amount equal to 8.0% of the total amount of Common Stock to be issued in
the Conversion. At the minimum, midpoint and maximum of the Estimated Price
Range, the contribution to the Foundation would equal 431,297, 507,407, and
583,519 shares, which would have a market value of $8.6 million, $10.1 million
and $11.7 million, respectively, assuming the Purchase Price of $20 per share.
The Company and the Bank determined to fund the Foundation with Common Stock
rather than cash because it desired to form a bond with its community in a
manner that would allow the community to share in the potential growth and
success of the Company and the Bank over the long term. The funding of the
Foundation with stock also provides the Foundation with a potentially larger
endowment than if the Company contributed cash to the Foundation since, as a
shareholder, the Foundation will share in the potential growth and success of
the Company. As such, the contribution of stock to the Foundation has the
potential to provide a self-sustaining funding mechanism which reduces the
amount of cash that the Company, if it were not making the stock donation, would
have to contribute to the Foundation in future years in order to maintain a
level amount of charitable grants and donations.
The Foundation would receive working capital from any dividends that may be
paid on the Company's Common Stock in the future, and subject to applicable
federal and state laws, loans collateralized by the Common Stock or from the
proceeds of the sale of any of the Common Stock in the open market from time to
time as may be permitted to provide the Foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation, except where the
board of directors of the Foundation, by two-thirds vote, determines that the
failure to sell an amount of common stock greater than such amount would result
in a long-term reduction of the value of the Foundation's assets and as such
would jeopardize the Foundation's capacity to carry out its charitable and
educational purposes. While there may be greater risk associated with a one-
stock portfolio in comparison to a diversified portfolio, the Company believes
any such risk is mitigated by the ability of the Foundation's directors to sell
more than 5% of its stock in such circumstances. Upon completion of the
Conversion and the contribution of shares to the Foundation immediately
following the Conversion, the Company would have 5,822,500, 6,850,000 and
7,877,500 shares issued and outstanding at the minimum, midpoint and maximum of
the Estimated Price Range. Because the Company will have an increased number of
shares outstanding, the voting and ownership interests of shareholders in the
Company's common stock would be diluted by 7.4%, as compared to their interests
in the Company if the Foundation was not established. For additional discussion
of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent accountants that an organization created for the above purposes
would qualify as a 501(c)(3) exempt organization under the Code, and would
likely be classified as a private foundation. In this regard, the Foundation
will submit a request to the IRS to be recognized as an exempt organization. The
application for tax-exempt status will be submitted to the IRS after approval of
the Foundation by the Bank's members at the Special Meeting being held to
consider the Conversion. As long as the Foundation files its application for
tax-exempt status within 15 months from the date of its organization, and
provided the IRS approves the application, the effective date of the
Foundation's status as a Section 501(c)(3) organization will be the date of its
organization.
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A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
Under the Code, the Company may deduct up to 10% of its taxable income in any
one year and any contributions made by the Company in excess of the deductible
amount will be deductible over each of the five succeeding taxable years. The
Company and the Bank believe that the Conversion presents a unique opportunity
to establish and fund a charitable foundation given the substantial amount of
additional capital being raised in the Conversion. The Company and Bank further
believe that the contribution to the Foundation is justified given the Bank's
capital position, the substantial additional capital being raised in the
Conversion and the potential benefits of the Foundation to the Bank's community.
In this regard, assuming the sale of the Common Stock at the midpoint of the
Estimated Price Range, the Company would have pro forma consolidated capital of
$204.0 million or 17.8% of consolidated assets and the Bank's pro forma
tangible, core and risk-based capital ratios would be 12.64%, 12.64% and 30.32%,
respectively. Thus, the Company and the Bank believe that the amount of the
charitable contribution is not significant given the Company and the Bank's pro
forma capital positions and as such, the contribution does not raise safety and
soundness concerns.
The Company and the Bank have received an opinion of their independent
accountants that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company would be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution, subject to a limitation based on 10% of the
Company's annual taxable income. The Company, however, would be able to
carry forward any unused portion of the deduction for six years following the
contribution. Thus, while the Company will only receive a charitable
contribution deduction of approximately $1.6 million in 1996, the Company is
permitted under the Code to carry over the excess contribution over a six-year
period. Assuming the close of the Offerings at the midpoint of the Estimated
Price Range, the Company estimates that substantially all of the deduction
should be deductible over the five-year period. Neither the Company nor the Bank
expect to make any further contributions to the Foundation within the first five
years following the initial contribution. After that time, the Company and the
Bank may consider future contributions to the Foundation. Any such decisions
would be based on an assessment of, among other factors, the financial condition
of the Company and the Bank at that time, the interests of shareholders and
depositors of the Company and the Bank, and the financial condition and
operations of the Foundation.
Although the Company and the Bank have received an opinion of their
independent accountants that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's contribution to the Foundation
would be expensed without tax benefit, resulting in a reduction in earnings in
the year in which the IRS makes such a determination. See "Risk Factors -
Establishment of Charitable Foundation." In cases of willful, flagrant or
repeated acts or failures to act which result in violations of the IRS rules
governing private foundations, a private foundation's status as a private
foundation may be involuntarily terminated by the IRS. In such event, the
managers of a private foundation could be liable for excise taxes based on such
violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information
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return for a private foundation must include, among other things, an itemized
list of all grants made or approved, showing the amount of each grant, the
recipient, any relationship between a grant recipient and the Foundation's
managers and a concise statement of the purpose of each grant.
Establishment of the Foundation is subject to the following conditions
imposed by the OTS: (i) the Foundation will be subject to examination by the
OTS, at its own expense; (ii) the Foundation must comply with supervisory
directives imposed by the OTS; (iii) the Foundation will provide annual reports
to the OTS describing grants made and grant recipients; (iv) the Foundation will
operate in accordance with written policies adopted by the board of directors,
including a conflict of interest policy; and (v) the Foundation will not engage
in self-dealing and will comply with all laws necessary to maintain its tax-
exempt status. In addition, establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the special meeting being held to consider the
Conversion. The Foundation will be considered as a separate matter from approval
of the Plan of Conversion. If the Bank's members approve the Plan of Conversion,
but not the Foundation, the Bank intends to complete the Conversion without the
establishment of the Foundation. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
for sale in the Offering since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation. If
the pro forma market value of the Company without the Foundation is either
greater than $167.8 million or less than $107.8 million, the Bank will establish
a new Estimated Price Range and commence a resolicitation of subscribers (i.e.,
subscribers will be permitted to continue their orders, in which case they will
need to affirmatively reconfirm their subscriptions prior to the expiration of
the resolicitation offering or their subscription funds will be promptly
refunded with interest at the Bank's passbook rate of interest, or be permitted
to decrease, increase or cancel their subscriptions). Any change in the
Estimated Price Range must be approved by the OTS. See " The Conversion -Stock
Pricing." A resolicitation, if any, following the conclusion of the Subscription
and Community Offerings would not exceed 45 days unless further extended by the
OTS for periods of up to 90 days not to extend beyond _______________, 1998.
Purposes of Conversion
The Bank, as a federally chartered mutual savings bank, does not have
shareholders and has no authority to issue capital stock. By converting to the
capital stock form of organization, the Bank will be structured in the form used
by commercial banks, other business entities and a growing number of savings
institutions. The Conversion will enhance the Bank's ability to maintain its
traditional thrift orientation as a provider of residential mortgage products,
access capital markets, expand its current operations by diversifying the
products and services it offers, and acquire and/or establish other financial
institutions or branch offices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Management Strategy" and
"Business of the Bank - Market Area and Competition."
As discussed above, the net Conversion proceeds will also permit the Bank
to increase its presence in the communities it serves through the establishment
or acquisition of branch offices or the acquisition of smaller financial
institutions, although the Bank has no current understandings or agreements for
the acquisition of any specific financial institutions or the acquisition of any
branch offices. For a discussion of the Bank's plans to establish new branch
offices, see "Business of the Bank- Properties."
The holding company form of organization will provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise.
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The potential impact of the Conversion upon the Bank's capital base is
significant. The Bank had equity in accordance with GAAP of $92.4 million, or
8.9% of assets at December 31, 1995. Assuming that $145.9 million (based on the
maximum of the estimated pro forma market value of the Common Stock which has
been estimated by RP Financial to be from a minimum of $107.8 million to a
maximum of $145.9 million) of gross proceeds are realized from the sale of
Common Stock (see "Pro Forma Data" for the basis of this assumption) and
assuming that 50% of the net proceeds are used by the Company to purchase the
capital stock of the Bank, the Bank's ratio of GAAP capital to adjusted assets,
on a pro forma basis, will increase to 13.4% after the Conversion. The
investment of the net proceeds from the sale of the Common Stock will provide
the Bank with additional income to further increase its capital position. The
additional capital may also assist the Bank in offering new programs and
expanded services to its customers.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and regulatory approval of an offering, to
raise additional equity capital through further sales of securities, and to
issue securities in connection with possible acquisitions. At the present time,
the Company has no plans with respect to additional offerings of securities,
other than the issuance of additional shares upon exercise of stock options or
the possible issuance of authorized but unissued shares to the Stock Programs.
Following the Conversion, the Company will also be able to use stock-related
incentive programs to attract and retain executive and other personnel for
itself and its subsidiaries. See "Management of the Bank - Executive
Compensation."
Effects of Conversion
General. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his account, which interest may only
be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, depositors of mutual savings institutions normally have no
way to realize the value of their ownership interest, which has realizable value
only in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time, as owners, would share pro rata in
any residual surplus and reserves after other claims, including claims of
depositors to the amounts of their deposits, are paid.
When a mutual savings institution converts to stock form, permanent non-
withdrawable capital stock is created to represent the ownership of the
institution's net worth. The Common Stock is separate and apart from deposit
accounts and cannot be and is not insured or guaranteed by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
capital stock. The stock certificates are transferable, and therefore the stock
may be sold or traded if a purchaser is available with no effect on any account
the seller may hold in the institution.
Continuity. While the Conversion is being accomplished, the normal business
of the Bank of accepting deposits and making loans will continue without
interruption. The Bank will continue to be subject to regulation by the OTS and
the FDIC. After the Conversion, the Bank will continue to provide services for
depositors and borrowers under current policies by its present management and
staff .
The Directors serving the Bank at the time of Conversion will serve as
Directors of the Bank after the Conversion. The Directors of the Company will
consist of individuals currently serving on the Board of Directors of the Bank.
All officers of the Bank at the time of Conversion will retain their positions
after Conversion.
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Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of Conversion will automatically continue as a depositor after the
Conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the Conversion (i.e., up to
$100,000 per depositor). Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effects on Loans. No loan outstanding from the Bank will be affected by the
Conversion, and the amount, interest rate, maturity and security for each loan
will remain as they were contractually fixed prior to the Conversion.
Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Bank are members of, and have voting rights in, the Bank as to
all matters requiring membership action. Upon Conversion, depositors and
borrowers will cease to be members and will no longer be entitled to vote at
meetings of the Bank. Upon Conversion, all voting rights in the Bank will be
vested in the Company as the sole stockholder of the Bank. Exclusive voting
rights with respect to the Company will be vested in the holders of Common
Stock. Depositors of and borrowers from the Bank will not have voting rights
after the Conversion except to the extent that they become stockholders of the
Company through the purchase of Common Stock.
Tax Effects. The Bank has received an opinion of counsel with regard to
federal and New Jersey state income taxation which indicates that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal or New Jersey tax purposes to the Bank, its Eligible Account
Holders, Supplemental Eligible Account Holders or the Company, except as
discussed below. See "- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings institution were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "-
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a post-Conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.
Stock Pricing
The Plan of Conversion requires that the purchase price of the Common Stock
must be based on the appraised pro forma market value of the Common Stock, as
determined on the basis of an independent valuation. The Bank and the Company
have retained RP Financial to make such valuation. For its services in making
such appraisal, RP Financial will receive a fee of $40,000, plus reasonable
expenses. The Bank and the Company have agreed to indemnify RP Financial and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where RP Financial's liability results from its
negligence or its acting in bad faith.
An appraisal has been made by RP Financial in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
RP Financial also considered the following factors, among others: the present
and projected operating results and financial condition of the Company and the
Bank and the economic and demographic conditions in the Bank's existing
marketing area; certain historical, financial and other information relating to
the Bank; a comparative evaluation of the operating and financial statistics of
the Bank with those of other similarly situated publicly-traded savings banks
and savings institutions located in the Bank's primary market area and the State
of New Jersey; the aggregate size of the offering of the Common Stock; the
impact of Conversion on the Bank's net worth and earnings potential; the
proposed dividend policy of
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the Company and the Bank; and the trading market for securities of comparable
institutions and general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Company and the
Bank that, in its opinion, dated April 26, 1996, the estimated pro forma market
value of the Common Stock being offered for sale in the Offerings ranged from a
minimum of $107.8 million to a maximum of $145.9 million with a midpoint of
$126.9 million. Based upon the Valuation Range and the Purchase Price of $20 per
share for the Common Stock established by the Board of Directors, the Board of
Directors has established the Estimated Price Range of $107.8 million to $145.9
million, with a midpoint of $126.9 million, and the Company expects to issue
between 5,391,203 and 7,293,981 shares of Common Stock. The Board of Directors
of the Company and the Bank have reviewed the appraisal of RP Financial and in
determining the reasonableness and adequacy of such appraisal consistent with
OTS regulations and policies, have reviewed the methodology and reasonableness
of the assumptions utilized by RP Financial in the preparation of such
appraisal.
Such valuation, however, is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares. RP
Financial did not independently verify the Consolidated Financial Statements and
other information provided by the Bank, nor did RP Financial value independently
the assets or liabilities of the Bank. The valuation considers the Bank as a
going concern and should not be considered as an indication of the liquidation
value of the Bank. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing such
shares in the Conversion will thereafter be able to sell such shares at prices
at or above the Purchase Price or in the range of the foregoing valuation of the
pro forma market value thereof. See "Risk Factors - Absence of Market for Common
Stock."
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock to be issued in the Conversion may be increased to
8,388,078 shares due to regulatory considerations, changes in market conditions
or general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a change in the maximum subscription price, would cause RP Financial
to conclude that the value of the Common Stock at the price so determined is
incompatible with its estimate of the pro forma market value of the Common Stock
at the conclusion of the Subscription and Community Offerings.
If, based on RP Financial's estimate, the pro forma market value of the
Common Stock as of such date is not more than 15% above the maximum and not less
than the minimum of the Estimated Price Range then, (1) with the approval of the
OTS, the number of shares of Common Stock to be issued in the Conversion may be
increased or decreased, pro rata to the increase or decrease in value, without
resolicitation of subscriptions, to no more than 8,388,078 shares or no less
than 5,391,203 shares; and (2) all shares purchased in the Subscription and
Community Offerings will be purchased for the Purchase Price of $20 per share.
If the number of shares issued in the Conversion is increased due to an increase
of up to 15% in the Estimated Price Range to reflect regulatory considerations,
changes in market conditions or general financial and economic conditions,
persons who subscribed for the maximum number of shares will not be given the
opportunity to subscribe for an adjusted maximum number of shares, except for
the ESOP which will be able to subscribe for such adjusted amount. See
"- Limitations on Common Stock Purchases."
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If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the Company, after consulting with the OTS,
may terminate the Plan and return all funds promptly with interest at the Bank's
passbook rate of interest on payments made by check, bank draft or money order,
extend or hold a new Subscription and Community Offering, establish a new
Estimated Price Range, commence a resolicitation of subscribers or take such
other actions as permitted by the OTS in order to complete the Conversion. In
the event that a resolicitation is commenced, unless an affirmative response is
received within a reasonable period of time, all funds will be promptly returned
to investors as described above. A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45 days
unless further extended by the OTS for periods of up to 90 days not to extend
beyond _______________, 1998.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, and in the event that the Board of Directors determines to
offer additional shares, then the Bank and the Company may offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offering subject to prior
rights of subscribers. All shares of Common Stock will be sold at the same price
per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "- Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause RP
Financial to conclude that the aggregate value of the Common Stock at the
Purchase Price is incompatible with its estimate of the pro forma market value
of the Common Stock of the Company at the time of the Syndicated Community
Offering. Any change which would result in an aggregate purchase price which is
below or more than 15% above the Estimated Price Range would be subject to OTS
approval. If such confirmation is not received, the Bank may extend the
Conversion, extend, reopen or commence new Subscription and Community Offerings
or Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the OTS or
take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range, and the Company and the Bank determine to
continue the Conversion, subscribers will be resolicited (i.e., be permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to decrease or cancel their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. A resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days, or if following the Syndicated
Community Offering, 90 days, unless further extended by the OTS for periods up
to 90 days not to extend beyond _______________, 1998. If such resolicitation is
not effected, the Bank will return all funds promptly with interest at the
Bank's passbook rate of interest on payments made by check, bank draft or money
order.
Copies of the appraisal report of RP Financial, including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Bank and the other locations specified under "Additional
Information."
Number of Shares to be Issued
Depending upon market or financial conditions following the commencement of
the Subscription and Community Offerings, the total number of shares to be
issued in the Conversion may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the price per
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share is not below the minimum or more than 15% above the maximum of the
Estimated Price Range, and the total number of shares to be issued in the
Conversion is not less than 5,391,203 or greater than 7,293,981 (or 8,388,078 if
the Estimated Price Range is increased by 15%).
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of such range, if the Plan is not
terminated by the Company and the Bank after consultation with the OTS,
purchasers will be resolicited (i.e., permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded, or be permitted to modify or rescind their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. If the number of shares issued in the Conversion is increased due to an
increase of up to 15% in the Estimated Price Range to reflect changes in market
or financial condition, persons who subscribed for the maximum number of shares
will not be given the opportunity to subscribe for an adjusted maximum number of
shares, except for the ESOP which will be able to subscribe for such adjusted
amount. See "- Limitations on Common Stock Purchases. "
The number of shares to be issued and outstanding following the Conversion
may be increased by a number of shares equal to 8% of the Common Stock issued in
the Conversion to fund the Foundation. Assuming the sale of shares in the
Offerings at the maximum of the Estimated Price Range, the Company will issue
583,519 shares of its Common Stock from authorized but unissued shares to the
Foundation immediately following the completion of the Conversion. In that
event, the Company will have total shares of Common Stock outstanding of
7,877,500 shares. Of that amount, the Foundation will own 7.4%. Funding the
Foundation with authorized but unissued shares will have the effect of diluting
the ownership and voting interests of persons purchasing shares in the
Conversion by 7.4% since a greater number of shares will be outstanding upon
completion of the Conversion than would be if the Foundation were not
established. See "Pro Forma Data."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
qualifying deposit accounts with a balance of $50 or more as of July 31, 1994
("Eligible Account Holders"); (2) the ESOP; (3) holders of qualifying deposit
accounts with a balance of $50 or more as of March 31, 1996 ("Supplemental
Eligible Account Holders"); and (4) members of the Bank, consisting of
depositors of the Bank as of ____________, the Voting Record Date, and borrowers
with loans outstanding as of April 12, 1989 which continue to be outstanding as
of the Voting Record Date other than Eligible Account Holders and Supplemental
Eligible Account Holders ("Other Members"). All subscriptions received will be
subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion and as described below under "- Limitations on Common Stock
Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, non-transferable subscription
rights to subscribe for in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering, currently $200,000
of the Common Stock offered; one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or fifteen times the product (rounded down
to
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the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the Eligible Account Holder's qualifying deposit and the denominator is the
total amount of qualifying deposits of all Eligible Account Holders, in each
case on the Eligibility Record Date, subject to the overall purchase limitation
and exclusive of an increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "- Limitations on Common Stock
Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common Stock shall be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the qualifying deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the qualifying deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Eligible Account
Holders whose subscriptions are still not fully satisfied, exclusive of any
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also directors or officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding July 31, 1994.
Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, non-transferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Conversion, including any increase in the
number of shares of Common Stock to be issued in the Conversion after the date
hereof as a result of an increase of up to 15% in the maximum of the Estimated
Price Range. The ESOP intends to purchase 8% of the shares to be issued in the
Conversion, or 431,296 shares and 583,519 shares, based on the issuance of
5,391,203 shares and 7,293,981 shares, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Common Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's directors,
officers, employees or associates thereof. See "Management of the Bank -
Benefits - Employee Stock Ownership Plan and Trust."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
non-transferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $200,000 of the Common Stock offered; one-tenth of
one percent (.10%) of the total offering of shares of Common Stock; or fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's qualifying deposit and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on Common
Stock Purchases."
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In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of such shares eligible for subscription, the shares of Common
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Common Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder. Any
shares remaining after that allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the qualifying deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the qualifying deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Supplemental Eligible
Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied, exclusive of any increase in the shares issued
pursuant to an increase in the Estimated Price Range of up to 15%.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.
Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority non-transferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
amount permitted to be purchased in the Community Offering, currently $200,000
of the Common Stock offered; one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; subject to the overall purchase limitation
and exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range of up to 15%.
In the event that Other Members subscribe for a number of shares of
Conversion Stock which, when added to the shares of Conversion Stock subscribed
for by the Eligible Account Holders, the Employee Plans and the Supplemental
Eligible Account Holders is in excess of the total number of shares of
Conversion Stock being issued, the subscriptions of such Other Members will be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more remaining
Other Members, the excess shall be reallocated (one or more times as necessary)
among those remaining Other Members whose subscriptions are still not fully
satisfied on the same principle until all available shares have been allocated
or all subscriptions satisfied.
To ensure proper allocation of stock, each Other Member must list on his
subscription order form all accounts in which he has an ownership interest.
Failure to list an account could result in less shares being allocated than if
all accounts had been disclosed. The subscription rights received by Eligible
Account Holders and Supplemental Eligible Account Holders will be applied in
partial satisfaction to the subscription rights to be received as an Other
Member.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire on _______________, 1996, unless extended for up to 45 days by the
Bank or such additional periods with the
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approval of the OTS. Subscription rights which have not been exercised prior to
the Expiration Date will become void.
The Bank will not execute orders until all shares of Common Stock have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the Subscription Expiration Date, unless such period
is extended with the consent of the OTS, all funds delivered to the Bank
pursuant to the Subscription Offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be cancelled.
If an extension beyond the 45 day period following the Subscription Expiration
Date is granted, the Bank will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions. Such
extensions may not go beyond _______________, 1998.
Community Offering
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Bank has determined to offer
shares pursuant to the Plan to certain members of the general public. Any excess
of shares available will be available for purchase by the general public, with
preference given to natural persons (such natural persons referred to as
"Preferred Subscribers") residing in Ocean, Middlesex and Monmouth Counties, the
counties served by the Bank, subject to the right of the Company to accept or
reject any such orders, in whole or in part, in their sole discretion. Such
persons, together with associates of and persons acting in concert with such
persons, may purchase up to the number of the shares offered in the Subscription
and Community Offerings that could be purchased for $200,000 at the Purchase
Price, subject to the maximum purchase limitation and exclusive of shares issued
pursuant to an increase in the Estimated Price Range by up to 15%. See
"- Limitations on Common Stock Purchases." This amount may be increased to up to
a maximum of 5% or decreased to less than the number of shares that could be
purchased for $200,000 at the Purchase Price at the sole discretion of the
Company and the Bank. The opportunity to subscribe for shares of Common Stock in
the Community Offering category is subject to the right of the Bank and the
Company, in its sole discretion, to accept or reject any such orders in whole or
in part either at the time of receipt of an order or as soon as practicable
following the Expiration Date.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of Preferred Subscribers after completion of the Subscription
and Community Offerings and the filling of institutional orders, such stock will
be allocated first to each Preferred Subscriber whose order is accepted by the
Bank, in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such Preferred Subscriber, if possible. Thereafter,
unallocated shares will be allocated among the Preferred Subscribers whose
orders remain unsatisfied on a 100 shares per order basis until all such orders
have been filled or the remaining shares have been allocated. If there are any
shares remaining, shares will be allocated to other persons of the general
public who purchase in the Community Offering applying the same allocation
described above for Preferred Subscribers.
Persons in Non-qualified States or Foreign Countries. The Company and the
Bank will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. However, the Bank and the Company are not required
to offer stock in the Subscription Offering to any person who resides in a
foreign country or resides in a state of the United States with respect to which
(i) a small number of persons otherwise eligible to subscribe for shares of
Common Stock reside in such state; or (ii) the Company or the Bank determines
that compliance with the securities laws of such state would be impracticable
for reasons of cost or otherwise, including but not limited to a request that
the Company and the Bank or their officers, directors or trustees register as a
broker, dealer, salesman or selling agent, under the securities laws of such
state, or a request to register or otherwise qualify the subscription rights or
Common Stock for sale or submit any filing with respect thereto in such state.
Where the number of persons eligible to subscribe for shares in one state is
small, the Bank and the Company will base their decision as to whether or not to
offer the Common Stock in such state on a number of factors, including the
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size of accounts held by account holders in the state, the cost of registering
or qualifying the shares or the need to register the Company, its officers,
directors or employees as brokers, dealers or salesmen.
Marketing and Underwriting Arrangements
The Bank and the Company have engaged Sandler O'Neill as a consultant and
financial advisor in connection with the offering of the Common Stock and
Sandler O'Neill has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Based upon
negotiations between the Bank and the Company concerning fee structure, Sandler
O'Neill will receive a fee equal to 1.75% of the aggregate Purchase Price of
Common Stock sold in the Subscription and Community Offerings. No fees will be
paid to Sandler O'Neill on subscriptions by any director, officer or employee of
the Bank or the Company or members of their immediate families or the employee
plans. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Bank will pay a fee to such
selected dealer, any sponsoring dealers fees, and a management fee to Sandler
O'Neill of 1.5% for shares sold by an NASD member firm pursuant to a selected
dealers agreement; provided, however, that any fees payable to Sandler O'Neill
for Common Stock sold by them pursuant to such a selected dealers agreement
shall not exceed 1.75% of the Purchase Price and that the aggregate fees payable
to Sandler O'Neill and selected dealers shall not exceed 7.0% of the Purchase
Price. Fees paid to Sandler O'Neill and to any other broker-dealer may be deemed
to be underwriting fees and Sandler O'Neill and such broker-dealers may be
deemed to be underwriters. Sandler O'Neill will also be reimbursed for its
reasonable out-of-pocket expenses, including legal fees, in an amount not to
exceed $100,000. Notwithstanding the foregoing, in the event the Offerings are
not consummated or Sandler O'Neill ceases, under certain circumstances after the
subscription solicitation activities are commenced, to provide assistance to the
Company, Sandler O'Neill will be entitled to a fee for its management advisory
services in an amount to be agreed upon by the Bank and Sandler O'Neill, and
based upon the amount of services performed by Sandler O'Neill and will also be
reimbursed for its reasonable out-of-pocket expenses as described above. The
Company and the Bank have agreed to indemnify Sandler O'Neill for reasonable
costs and expenses in connection with certain claims or liabilities, including
certain liabilities under the Securities Act. Sandler O'Neill has received
advances towards its fees totalling $50,000. Total marketing fees to Sandler
O'Neill are expected to be approximately $1,699,217 and $2,311,912 at the
minimum and the maximum of the Estimated Price Range, respectively. See "Pro
Forma Data" for the assumptions used to arrive at these estimates.
Sandler O'Neill will also perform conversion and records management
services for the Bank in the Conversion and will receive a fee for this
service of $40,000, plus reimbursement of reasonable out-of-pocket expenses
to be billed to the Bank.
Directors and executive officers of the Company and Bank may participate in
the solicitation of offers to purchase Common Stock. Other employees of the Bank
may participate in the Offering in ministerial capacities or providing clerical
work in effecting a sales transaction. Other questions of prospective purchasers
will be directed to executive officers or registered representatives. Such other
employees have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock. The Company will rely on
Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be conducted
within the requirements of Rule 3a4-1, so as to permit officers, directors and
employees to participate in the sale of Common Stock. No officer, director or
employee of the Company or the Bank will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Stock.
Procedure for Purchasing Shares in Subscription and Community Offerings
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
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To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the Bank's
deposit account (which may be given by completing the appropriate blanks in the
stock order form), must be received by the Bank at any of its offices by 12:00
noon, Eastern Time, on the Expiration Date. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted. In addition, the Bank is not obligated to accept orders submitted on
photocopied or facsimilied stock order forms and will not accept stock order
forms unaccompanied by an executed certification form. Notwithstanding the
foregoing, the Company shall have the right, in its sole discretion, to permit
institutional investors to submit irrevocable orders together with a legally
binding commitment for payment and to thereafter pay for the shares of Common
Stock for which they subscribe in the Community Offering at any time prior to 48
hours before the completion of the Conversion. The Company and the Bank have the
right to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that they will do so. Once received, an executed
stock order form may not be modified, amended or rescinded without the consent
of the Bank unless the Conversion has not been completed within 45 days after
the end of the Subscription and Community Offerings, unless such period has been
extended.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank; (ii) by check, bank draft or money order; or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Conversion. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date of
the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be cancelled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the passbook rate.
The ESOP and the employee plans will not be required to pay for the shares
subscribed for at the time it subscribes, but rather, may pay for such shares of
Common Stock subscribed for at the Purchase Price upon consummation of the
Conversion.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Common Stock in the Subscription and
Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with self-directed IRAs maintained at the Bank must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Common Stock in the Subscription and Community Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and ten
percent shareholders who use self-directed IRA funds to purchase shares of
Common Stock in the Subscription and Community Offerings, make such purchases
for the exclusive benefit of the IRAs.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the last address of such persons appearing on the records of
the Bank, or to such other address as may be specified in properly completed
stock order forms, as soon as practicable following consummation of the sale of
all shares of Common Stock. Any certificates returned as undeliverable will be
disposed of in accordance with applicable law.
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Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, the ESOP, the Supplemental Eligible Account Holders and Other Members
of the Bank, from transferring or entering into any agreement or understanding
to transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Such rights may be exercised only by the person to whom they are granted and
only for his account. Each person exercising such subscription rights will be
required to certify that he is purchasing shares solely for his own account and
that he has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.
The Bank and the Company will pursue any and all legal and equitable
remedies (including forfeiture) in the event they become aware of the transfer
of subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Syndicated Community Offering
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company and
the Bank reserve the right to reject orders in whole or part in their sole
discretion in the Syndicated Community Offering. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than the total number of shares offered in the
Conversion that could be purchased for $200,000 at the Purchase Price, exclusive
of an increase in shares issued pursuant to an increase in the Estimated Price
Range of up to 15%; provided, however, that shares of Common Stock purchased in
the Community Offering by any persons, together with associates of or persons
acting in concert with such persons, will be aggregated with purchases in the
Syndicated Community Offering and be subject to an overall maximum purchase
limitation of 1.0% of the shares offered, exclusive of an increase in shares
issued pursuant to an increase in the Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to
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purchase. Those indicating an intent to purchase shall execute order forms and
forward them to their selected dealer or authorize the selected dealer to
execute such forms. The selected dealer will acknowledge receipt of the order to
its customer in writing on the following business day and will debit such
customer's account on the fifth business day after the customer has confirmed
his intent to purchase (the "debit date") and on or before noon of the next
business day following the debit date will send order forms and funds to the
Bank for deposit in a segregated account. Although purchasers' funds are not
required to be in their accounts with selected dealers until the debit date in
the event that such alternative procedure is employed once a confirmation of an
intent to purchase has been received by the selected dealer, the purchaser has
no right to rescind his order.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond _______________,
1998. See "- Stock Pricing" above for a discussion of rights of subscribers, if
any, in the event an extension is granted.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of the amount permitted to be
purchased in the Community Offering, currently the number of shares of
the Common Stock offered that could be purchased for $200,000 at the
Purchase Price; one-tenth of one percent(.10%) of the total offering of
shares of Common Stock; or fifteen times the product (rounded down to
the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the qualifying deposit of the Eligible
Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in each case on the
Eligibility Record Date subject to the overall maximum limitation in
(8) below and exclusive of an increase in the total number of shares
issued due to an increase in the Estimated Price Range of up to
15%;
(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Conversion, including shares
issued in the event of an increase in the Estimated Price Range of 15%,
and intends to purchase 8% of the shares of Common Stock issued in the
Conversion;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently the
number of shares of the Common Stock offered that could be purchased
for $200,000 at the Purchase Price; one-tenth of one percent (.10%) of
the total offering of shares of Common Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying
the total number of shares of Common Stock to be issued by a fraction
of which the numerator is the amount of the qualifying deposit of the
Supplemental Eligible Account Holder and the denominator is the total
amount of qualifying deposits of all Supplemental Eligible Account
Holders in such case on the Supplemental Eligibility Record Date
subject to the overall limitation in (8) below and exclusive of an
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increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%;
(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of the amount permitted to be purchased in
the Community Offering, currently the number of shares of the Common
Stock offered that could be purchased for $200,000 at the Purchase
Price, or one-tenth of one percent (.10%) of the total offering of
shares of Common Stock, subject to the overall limitation in (8) below
and exclusive of an increase in the total number of shares issued due
to an increase in the Estimated Price Range of up to 15%;
(6) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to the
number of shares of the Common Stock offered in the Conversion that
could be purchased for $200,000 at the Purchase Price, subject to the
overall limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(7) Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert
with such persons, may purchase in the Syndicated Offering up to the
number of the shares of Common Stock offered in the Conversion that
could be purchased for $200,000 at the Purchase Price, subject to the
overall limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated Price
Range of up to 15% and, provided further that shares of Common Stock
purchased in the Community Offering by any persons, together with
associates of and persons acting in concert with such persons, will be
aggregated with purchases in the Syndicated Community Offering in
applying the $200,000 purchase limitation.
(8) Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members may purchase stock in the Community Offering and
Syndicated Community Offering subject to the purchase limitations
described in (6) and (7) above, provided that, except for the ESOP, the
maximum number of shares of Common Stock subscribed for or purchased in
all categories of the Conversion by any person, together with
associates of and groups of persons acting in concert with such
persons, shall not exceed 1.0% of the shares of Common Stock offered in
the Conversion, exclusive of an increase in the total number of shares
issued due to an increase in the Estimated Price Range of up to 15%;
and
(9) No more than 25% of the total number of shares offered for sale in the
Conversion may be purchased by directors and officers of the Bank and
their associates in the aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5% at
the sole discretion of the Company and the Bank. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit. In addition, the Boards of
Directors of the Company and the Bank may, in their sole discretion, increase
the overall maximum purchase limitation referred to above up to 9.99%, provided
that orders for shares exceeding 5% of the shares being offered in the
Subscription and Community Offerings shall not exceed, in the aggregate, 10% of
the shares being offered in the Subscription and Community Offerings. Requests
to purchase additional shares of Common Stock under this provision will be
determined by
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the Boards of Directors and, if approved, allocated on a pro rata basis giving
priority in accordance with the priority rights set forth herein.
The overall maximum purchase limitation may not be reduced to less than
1.0%, but the individual amount permitted to be subscribed for may be reduced by
the Bank to less than $200,000, subject to paragraphs (2), (4) and (5) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may not purchase individually in the Subscription Offering the
overall maximum purchase limit of 1.0% of the shares offered, but may make such
purchase, together with associates of and persons acting in concert with such
person, by also purchasing in other available categories of the Conversion,
subject to availability of shares and the maximum overall purchase limit for
purchases in the Conversion.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the Adjusted Maximum number of shares; (ii) in the event
that there is an oversubscription by Eligible Account Holders, to fill
unfulfilled subscriptions of Eligible Account Holders exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members exclusive of the Adjusted Maximum; and (v) to
fill unfulfilled subscriptions in the Community Offering to the extent possible
exclusive of the Adjusted Maximum with preference to Preferred Subscribers.
The term "associate" of a person is defined to mean: (i) any corporation
(other than the Bank or a majority-owned subsidiary of the Bank) of which such
person is an officer, partner or 10% stockholder; (ii) any trust or other estate
in which such person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity; provided, however, such term shall
not include any employee stock benefit plan of the Bank in which such person has
a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person, or any
relative of such spouse, who either has the same home as such person or who is a
director or officer of the Bank. Directors are not treated as associates of each
other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Management of the Bank -
Subscriptions by Executive Officers and Directors," "- Certain Restrictions on
Purchase or Transfer of Shares After Conversion" and "Restrictions on
Acquisition of the Company and the Bank."
Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its present
mutual form, each depositor would receive his pro rata share of any assets of
the Bank remaining after payment of claims of all creditors (including the
claims of all depositors to the withdrawal value of their accounts). Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his deposit account was to the total value of all
deposit accounts in the Bank at the time of liquidation. After the Conversion,
each depositor, in the event of a complete liquidation, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Bank as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder, if he were to
continue to maintain his deposit account at the Bank, would be entitled, on a
complete liquidation of the Bank after the Conversion, to an interest in the
liquidation account prior to any
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payment to the stockholders of the Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including regular accounts,
transaction accounts such as NOW accounts, money market deposit accounts, and
certificates of deposit, with a balance of $50 or more held in the Bank on July
31, 1994 and March 31, 1996, respectively ("Qualifying Deposit"). Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his Deposit Accounts based
on the proportion that the balance of each such Deposit Account on the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
bore to the total amount of all Deposit Accounts of all Eligible Account Holders
and Supplemental Eligible Account Holders in the Bank. For deposit accounts in
existence at both dates separate subaccounts shall be determined on the basis of
the Qualifying Deposits in such deposit accounts on such record date.
If, however, on any annual closing date of the Bank, subsequent to the
Eligibility Record Date or Supplement Eligibility Record Date, the amount of the
Qualifying Deposit is less than the amount in such Qualifying Deposit as of the
Eligibility Record Date or the Supplemental Eligibility Record Date,
respectively, or less than the amount of the Qualifying Deposit as of the
previous annual closing date, then the interest in the liquidation account
relating to such Qualifying Deposit would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
Qualifying Deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related Qualifying Deposit. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole stockholder of the
Bank.
Tax Aspects
Consummation of the Conversion is expressly conditioned upon the receipt by
the Bank of either a favorable ruling from the IRS or an opinion of counsel with
respect to federal income taxation and New Jersey income and franchise taxation,
to the effect that the Conversion, including establishment of the Foundation,
will not be a taxable transaction to the Company, the Bank, Eligible Account
Holders, or Supplemental Eligible Account Holders except as noted below. The
federal and New Jersey income and franchise tax consequences will remain
unchanged in the event that a holding company form of organization is not
utilized.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, to the effect that for federal income tax purposes,
among other matters: (i) the Bank's change in form from mutual to stock
ownership will constitute a reorganization under section 368(a)(1)(F) of the
Code and neither the Bank nor the Company will recognize any gain or loss as a
result of the Conversion; (ii) no gain or loss will be recognized to the Bank or
the Company upon the purchase of the Bank's capital stock by the Company or to
the Company upon the purchase of its Common Stock in the Conversion; (iii) no
gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the issuance to them of Deposit Accounts in the
Bank in its stock form plus their interests in the liquidation account in
exchange for their deposit accounts in the Bank; (iv) the tax basis of the
depositors' deposit accounts in the Bank immediately after the Conversion will
be the same as the basis of their deposit accounts immediately prior to the
Conversion; (v) the tax basis of each Eligible Account Holder's and Supplemental
Eligible Account Holder's interest in the liquidation account will be zero; (vi)
no gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the distribution to them of non-transferable
subscription rights to purchase shares of the Common Stock, provided that the
amount to be paid for the Common Stock is equal to the fair market value of such
stock; and (vii) the tax basis to the stockholders of the Common Stock of the
Company purchased in the Conversion will be the amount paid therefore and the
holding period for the shares of Common Stock purchased by such persons will
begin on the date on which their subscription rights are exercised. Muldoon,
Murphy & Faucette has also opined that the Conversion will not be a taxable
transaction to the Company, the Bank, Eligible Account Holders or Supplemental
Eligible Account Holders for New Jersey income and/or franchise tax purposes.
Certain portions of both the federal and the state tax opinions are based upon
the assumption that the subscription rights issued in connection with the
Conversion will have no value. The Company and the Bank have received a letter
issued by
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RP Financial stating that, pursuant to RP Financial's valuation, RP Financial is
of the belief that the subscription rights issued in connection with the
Conversion will have no value.
Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
RP Financial has issued a letter stating that, pursuant to its valuation,
RP Financial is of the belief that the subscription rights do not have any
value, based on the fact that such rights are acquired by the recipients without
cost, are non-transferable and of short duration, and afford the recipients the
right only to purchase the Common Stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the
unsubscribed shares of Common Stock. Such valuation is not binding with the IRS.
If the subscription rights granted to Eligible Account Holders or Supplemental
Eligible Account Holders are deemed to have an ascertainable value, receipt of
such rights could result in taxable gain to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Bank could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
Interpretation and Amendment of the Plan of Conversion
To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the discretion to interpret and apply the provisions of the Plan to particular
circumstances and that such interpretation or application shall be final. This
includes any and all interpretations, applications and determinations made by
the Board of Directors on the basis of such information and assistance as was
then reasonably available for such purpose.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors. After submission of the proxy materials to the
members, the Plan may be amended by a two-thirds vote of the Board of Directors
at any time prior to the Special Meeting with the concurrence of the OTS. The
Plan may be amended at any time after the approval of members with the approval
of the OTS and no further approval of the members will be necessary unless
otherwise required by the OTS. By adoption of the Plan, the Bank's members will
be deemed to have authorized amendment of the Plan under the circumstances
described above.
The establishment of the Foundation will be considered as a separate matter
from approval of the Plan of Conversion. If the Bank's members approve the Plan
of Conversion, but not the creation of the Foundation, the Bank intends to
complete the Conversion without the Foundation. Failure to approve the
establishment of the Foundation may materially increase the pro forma market
value of the Common Stock since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation. In
such an event, the Bank may establish a new Estimated Price Range and commence a
resolicitation of subscribers. In the event of a resolicitation, unless an
affirmative response is received within a specified period of time, all funds
will be promptly returned to investors, as described elsewhere herein. See " --
Stock Pricing."
Certain Restrictions on Purchase or Transfer of Shares After Conversion
All shares of Common Stock purchased in connection with the Conversion by a
director or an executive officer of the Bank will be subject to a restriction
that the shares not be sold for a period of one year following the Conversion,
except in the event of the death of such director or executive officer. Each
certificate for restricted shares will bear a legend giving notice of this
restriction on transfer, and instructions will be issued to the effect that any
transfer within such time period of any certificate or record ownership of such
shares other
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than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and executive officers of the Bank will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act and any other
applicable requirements of the federal securities laws.
Purchases of outstanding shares of Common Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to the purchase of stock pursuant to the Incentive Stock Option
Plan and the Stock Option Plan for Outside Directors to be established after the
Conversion.
Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
except (i) for an offer to all stockholders on a pro rata basis; or (ii) for the
repurchase of qualifying shares of a director. Notwithstanding the foregoing and
except as provided below, beginning one year following completion of the
Conversion the Company may repurchase its Common Stock so long as (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a twelve-
month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following Conversion provided there are valid and compelling business reasons
for such repurchases and the OTS does not object to such repurchases.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE BANK
General
The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and, in connection therewith, a new
Federal Stock Charter and Bylaws to be adopted by members of the Bank. The Plan
also provides for the concurrent formation of a holding company, which form of
organization may or may not be utilized at the option of the Board of Directors
of the Bank. See "The Conversion -General." In the event that the holding
company form of organization is utilized, as described below, certain provisions
in the Company's Certificate of Incorporation and Bylaws and in its management
remuneration entered into in connection with the Conversion, together with
provisions of Delaware corporate law, may have anti-takeover effects. In the
event that the holding company form of organization is not utilized, the Bank's
Stock Charter and Bylaws and management remuneration entered into in connection
with the Conversion may have anti-takeover effects as described below. In
addition, regulatory restrictions may make it difficult for persons or companies
to acquire control of either the Company or the Bank.
Restrictions in the Company's Certificate of Incorporation and Bylaws
A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which shareholders may receive a
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substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current Board of Directors or management of the Company more difficult.
The following description of certain of the provisions of the Certificate of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each case to such Certificate of Incorporation and Bylaws,
which are incorporated herein by reference. See "Additional Information" as to
how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Company or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned, or deemed by the Company to be beneficially
owned, by such person and his affiliates. The Certificate of Incorporation of
the Company further provides that this provision limiting voting rights may only
be amended upon the vote of 80% of the outstanding shares of voting stock (after
giving effect to the limitation on voting rights).
Board of Directors. 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 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 fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 55 million (55,000,000) shares of Common Stock and five million
(5,000,000) shares of Preferred Stock. The shares of Common Stock and Preferred
Stock were authorized in an amount greater than that to be issued in the
Conversion to provide the Company's Board of Directors with as much flexibility
as possible to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of the Company. The
Board of Directors also has sole authority to determine the terms
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of any one or more series of Preferred Stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of Preferred Stock
to persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. The Company's Board of
Directors currently has no plans for the issuance of additional shares, other
than the issuance of additional shares pursuant to the terms of the Stock
Programs and upon exercise of stock options to be issued pursuant to the terms
of the Incentive Stock Option Plan and the Stock Option Plan for Outside
Directors, all of which are to be established and presented to stockholders at
the first annual meeting after the Conversion.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
by a majority of those members of the Company's Board of Directors who are
unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 25% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Bank are purchasing in the aggregate approximately 1.4% of the
shares of the Common Stock at the maximum of the Estimated Price Range. In
addition, the ESOP intends to purchase 8% of the Common Stock sold in the
Conversion. Additionally, if at a meeting of stockholders following the
Conversion stockholder approval of the proposed Stock Programs and Stock Options
Plans is received, the Company expects to acquire 4% of the Common Stock issued
in the Conversion on behalf of the Stock Programs and expects to issue an amount
equal to 10% of the Common Stock issued in the Conversion under the Stock Option
Plans to directors and executive officers. As a result, assuming the Stock
Programs and Stock Option Plans are approved by stockholders, directors,
executive officers and employees have the potential to control the voting of
approximately 21.3% of the Company's Common Stock on a fully diluted basis at
the maximum of the Estimated Price Range, thereby enabling them to prevent the
approval of the transactions requiring the approval of at least 80% of the
Company's outstanding shares of voting stock described hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company; (ii) merge or consolidate the
Company with
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another corporation or entity; or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company, the Bank and the stockholders of the Company, give due
consideration to all relevant factors, including, without limitation, the social
and economic effects of acceptance of such offer on the Company's customers and
the Bank's present and future account holders, borrowers and employees; on the
communities in which the Company and the Bank operate or are located; and on the
ability of the Company to fulfill its corporate objectives as a savings and loan
holding company and on the ability of the Bank to fulfill the objectives of a
federally chartered stock savings bank under applicable statutes and
regulations. By having these standards in the Certificate of Incorporation of
the Company, the Board of Directors may be in a stronger position to oppose such
a transaction if the Board concludes that the transaction would not be in the
best interest of the Company, even if the price offered is significantly greater
than the then market price of any equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by the Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The Company's Bylaws may be amended by its Board
of Directors, or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
Anti-Takeover Effects of the Company's Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements with officers, and the Stock Programs,
the Incentive Stock Option Plan and the Stock Option Plan for Outside Directors
to be established may also discourage takeover attempts by increasing the costs
to be incurred by the Bank and the Company in the event of a takeover. See
"Management of the Bank - Employment Agreements" and "- Benefits - Stock Option
Plans."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.
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Delaware Corporate Law
The state of Delaware has a statute 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
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 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.
Restrictions in the Bank's New Charter and Bylaws
Although the Board of Directors of the Bank is not aware of any effort that
might be made to obtain control of the Bank after the Conversion, the Board of
Directors believes that it is appropriate to adopt certain provisions permitted
by federal regulations to protect the interests of the converted Bank and its
stockholders from any hostile takeover. Such provisions may, indirectly, inhibit
a change in control of the Company, as the Bank's sole stockholder. See "Risk
Factors - Certain Anti-Takeover Provisions."
The Bank's Federal Stock Charter will contain a provision whereby the
acquisition of or offer to acquire beneficial ownership of more than 10% of the
issued and outstanding shares of any class of equity securities of the Bank by
any person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of five years
following the date of completion of the Conversion. Any stock in excess of 10%
acquired in violation of the Federal Stock Charter provision will not be counted
as outstanding for voting purposes. This limitation shall not apply to any
transaction in which the Bank forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter or appraisal rights. In the event that
holders of revocable proxies for more than 10% of the shares of the Common Stock
of the Company seek, among other things, to elect one-third or more of the
Company's Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Bank, the Board of
Directors of the Bank will be able to assert this provision of the Bank's
Federal Stock Charter against such holders. Although the Board of Directors of
the Bank is not currently able to determine when and if it would assert this
provision of the Bank's Federal Stock Charter, the Board of Directors, in
exercising its fiduciary duty, may assert this provision if it were deemed to be
in the best interests of the Bank, the Company and its stockholders. It is
unclear, however, whether this
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provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in control of the Bank indirectly through
a change in control of the Company. Finally, for five years, stockholders will
not be permitted to call a special meeting of stockholders relating to a change
of control of the Bank or a charter amendment or to cumulate their votes in the
election of directors. Furthermore, the staggered terms of the Board of
Directors could have an anti-takeover effect by making it more difficult for a
majority of shares to force an immediate change in the Board of Directors since
only one-third of the Board is elected each year. The purpose of these
provisions is to assure stability and continuity of management of the Bank in
the years immediately following the Conversion.
Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock-Preferred
Stock," for the issuance or use of the shares of undesignated preferred stock
(the "Preferred Stock") proposed to be authorized, the Board of Directors
believes that the availability of such shares will provide the Bank with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which may arise. In the event of a proposed
merger, tender offer or other attempt to gain control of the Bank of which
management does not approve, it might be possible for the Board of Directors to
authorize the issuance of one or more series of Preferred Stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of such Preferred Stock, therefore, may be to deter a
future takeover attempt. The Board of Directors does not intend to issue any
Preferred Stock except on terms which the Board deems to be in the best interest
of the Bank and its then existing stockholders.
Regulatory Restrictions
The Plan of Conversion prohibits any person, prior to the completion of the
Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Bank or the
Company; or (iii) offers which are not opposed by the Board of Directors of the
Bank and which receive the prior approval of the OTS. Such prohibition is also
applicable to the acquisition of the stock of the Company. Such acquisition may
be disapproved by the OTS if it is found, among other things, that the proposed
acquisition (a) would frustrate the purposes of the provisions of the
regulations regarding conversions; (b) would be manipulative or deceptive; (c)
would subvert the fairness of the conversion; (d) would be likely to result in
injury to the savings institution; (e) would not be consistent with economical
home financing; (f) would otherwise violate law or regulation; or (g) would not
contribute to the prudent deployment of the savings institution's conversion
proceeds. In the event that any person, directly or indirectly, violates this
regulation, the securities beneficially owned by such person in excess of 10%
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matters submitted to a
vote of stockholders. The definition of beneficial ownership for this regulation
extends to persons holding revocable or irrevocable proxies for the Company's
stock under circumstances that give rise to a conclusive or rebuttable
determination of control under the OTS regulations.
In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution, and, therefore, indirectly its holding company, to obtain
regulatory approval prior to offering to obtain control. Federal law generally
provides that no "person," acting directly or indirectly or through or in
concert with one or more other persons, may acquire directly or indirectly
"control,"
132
<PAGE>
as that term is defined in OTS regulations, of a federally-insured savings
institution without giving at least 60 days' written notice to the OTS and
providing the OTS an opportunity to disapprove the proposed acquisition. Such
acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to three years after conversion but
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or the
portion of such proxies in excess of the 10% aggregate beneficial ownership
limit. Such regulatory restrictions may prevent or inhibit proxy contests for
control of the Company or the Bank which have not received prior regulatory
approval.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 55 million shares of Common Stock having
a par value of $.01 per share and five million shares of preferred stock having
a par value of $.01 per share (the "Preferred Stock"). The Company currently
expects to issue 7,293,981 shares of Common Stock (or 8,388,078 in the event of
an increase of 15% in the Estimated Price Range) and no shares of Preferred
Stock in the Conversion. Each share of the Company's Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Upon payment of the Purchase Price for the Common Stock,
in accordance with the Plan, all such stock will be duly authorized, fully paid
and non-assessable.
The Common Stock of the Company will represent non-withdrawable capital,
will not be an account of an insurable type, and will not be insured by the
FDIC.
Common Stock
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues Preferred
Stock, the holders thereof may have a priority over the holders of the Common
Stock with respect to dividends.
Voting Rights. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Bank," each holder of Common Stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If the
Company issues Preferred Stock, holders of the Preferred Stock may also possess
voting rights. Certain matters require an 80% shareholder vote. See
"Restrictions on Acquisition of the Company and the Bank."
As a federal mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon Conversion.
Subsequent to Conversion, voting rights will be vested exclusively in the owners
of the shares
133
<PAGE>
of capital stock of the Bank, which will be the Company, and voted at the
direction of the Company's Board of Directors. Consequently, the holders of the
Common Stock will not have direct control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock, would be entitled
to receive, after payment or provision for payment of all debts and liabilities
of the Bank (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders (see "The Conversion -
Liquidation Rights"), all assets of the Bank available for distribution. In the
event of liquidation, dissolution or winding up of the Company, the holders of
its Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of the Company
available for distribution. If Preferred Stock is issued, the holders thereof
may have a priority over the holders of the Common Stock in the event of
liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
The Federal Stock Charter of the Bank, to be effective upon the Conversion,
authorizes the issuance of capital stock consisting of 55 million shares of
common stock, par value $1.00 per share, and five million shares of preferred
stock, par value $1.00 per share, which preferred stock may be issued in series
and classes having such rights, preferences, privileges and restrictions as the
Board of Directors may determine. Each share of Common Stock of the Bank will
have the same relative rights as, and will be identical in all respects with,
each other share of common stock. After the Conversion, the Board of Directors
will be authorized to approve the issuance of Common Stock up to the amount
authorized by the Federal Stock Charter without the approval of the Bank's
stockholders. Assuming that the holding company form of organization is
utilized, all of the issued and outstanding common stock of the Bank will be
held by the Company as the Bank's sole stockholder. The capital stock of the
Bank will represent non-withdrawable capital, will not be an account of an
insurable type, and will not be insured by the FDIC.
Common Stock
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the Bank's
common stock will possess exclusive voting rights in the Bank. Each holder of
shares of common stock will be entitled to one vote for each share held, subject
to the right of shareholders to cumulate their votes for the election of
directors. During the five-year period after the effective date of the
Conversion, cumulation of votes will not be permitted. See
134
<PAGE>
"Restrictions on Acquisition of the Company and the Bank - Anti-Takeover Effects
of the Company's Certificate of Incorporation and Bylaws and Management
Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up of
the Bank, the holders of common stock will be entitled to receive, after payment
of all debts and liabilities of the Bank (including all deposit accounts and
accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of the Bank available for distribution in cash or in
kind. If preferred stock is issued subsequent to the Conversion, the holders
thereof may also have priority over the holders of common stock in the event of
liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank will
not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
EXPERTS
The consolidated financial statements of Ocean Federal Savings Bank and its
subsidiary as of December 31, 1995 and 1994 and for each of the years in the
three year period ended December 31, 1995, have been included in this Prospectus
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. Such report refers to a change in
the method of accounting for investments in 1994.
RP Financial, Inc. has consented to the publication herein of the summary
of its report to the Bank and Company setting forth its opinion as to the
estimated pro forma market value of the Common Stock upon Conversion and its
valuation with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal and New Jersey income tax
consequences of the Conversion will be passed upon for the Bank and the Company
by Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Bank and
the Company. The federal income tax consequences of the Ocean Federal Foundation
will be passed upon for the Bank and the Company by KPMG Peat Marwick LLP,
independent certified public accountants. Muldoon, Murphy & Faucette will rely
as to certain matters of Delaware law on the opinion of Morris, Nichols, Arsht &
Tunnell. Certain legal matters will be passed upon for Sandler O'Neill by Elias,
Matz, Tiernan & Herrick L.L.P., Washington, D.C.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
The statements contained in this Prospectus as to the contents of any contract
or other document filed as an exhibit to the registration statement are, of
necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
135
<PAGE>
The Bank has filed an application for conversion with the OTS with respect
to the Conversion. Pursuant to the rules and regulations of the OTS, this
Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Office of the Regional Director of the
OTS located at 10 Exchange Place, 18th Floor, Jersey City, New Jersey 07302.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
OTS under Section 12(g) of the Exchange Act and, upon such registration, the
Bank and the holders of its stock will become subject to the same obligations
and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Federal Stock Charter and Bylaws of the Bank are available without
charge from the Bank.
136
<PAGE>
OCEAN FEDERAL SAVINGS BANK
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-1
Financial Statements:
Consolidated Statements of Financial Condition
As of December 31, 1995 and 1994 F-2
Consolidated Statements of Income
For the years ended December 31, 1995, 1994 and 1993 39
Consolidated Statements of Retained Earnings F-3
For the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows F-4
For the years ended December 31, 1995, 1994 and 1993
Notes to the Consolidated Financial Statements F-6
</TABLE>
All schedules are omitted as the required information is not applicable or
the information is presented in the consolidated financial statements or notes
thereto.
The financial statements of Ocean Financial Corp. have been omitted because
Ocean Financial Corp. has not yet issued any stock, has no assets and no
liabilities, and has not conducted any business other than of an organizational
nature.
137
<PAGE>
[LETTERHEAD OF PEAT MARWICK LLP APPEARS HERE]
Independent Auditors' Report
-----------------------------
The Board of Directors
Ocean Federal Savings Bank:
We have audited the consolidated financial statements of Ocean Federal Savings
Bank and subsidiary as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ocean Federal
Savings Bank and subsidiary as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," as of January 1, 1994.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
February 12, 1996
F-1
<PAGE>
OCEAN FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 8,022 239
Investment securities held to
maturity, at amortized cost
(estimated market value of
$120,144) (notes 3 and 12) - 127,451
Investment securities available for sale
(notes 3 and 12) 114,881 -
Federal Home Loan Bank of New York
stock, at cost 7,723 7,323
Mortgage-backed securities held to
maturity (estimated market value of
$219,574) (notes 4 and 12) - 224,569
Mortgage-backed securities available for
sale (notes 4 and 12) 265,113 -
Loans receivable, net (notes 5 and 12) 612,696 592,315
Mortgage loans held for sale 1,894 -
Interest and dividends receivable
(note 6) 7,480 7,229
Real estate owned, net (note 8) 1,367 1,580
Premises and equipment, net (note 7) 7,641 4,330
Excess servicing asset (note 5) 1,222 819
Other assets (note 10) 8,406 5,796
---------- -------
Total assets $1,036,445 971,651
========== =======
Liabilities and Retained Earnings
- ---------------------------------
Deposits (note 9) $ 926,558 867,420
Federal Home Loan Bank borrowings
(note 12) 10,400 16,300
Advances by borrowers for taxes
and insurance 3,321 3,153
Other liabilities (notes 10 and 11) 3,815 2,444
---------- -------
Total liabilities 944,094 889,317
---------- -------
Retained earnings:
Substantially restricted (notes 2 and 10) 90,281 82,334
Net unrealized gain on securities
available for sale, net of tax 2,070 -
---------- -------
Total retained earnings 92,351 82,334
Commitments and contingencies
(note 12)
---------- -------
Total liabilities and
retained earnings $1,036,445 971,651
========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
OCEAN FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
<TABLE>
<S> <C>
Balance at December 31, 1992 $62,469
Net income for the year ended December 31, 1993 10,136
-------
Balance at December 31, 1993 $72,605
Net income for the year ended December 31, 1994 9,729
-------
Balance at December 31, 1994 $82,334
Net income for the year ended December 31, 1995 7,947
Net unrealized gain on securities available for sale, net of tax 2,070
-------
Balance at December 31, 1995 $92,351
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OCEAN FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,947 9,729 10,136
-------- ------- --------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization
of premises and equipment 810 966 944
Amortization of excess
servicing asset 106 141 463
Net premium amortization in
excess of discount
accretion on mortgage-backed and
investment securities 585 644 179
Net accretion of deferred fees
and discounts in excess of
premium on loans (535) (917) (1,401)
Provision for loan losses 950 1,129 1,300
Provision for deferred taxes 385 883 177
Net gain on sales of real
estate owned (256) (417) (611)
Proceeds from sales of real
estate owned 3,261 4,571 6,297
Net loss (gain) on sales of loans
and securities available for sale 340 (182) (670)
(Increase) decrease in interest and
dividends receivable (251) (839) 3
(Increase) decrease in other assets (4,160) (2,799) 1
Increase (decrease) in other
liabilities 1,371 (1,231) 972
-------- ------- --------
Total adjustments 2,606 1,949 7,654
-------- ------- --------
Net cash provided by operating
activities 10,553 11,678 17,790
-------- ------- --------
Cash flows from investing activities:
Net increase in loans receivable (23,588) (55,320) (30,412)
Proceeds from sales of investment
securities available for sale 63,713 - -
Proceeds from sales of mortgage
loans held for sale 19,108 16,760 41,070
Purchase of investment securities
available for sale (29,976) - -
Purchase of mortgage-backed securities
available for sale (34,575) - -
Purchases of investments held to
maturity (54,975) (31,973) (78,181)
Purchases of mortgage-backed
securities held to maturity (53,915) (50,042) (116,992)
Mortgage loans originated for sale (21,264) (15,946) (41,173)
Principal payments on mortgage-
backed securities held to
maturity 50,193 65,978 81,601
</TABLE>
Continued
F-4
<PAGE>
OCEAN FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Proceeds from maturities of
investments held to maturity 33,624 31,573 73,826
Purchases of Federal Home Loan
Bank of New York stock (400) (643) (845)
Purchases of premises and equipment (4,121) (885) (655)
-------- ------- -------
Net cash used in investing
activities (56,176) (40,498) (71,761)
-------- ------- -------
Cash flows from financing activities:
Increase in deposits 59,138 8,959 39,161
(Decrease) increase in Federal Home
Loan Bank borrowings (5,900) 16,300 -
Increase in advances by
borrowers for taxes and insurance 168 680 450
-------- ------- -------
Net cash provided by financing
activities 53,406 25,939 39,611
-------- ------- -------
Net increase (decrease) in cash
and due from banks 7,783 (2,881) (14,360)
Cash and due from banks at beginning
of year 239 3,120 17,480
-------- ------- -------
Cash and due from banks at end of
year $ 8,022 239 3,120
======== ======= =======
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
Interest $ 39,849 32,362 33,998
Income taxes 3,873 5,036 5,876
Noncash investing activities:
Transfer of loans receivable to
real estate owned 2,792 2,678 4,972
Transfer of investment and mortgage-
backed securities from held-to-
maturity to available-for-sale 382,713 - -
Mortgage loans securitized into
mortgage-backed securities 17,180 14,771 25,273
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OCEAN FEDERAL SAVINGS BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Ocean Federal
Savings Bank (the Bank) and its wholly-owned subsidiary, Dome Financial
Services, Inc. (inactive). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Business
--------
The Bank provides a range of banking services to customers through its
branches in New Jersey, primarily in Ocean, Middlesex and Monmouth
counties. The Bank is subject to competition from other financial
institutions; it is also subject to the regulations of certain regulatory
agencies and undergoes periodic examinations by those regulatory
authorities.
Basis of Financial Statement Presentation
-----------------------------------------
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the consolidated statement of financial condition and
revenues and expenses for the period then ended. Actual results could
differ significantly from those estimates and assumptions.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in settlement of loans. In connection with the
determination of the allowances for loan losses and Real Estate Owned
(REO), management obtains independent appraisals for significant
properties.
Cash Equivalents
----------------
Cash equivalents consist of interest-bearing deposits in other financial
institutions and loans of Federal funds. For purposes of the consolidated
statements of cash flows, the Bank considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Investment and Mortgage-Backed Securities
-----------------------------------------
On January 1, 1994, the Bank adopted Statement of Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities" (FAS
115). Investment and mortgage-backed securities identified as held to
maturity are carried at cost, adjusted for amortization of premium and
accretion of discount, which are recognized as adjustments to interest
income. Management determines the appropriate classification of securities
at the time of purchase. If management has the intent and the Bank has the
ability at the time of purchase to hold securities until maturity, they are
classified as held to maturity.
F-6 (Continued)
<PAGE>
(1) Summary of Significant Accounting Policies, Cont.
-------------------------------------------------
Debt securities to be held for indefinite periods of time and not intended
to be held to maturity are classified as available for sale. Securities
available for sale include securities that management intends to use as
part of its asset/liability management strategy. Such securities are
carried at fair value and unrealized gains and losses, net of related tax
effect, are excluded from earnings, but are included in retained earnings.
Gains or losses on the sale of such securities are recognized in the
current period in which such transactions are consummated and are included
in other income.
As permitted by the Financial Accounting Standards Board's, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities," the Bank reassessed the classification of its
held to maturity portfolios. As a result of such reassessment, the Bank
transferred, on December 20, 1995, securities with a book value of
$382,713,000 and a fair value of $385,361,000, from held to maturity to
available for sale. In connection with such transfer, an unrealized gain,
net of deferred income taxes, of $1,695,000 was recognized and classified
as a separate component of retained earnings.
Loans Receivable
----------------
Loans receivable, other than loans held for sale, are stated at unpaid
principal balance less unearned discounts, unamortized premiums, net
deferred loan origination and commitment fees, and the allowance for loan
losses. Discounts and premiums are recognized in income using the level-
yield method over the estimated lives of the loans.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net fee or cost is recognized in interest income
using the level-yield method over the contractual life of the specifically
identified loans, adjusted for actual prepayments.
Loans in which interest is more than 90 days past due and other loans in
the process of foreclosure are placed on nonaccrual status. Interest
income previously accrued on these loans, but not yet received, is reversed
in the current period. Any interest subsequently collected is credited to
income in the period of recovery.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS No. 114) and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (SFAS No. 118) were adopted prospectively by the Bank on
January 1, 1995. These statements address the accounting for impaired
loans and specify how allowances for loan losses related to these impaired
loans should be determined. The adoption of the statements did not effect
operating results, the level of the overall allowance or the comparability
of credit related data. Income recognition and charge-off policies were
not changed as a result of SFAS No. 114 and SFAS No. 118.
The Bank has defined the population of impaired loans to be all non-accrual
commercial real estate, multi-family and land loans. Impaired loans are
individually assessed to determine that the loan's carrying value is not in
excess of the fair value of the collateral or the present value of the
loan's expected future cash flows. Smaller balance homogeneous loans that
are collectively evaluated for impairment, such as residential mortgage
loans and installment loans, are specifically excluded from the impaired
loan portfolio. At December 31, 1995 the total impaired loan portfolio was
$154,000 for which general and specific allocations to the allowance for
loan losses of $31,000 were identified.
F-7 (Continued)
<PAGE>
(1) Summary of Significant Accounting Policies, Cont.
-------------------------------------------------
Mortgage Loans Held for Sale
----------------------------
The Bank may periodically sell all or part of its 30-year fixed rate,
conforming loan originations while retaining all other types of loan
originations for its loan portfolio. Mortgage loans intended for sale are
carried at the lower of unpaid principal balance, net, or market value on
an aggregate basis.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral and current economic conditions. Additions to the allowance
arise from charges to operations through the provision for loan losses or
from the recovery of amounts previously charged off. The allowance is
reduced by loan charge-offs. Loans are charged-off when management
believes there has been permanent impairment of their carrying values.
Sale of Loans with Servicing Retained
-------------------------------------
The Bank sells loans on a non-recourse basis at a net yield to investors
while retaining the servicing rights. A gain or loss is recorded for the
difference between the cost basis of the loan and the sales price. An
additional "excess servicing" gain or loss is recorded for the present
value of the income stream retained by the Bank after subtracting a normal
servicing fee.
The excess servicing gain or loss is recognized in current income and as an
excess servicing asset. The excess servicing asset is amortized ratably,
as a charge to fees and service charges, over the estimated lives of the
related loans, with adjustments for unanticipated prepayments. The excess
servicing asset does not exceed the present value of the future net excess
servicing fee income.
When loans are converted into mortgage-backed securities, the Bank does not
record an excess servicing gain or loss until the securities are sold.
Real Estate Owned
-----------------
Real estate owned is carried at fair value, less estimated costs to sell.
When a property is acquired, the excess of the loan balance over fair value
is charged to the allowance for loan losses. A reserve for real estate
owned has been established to provide for subsequent write downs that may
be required. Real estate owned is carried net of the related reserve.
Operating results from real estate owned, including rental income,
operating expenses, and gains and losses realized from the sales of real
estate owned are recorded as incurred.
Premises and Equipment
----------------------
Land is carried at cost and premises and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets or
leases. Repair and maintenance items are expensed and improvements are
capitalized. Gains and losses on dispositions are reflected in current
operations.
F-8 (Continued)
<PAGE>
(1) Summary of Significant Accounting Policies, Cont.
-------------------------------------------------
Income Taxes
------------
The Bank utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Pension Plan
------------
Pension plan costs based on actuarial computation of current and future
benefits for employees are charged to expense and funded based on the
maximum amount that can be deducted for Federal income tax purposes.
Contributions
----------------
Contributions made shall be recognized as expenses in the period made and
as decreases of assets or increases of liabilities depending on the form of
the benefits given. Contributions made shall be measured at the fair
values of the asset given or, if made in the form of a settlement or
cancellation of a donee's liabilities, at the fair value of the liabilities
canceled.
(2) Regulatory Matters
------------------
On August 9, 1989, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) was signed into law. FIRREA imposes more
stringent capital requirements upon the Bank. In addition, FIRREA includes
provisions for changes in the Federal regulatory structure, including a new
deposit insurance system, increased deposit insurance premiums and
restricted investment activities with respect to non-investment grade
corporate debt and certain other investments. FIRREA also increases the
required ratio of housing-related assets in order to qualify as a savings
association.
The legislation requires the Bank to have a minimum regulatory tangible
capital ratio equal to 1.5% of adjusted total assets, a minimum 3% leverage
(core) capital ratio and an 8.0% risk-based capital ratio. The Bank is in
compliance with the current minimum capital requirements of FIRREA at
December 31, 1995.
The OTS has adopted a rule which will require that an amount be added to an
institution's risk-based capital requirement equal to 50% of the decline in
net portfolio value (NPV) that exceeds 2% of the institution's assets
expressed in terms of economic value under a hypothetical 200 basis point
shift in interest rates. NPV represents the net discounted cash flows
stemming from an institution's assets, liabilities and off balance sheet
items. The OTS has postponed the effective date of the interest rate risk
capital component pending the development of an appeals process for the
measurement of an institution's interest rate risk. If the Bank had been
subject to an interest rate risk capital component as of December 31, 1995,
there would have been no material effect on the Bank's risk-weighted
capital.
F-9 (Continued)
<PAGE>
(2) Regulatory Matters, Cont.
-------------------------
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the Federal
regulatory agencies, increased reporting requirements for insured
institutions and new regulations concerning internal controls, accounting
and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain restrictions, including the requirement to file a
capital plan with the Office of Thrift Supervision (OTS), prohibitions on
the payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring, among other things.
Other restrictions may be imposed on the institution either by the OTS or
by the FDIC, including requirements to raise additional capital, sell
assets, or sell the entire institution. Once an institution becomes
"critically undercapitalized" it is generally placed in receivership or
conservatorship within 90 days.
To be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5%, a Tier 1 risked-based capital ratio of at
least 6%, and a total risk-based capital ratio of at least 10%. At
December 31, 1995, the Bank was considered well-capitalized.
(3) Investment Securities
---------------------
The amortized cost and estimated market value of investment securities at
December 31, 1995 and December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment Securities
Available For Sale:
United States Government
and agency obligations $112,956 386 (40) 113,302
State and municipal
obligations 1,549 30 - 1,579
-------- ------- ------ -------
$114,505 416 (40) 114,881
======== ======= ====== =======
<CAPTION>
December 31, 1994
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment Securities Held
to Maturity:
United States Government
and agency obligations $122,278 33 (7,325) 114,986
State and municipal
obligations 2,173 1 (16) 2,158
Corporate obligations 3,000 - - 3,000
-------- ------- ------ -------
$127,451 34 (7,341) 120,144
======== ======= ====== =======
</TABLE>
F-10 (Continued)
<PAGE>
(3) Investment Securities, Cont.
----------------------------
The amortized cost and estimated market value of investment securities at
December 31, 1995 by contractual maturity, are shown below (in thousands).
Actual maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1995
--------------------
Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Investment Securities
Available For Sale:
Due in one year or less $ 10,808 10,816
Due after one year through
five years 84,562 84,720
Due after five years through
ten years 19,000 19,209
Due after 10 years 135 136
-------- -------
$114,505 114,881
======== =======
</TABLE>
Gross losses on the sale of investment securities available for sale of
$587,000 were realized in 1995. There were no sales of investment
securities for the years ended December 31, 1994 and 1993.
(4) Mortgage-Backed Securities
--------------------------
The amortized cost and estimated market value of mortgage-backed securities
at December 31, 1995 and December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-Backed Securities
Available For Sale:
FHLMC $221,822 2,340 (278) 223,884
FNMA 27,307 317 - 27,624
GNMA 3,561 202 - 3,763
Collaterized mortgage
obligations 9,564 278 - 9,842
-------- ------ ------- -------
$262,254 3,137 (278) 265,113
======== ====== ======= =======
<CAPTION>
December 31, 1994
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Mortgage-Backed Securities
Held to Maturity:
FHLMC $183,424 334 (5,216) 178,542
FNMA 21,602 137 (294) 21,445
GNMA 4,586 28 (26) 4,588
Collaterized mortgage
obligations 14,957 75 (33) 14,999
-------- ------ ------- -------
$224,569 574 (5,569) 219,574
======== ====== ======= =======
</TABLE>
F-11 (Continued)
<PAGE>
(4) Mortgage-Backed Securities, Cont.
---------------------------------
Collateralized mortgage obligations issued by FHLMC, FNMA and private
interests amounted to $7,377,000, $850,000 and $1,337,000, respectively at
December 31, 1995 and $11,946,000, $850,000 and $2,161,000, respectively at
December 31, 1994.
The contractual maturities of mortgage-backed securities generally exceed
20 years; however, the effective lives are expected to be shorter due to
anticipated prepayments.
(5) Loans Receivable, Net
---------------------
A summary of loans receivable at December 31, 1995 and 1994 follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
---------- --------
<S> <C> <C>
Real estate mortgage:
One to four-family $572,632 552,168
Commercial real estate,
multi-family and land 14,939 13,885
FHA insured & VA guaranteed 484 233
-------- -------
588,055 566,286
Real estate construction 8,153 10,474
Consumer 26,867 26,100
-------- -------
Total loans 623,075 602,860
-------- -------
Loans in process (2,687) (2,661)
Deferred fees (1,679) (2,263)
Unearned discount (12) (13)
Allowance for loan losses (6,001) (5,608)
-------- -------
(10,379) (10,545)
-------- -------
$612,696 592,315
======== =======
</TABLE>
Management believes that the allowances for losses on loans and real estate
owned (REO) are adequate. While management uses available information to
recognize losses on loans and REO, future additions to the allowances may
be necessary based on changes in economic conditions in the Bank's market
area. In addition, various regulatory agencies, as an integral part of
their routine examination process, periodically review the Bank's
allowances for losses on loans and REO. Such agencies may require the Bank
to recognize additions to the allowances based on their judgments about
information available to them at the time of their examination. (See also
note 8)
At December 31, 1995, 1994 and 1993, loans in the amount of $8,671,000,
$10,939,000 and $10,494,000, respectively, were three or more months
delinquent or in the process of foreclosure and the Bank was not
recognizing interest income. If these loans had continued to realize
interest in accordance with their contractual terms, approximately
$428,000, $607,000 and $642,000 of additional interest income would have
been recognized for the years ended December 31, 1995, 1994 and 1993,
respectively. The Bank was not committed to lend additional funds on any
nonaccrual loans at December 31, 1995.
F-12
<PAGE>
(5) Loans Receivable, Net
---------------------
An analysis of the allowance for loan losses for the years ended December
31, 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning
of year $5,608 5,504 5,737
Provision charged to
operations 950 1,129 1,300
Charge-offs (568) (1,053) (1,547)
Recoveries 11 28 14
------ ------ ------
Balance at end of year $6,001 5,608 5,504
====== ====== ======
</TABLE>
At December 31, 1995, 1994 and 1993, the Bank serviced loans for others in
the amount of $143,115,000, $133,652,000 and $138,084,000, respectively.
An analysis of the excess servicing asset for the years ended December 31,
1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
--------- ------- ------
<S> <C> <C> <C>
Balance at beginning
of year $ 819 642 786
Additions 509 318 319
Amortization (106) (141) (463)
------ ---- ----
Balance at end of year $1,222 819 642
====== ==== ====
</TABLE>
The Financial Accounting Standards Board has issued Statements No. 114 and
118. The new statements, which are effective for financial statements
issued for fiscal years beginning after December 15, 1994, require impaired
loans be measured at the present value of expected future cash flows by
discounting those cash flows generally at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price or
the fair value of the collateral if the loan is collateral dependent. The
new statements also require troubled debt restructurings involving a
modification of terms be remeasured on a discounted basis. The Bank
adopted these statements on January 1, 1995. The adoption of these
statements did not have a material impact on results of operations or
financial position or upon the comparability of credit related data.
(6) Interest and Dividends Receivable
---------------------------------
A summary of interest and dividends receivable at December 31, 1995 and
1994 follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1995 1994
------ -----
<S> <C> <C>
Loans $3,554 3,083
Investment securities 1,527 2,293
Mortgage-backed securities 2,399 1,853
------ -----
$7,480 7,229
====== =====
</TABLE>
F-13
<PAGE>
(7) Premises and Equipment, Net
---------------------------
Premises and equipment at December 31, 1995 and 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
-------- -------
<S> <C> <C>
Land $ 2,971 781
Buildings and improvements 4,107 4,021
Leasehold improvements 1,097 794
Furniture and equipment 3,666 3,396
Automobiles 88 88
Construction in progress 1,452 185
------- ------
Total 13,381 9,265
Accumulated depreciation
and amortization (5,740) (4,935)
------- ------
$ 7,641 4,330
======= ======
</TABLE>
At December 31, 1995, the Bank was committed to expend $5,355,000 towards
the renovation of a new branch and administrative center.
(8) Real Estate Owned, Net
----------------------
An analysis of the allowance for losses on real estate owned for the years
ended December 31, 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning
of year $ 476 506 614
Losses charged off (65) (30) (108)
----- ---- ----
Balance at end of year $ 411 476 506
===== ==== ====
</TABLE>
(9) Deposits
--------
Deposits, including accrued interest payable of $93,000 and $115,000 at
December 31, 1995 and 1994, respectively, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
------------------ -------------------
Weighted Weighted
Average Average
Amount Cost Amount Cost
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NOW accounts $ 75,010 2.00% $ 71,413 2.09%
Money Market
deposit accounts 70,556 2.93% 71,971 2.57%
Savings accounts 175,777 2.53% 190,769 2.54%
Time deposits 605,215 5.70% 533,267 4.95%
-------- ---- -------- ----
$926,558 4.59% $867,420 3.99%
======== ==== ======== ====
</TABLE>
Included in time deposits at December 31, 1995 and 1994, respectively, is
$41,236,000 and $32,847,000 of deposits of $100,000 and over. The deposits
of the Bank are insured up to $100,000 by the Savings Association Insurance
Fund, which is administered by the FDIC and is backed by the full faith and
credit of the U.S. Government.
F-14
<PAGE>
(9) Deposits, Cont.
---------------
Time deposits at December 31, 1995 mature as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1995
------------
<S> <C>
1996 $399,727
1997 92,648
1998 44,694
1999 26,669
2000 12,762
Thereafter 28,715
--------
$605,215
========
</TABLE>
Interest expense on deposits for the years ended December 31, 1995, 1994
and 1993 was as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
NOW accounts $ 1,483 1,440 1,347
Money Market
deposit accounts 2,083 1,899 2,228
Savings accounts 4,537 5,246 5,178
Time deposits 31,723 23,545 25,195
------- ------ ------
$39,826 32,130 33,948
======= ====== ======
</TABLE>
(10) Income Taxes
------------
The Bank is generally allowed a special bad debt deduction in determining
income for Federal income tax purposes. The deduction is based on either
specified experience formulas or a percentage of taxable income before such
deduction (presently 8%). For the years ended December 31, 1995, 1994 and
1993, the Bank used the percentage of taxable income method.
Retained earnings at December 31, 1995 includes approximately $10,750,000
of income that has not been subject to tax because of deductions for bad
debts allowed for income tax purposes. Deferred income taxes have not been
provided on such bad debt deductions since the Bank does not intend to use
the accumulated bad debt deductions for purposes other than to absorb loan
losses. If this portion of retained earnings is used for any purposes
other than to absorb bad debt losses, taxes would be imposed on such
amounts. If triggered, the tax liability related to the appropriated
earnings would have been $3,870,000 at December 31, 1995.
Recent proposed tax legislation would repeal the reserve method of
accounting for bad debts by thrift institutions. Under the legislation,
the Bank would be required to recapture its post-1987 additions to its tax
bad debt reserve. The Bank has accrued for this liability in the
consolidated financial statements.
F-15 (Continued)
<PAGE>
(10) Income Taxes, Cont.
-------------------
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Current:
Federal $3,936 4,148 4,928
State 338 374 451
------ ----- -----
Total Current 4,274 4,522 5,379
------ ----- -----
Deferred:
Federal 353 811 166
State 32 72 11
------ ----- -----
Total Deferred 385 883 177
------ ----- -----
$4,659 5,405 5,556
====== ===== =====
</TABLE>
A reconciliation between the provision for income taxes and the expected
amount computed by multiplying income before provision for income taxes
times the applicable statutory Federal income tax rate for the years ended
December 31, 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Income before provision
for income taxes $12,606 15,134 15,692
Applicable statutory
Federal income tax
rate 34.1% 34.2% 34.3%
Computed "expected"
Federal income tax
expense 4,299 5,176 5,382
Increase(decrease) in
Federal income tax
expense resulting from:
State income taxes
net of Federal
benefit 253 318 304
Other items, net 107 (89) (130)
------- ------ ------
$ 4,659 5,405 5,556
======= ====== ======
Effective tax rate 37.0% 35.7% 35.4%
======= ====== ======
</TABLE>
Included in other assets at December 31, 1995 and 1994 is a net deferred
tax asset of $870,000 and $2,420,000, respectively. In addition, included
in other liabilities at December 31, 1995 and 1994 is a current tax payable
(refundable) of $236,000 and ($177,000).
F-16 (Continued)
<PAGE>
(10) Income Taxes, Cont.
-------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below (in thousands).
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
-------- -------
<S> <C> <C>
Allowance for loan
and real estate owned
losses per books $ 2,314 2,198
Reserve for uncollected
interest 217 235
Deferred loan and
commitment fees 132 527
Deferred compensation 68 21
Accrued pension expense 154 185
Premises and equipment,
differences in depreciation 199 133
Other reserves 175 138
------- ------
Total deferred tax assets 3,259 3,437
------- ------
Allowance for loan and
real estate owned losses
for tax purposes (831) (617)
Unrealized gain on securities
available-for-sale (1,165) -
Excess servicing on sale of
mortgage loans (11) (14)
Prepaid FDIC insurance
premium (373) (358)
Investments, discount
accretion (9) (28)
------- ------
Total deferred tax
liabilities (2,389) (1,017)
------- ------
Net deferred tax assets $ 870 2,420
======= ======
</TABLE>
The Bank has determined that it is not required to establish a valuation
reserve for the deferred tax asset account since it is "more likely than
not" that the deferred tax asset will be realized through future reversals
of existing taxable temporary differences, future taxable income and tax
planning strategies. The conclusion that it is "more likely than not" that
the deferred tax asset will be realized is based on the history of earnings
and the prospects for continued growth. Management will continue to review
the tax criteria related to the recognition of deferred tax assets.
(11) Pension Plan
------------
The Bank has a qualified noncontributory defined benefit pension plan (the
Plan) covering all eligible employees. Retirement benefits are based upon
a formula utilizing years of service and average monthly compensation.
It is the Bank's practice to fund the Plan for the maximum amount that can
be deducted for Federal income tax purposes subject to the minimum funding
requirements of ERISA.
F-17 (Continued)
<PAGE>
(11) Pension Plan, Cont.
-------------------
The following table sets forth the Plan's latest available funded status
and amounts recognized at December 31, 1995 and 1994 in the Bank's
consolidated statements of financial condition (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Actuarial present value of benefit obligations
- accumulated benefit obligation:
Vested $(1,009) (784)
Non-vested (97) (86)
======= ======
Projected benefit obligation for service
rendered to date (1,911) (1,602)
Plan assets at fair value, primarily a group
annuity contract 1,636 1,387
------- ------
Plan assets less than projected benefit
obligation (275) (215)
Unrecognized net loss 233 111
Unrecognized net transition asset (352) (372)
------- ------
Accrued pension cost (included in other
liabilities) $ (394) (476)
======= ======
</TABLE>
The components of net pension expense for the years ended December 31,
1995, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 209 200 180
Interest cost on projected benefit
obligation 137 108 97
Actual return on plan assets (79) (83) (74)
Net amortization and deferral (40) (26) (19)
----- ---- ----
Net pension expense $ 227 199 184
===== ==== ====
Assumptions used to develop the
net periodic pension cost are:
Discount rate 8.00% 8.00% 8.00%
Expected long-term rate of return
on assets 6.75 6.75 6.75
Rate of increase in compensation
level 5.00 5.00 5.00
===== ==== ====
</TABLE>
The Bank also maintains an incentive savings plan for eligible employees.
A member may make contributions to the plan of 1% to 15% of his or her
compensation. For the first 6% of the member's contribution, the Bank will
contribute 75% of that amount to the member's account. The Bank's
contributions under this plan were $242,000, $241,000 and $224,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
F-18
<PAGE>
(12) Commitments, Contingencies and Concentrations of Credit Risk
------------------------------------------------------------
The Bank, in the normal course of business, is party to financial
instruments and commitments which involve, to varying degrees, elements of
risk in excess of the amounts recognized in the consolidated financial
statements. These financial instruments and commitments include unused
consumer lines of credit and commitments to extend credit.
At December 31, 1995, the following commitments and contingent liabilities
existed which are not reflected in the accompanying consolidated financial
statements (in thousands):
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Unused consumer and construction loan
lines of credit (primarily floating-
rate) $ 16,826
Other commitments to extend credit:
Fixed Rate 10,790
Adjustable Rate 8,975
Floating Rate 60
=======
</TABLE>
The Bank's fixed-rate loan commitments expire within 90 days of issuance
and carried interest rates ranging from 6.625% to 7.875% at December 31,
1995.
The Bank's maximum exposure to credit losses in the event of nonperformance
by the other party to these financial instruments and commitments is
represented by the contractual amounts. The Bank uses the same credit
policies in granting commitments and conditional obligations as it does for
financial instruments recorded in the consolidated statements of financial
condition.
These commitments and obligations do not necessarily represent future cash
flow requirements. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary, is based on management's assessment of risk. The unused
consumer and construction loan lines of credit are collateralized by
mortgages on real estate.
The Bank has an available overnight line of credit with the Federal Home
Loan Bank of New York for $50,000,000 which expires November 25, 1996.
When utilized, the line bears a floating interest rate of 1/8% over the
current Federal funds rate and is secured by the Bank's mortgage loans,
mortgage-backed securities and U.S. Government agency obligations.
At December 31, 1995, the Bank is obligated under noncancellable operating
leases for premises and equipment. Rental expense under these leases
aggregated approximately $791,000, $701,000 and $725,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
The projected minimum rental commitments as of December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
1996 $ 760
1997 325
1998 268
1999 265
2000 134
Thereafter 923
------
$2,675
======
</TABLE>
F-19 (Continued)
<PAGE>
(12) Commitments, Contingencies and Concentrations of Credit Risk, Cont.
-------------------------------------------------------------------
The Bank grants one to four-family first mortgage real estate loans and
multifamily first mortgage real estate loans to borrowers primarily located
in Ocean, Middlesex and Monmouth Counties, New Jersey. Its borrowers'
abilities to repay their obligations are dependent upon various factors
including the borrowers' income and net worth, cash flows generated by the
underlying collateral, value of the underlying collateral and priority of
the Bank's lien on the property. Such factors are dependent upon various
economic conditions and individual circumstances beyond the Bank's control;
the Bank is, therefore, subject to risk of loss.
The Bank believes its lending policies and procedures adequately minimize
the potential exposure to such risks and that adequate provisions for loan
losses are provided for all known and inherent risks. Collateral and/or
guarantees are required for all loans.
Contingencies
-------------
The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of business. Management and its legal counsel are of the
opinion that the ultimate disposition of these matters will not have a
material adverse effect on the Bank's consolidated financial condition,
results of operations or liquidity.
(13) Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement 107), requires that the
Bank disclose estimated fair values for its financial instruments. Fair
value estimates, methods and assumptions are set forth below for the Bank's
financial instruments.
Cash and Due from Banks
-----------------------
For cash and due from banks, the carrying amount approximates fair value.
Investments and Mortgage-Backed Securities
------------------------------------------
The fair value of investment and mortgage-backed securities is estimated
based on bid quotations received from securities dealers, if available. If
a quoted market price was not available, fair value was estimated using
quoted market prices of similar instruments, adjusted for differences
between the quoted instruments and the instruments being valued.
Federal Home Loan Bank of New York Stock
----------------------------------------
The fair value for Federal Home Loan Bank of New York Stock is its carrying
value since this is the amount for which it could be redeemed. There is no
active market for this stock and the Bank is required to maintain a minimum
balance based upon the unpaid principal of home mortgage loans.
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as residential
mortgage, construction, land and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing
and nonperforming categories.
F-20 (Continued)
<PAGE>
(13) Fair Value of Financial Instruments, Cont.
------------------------------------------
Fair value of performing loans was estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics, if applicable.
Fair value for significant nonperforming loans is based on recent external
appraisals of collateral securing such loans, adjusted for the timing of
anticipated cash flows.
Deposit Liabilities
-------------------
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, and NOW and money market accounts, is
equal to the amount payable on demand. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits
of similar remaining maturities.
Federal Home Loan Bank Advances
-------------------------------
For Federal Home Loan Bank advances, the carrying amount approximates fair
value.
Commitments to Extend Credit, and to Purchase or Sell Securities
----------------------------------------------------------------
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates.
The estimated fair values of the Bank's financial instruments as of
December 31, 1995 and 1994 are presented in the following tables (in
thousands). Since the fair value of off-balance sheet commitments
approximate book value, these disclosures are not included.
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Book Fair
Value Value
-------- -------
<S> <C> <C>
Financial Assets:
Cash and due from banks $ 8,022 8,022
Investment Securities Available For Sale 114,881 114,881
Mortgage-Backed Securities Available For Sale 265,113 265,113
Federal Home Loan Bank of New York Stock 7,723 7,723
Loans receivable and Mortgage Loans
Held for Sale 614,590 632,606
Financial Liabilities:
Deposits 926,558 932,606
Federal Home Loan Bank Borrowings 10,400 10,400
======== =======
</TABLE>
F-21 (Continued)
<PAGE>
(13) Fair Value of Financial Instruments, Cont.
------------------------------------------
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Book Fair
Value Value
-------- -------
<S> <C> <C>
Financial Assets:
Cash and due from banks $ 239 239
Investment Securities Held to Maturity 127,451 120,144
Mortgage-Backed Securities Held to
Maturity 224,569 219,574
Federal Home Loan Bank of New York Stock 7,323 7,323
Loans receivable and Mortgage Loans
Held for Sale 592,315 578,677
Financial Liabilities:
Deposits 867,420 864,851
Federal Home Loan Bank Borrowings 16,300 16,300
======== =======
</TABLE>
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Bank's entire holdings of a
particular financial instrument. Because no market exists for a
significant portion of the Bank's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on-and-off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial assets or liabilities include
the mortgage banking operation, deferred tax assets, and premises and
equipment. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in the estimates.
(14) Conversion to Capital Stock Form of Ownership
---------------------------------------------
On August 17, 1995, the Board of Directors of the Bank adopted a Plan of
Conversion (Plan), as amended, to convert from a federally chartered
mutual savings and loan association to a federally chartered capital stock
association. The Plan, which is subject to approval by the OTS, includes
formation of a holding company and the filing of a registration statement
with the Securities and Exchange Commission. The conversion requires the
approval of the Bank's voting members and involves the sale of the holding
company's common stock. A subscription offering of the shares of the
holding company's common stock will be offered in order of the following
priorities to: eligible account holders; employee benefit plans of the
Bank; supplemental eligible account holders and other members. Any
remaining shares not subscribed for by the foregoing will be offered to the
public in a direct community offering.
F-22
<PAGE>
(14) Conversion to Capital Stock Form of Ownership, Cont.
----------------------------------------------------
Pursuant to the Plan, the holding company intends to establish a
Charitable Foundation in connection with the conversion. The Plan provides
that the Bank and the holding company will create the Foundation and donate
an amount equal to 8.0% of the common stock to be issued in the conversion.
The purpose of the Foundation will be to provide funding to support
charitable causes in the county the Bank is headquartered and to complement
the Bank's existing community activities.
The Foundation will submit a request to the Internal Revenue Service to be
recognized as an exempt organization and would likely be classified as a
private foundation. Substantial authority exists that a contribution of
common stock to the Foundation by the holding company would be tax
deductible, subject to a limitation based on 10% of the holding company's
annual taxable income. The holding company, however, would be able to
carry forward any unused portion of the deduction for five years following
the contribution. Upon funding the Foundation, the holding company will
recognize an expense in the full amount of the contribution, offset in part
by the corresponding tax deduction, during the quarter in which the
contribution is made.
The Bank may provide support services to the Foundation including, but not
limited to, employee time, office space, and accounting support. The Bank
expects to provide these services without compensation, however, expenses
incurred on behalf of the Foundation are not expected to be significant to
the operations of the Bank.
At the time of the conversion, the Bank will establish a liquidation
account in an amount equal to its equity as reflected in the latest
statement of financial condition used in the final conversion prospectus.
The liquidation account will be maintained for the benefit of eligible
account holders and supplemental eligible account holders who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible account
holders and supplemental eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will
not restore an eligible account holder's or supplemental eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder and supplemental
eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
Subsequent to the conversion, the Bank may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense.
(15) Insurance of Deposit Accounts
-----------------------------
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund.
The final risk-related system took affect on January 1, 1994, in accordance
with the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA). This risk classification is based on an institution's capital
group and supervisory subgroup assignment.
F-23
<PAGE>
(15) Insurance of Deposit Accounts, Cont.
------------------------------------
Currently, the Association pays an insurance premium to the FDIC equal to
.23% of its total deposits. In August 1995, the FDIC announced that it
will lower the insurance premium for members of the Bank Insurance Fund
(BIF) primarily commercial Banks, to a range of between 0.04% and 0.31% of
deposits, with the result that most commercial banks will pay the lowest
rate of 0.04%. This revised premium schedule became effective in the third
quarter of 1995. This reduction in insurance premiums for BIF members
places Savings Association Insurance Fund (SAIF) members, primarily savings
associations, such as the Bank, at a material competitive disadvantage to
BIF members and, for the reasons set forth below, could have a material
adverse effect on the Bank's consolidated financial condition and results
of operations in future periods.
A disparity in insurance premiums between those required for the Bank and
BIF members, could allow BIF members to attract and retain deposits at a
lower effective cost than that possible for the Bank and put competitive
pressures on the Bank to raise its interest rates paid on deposits, thus
increasing its cost of funds and possibly reducing net interest income.
The resultant competitive disadvantage could result in the Bank losing
deposits to BIF members who have a lower cost of funds and are, therefore,
able to pay higher rates of interest on deposits. Although the Bank has
other sources of funds, these other sources may have higher costs than
those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF insurance
premium disparity have recently been proposed by the U.S. Congress,
Federal regulators, industry lobbyists and the Administration. One plan
that has gained support of several sponsors would require all SAIF member
institutions, including the Bank, to pay a one-time assessment of up to 75
to 80 basis points on the amount of deposits held by the member institution
to recapitalize the SAIF. If this proposal is enacted by Congress, the
effect would be to immediately reduce the capital of the SAIF-member
institutions by the amount of the fee, and such amount would be immediately
charged to earnings. If a requirement was implemented as of March 31, 1995
(the date currently contained in the proposed legislation for the Bank to
pay a one-time assessment of 80 basis points of insured deposits), the
amount of such assessment would be approximately $7,011,000 before tax
benefit. Management of the Bank is unable to predict whether this proposal
or any similar proposal will be enacted or whether ongoing SAIF premiums
will be reduced to a level equal to that of BIF premiums.
F-24
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Ocean Financial Corp., the Bank or Sandler O'Neill & Partners,
L.P. 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 in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of Ocean Financial Corp. or the Bank since any of the
dates as of which information is furnished herein or since the date hereof.
______________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................
Selected Consolidated Financial and
Other Data of the Bank.............................................
Summary of Recent Developments.........................................
Risk Factors...........................................................
Ocean Financial Corp...................................................
Ocean Federal Savings Bank.............................................
Regulatory Capital Compliance..........................................
Use of Proceeds........................................................
Dividend Policy........................................................
Market for the Common Stock............................................
Capitalization.........................................................
Pro Forma Data.........................................................
Consolidated Statements of Operations..................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................
Business of the Bank...................................................
Federal and State Taxation.............................................
Regulation.............................................................
Management of the Company..............................................
Management of the Bank.................................................
The Conversion.........................................................
Restrictions on Acquisition of the Company
and the Bank.......................................................
Description of Capital Stock of the Company............................
Description of Capital Stock of the Bank...............................
Transfer Agent and Registrar...........................................
Experts................................................................
Legal and Tax Opinions.................................................
Additional Information.................................................
Index of Consolidated Financial Statements.............................
</TABLE>
______________________________
Until __________, 1996 or 25 days after commencement of the Syndicated Community
Offering, if any, whichever is later, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
Up to 7,293,981 Shares
OCEAN FINANCIAL CORP.
(Proposed Holding Company for
Ocean Federal Savings Bank)
COMMON STOCK
----------
PROSPECTUS
----------
_______________, 1996
Sandler O'Neill & Partners, L.P.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.(1)
<TABLE>
<CAPTION>
<S> <C>
OTS filing fee.................................. $ 14,400
SEC filing fee(1)............................... 70,686
NASD filing fee(1).............................. 20,999
Printing, postage and mailing................... 310,000
Legal fees and expenses......................... 600,000
Accounting fees and expenses.................... 140,000
Appraiser's fees and expenses (including
business plan)................................ 60,000
Marketing fees and selling commissions (1)...... 2,664,211
Underwriter's expense (including underwriter's
counsel fees) (1)............................. 110,000
Proxy solicitation and record management
fees and expenses............................ 47,500
Transfer agent fees and expenses................ 15,000
Certificate printing............................ 5,000
Telephone, temporary help and other
equipment..................................... 40,000
Blue Sky fees and expenses...................... 15,000
Miscellaneous................................... 183,000
----------
TOTAL........................................... $4,295,796
==========
</TABLE>
____________________
(1) Actual expenses based upon the registration of 8,388,079 shares at $20.00
per share. All other expenses are estimated.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
<PAGE>
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
- --------
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
Not applicable.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter dated August 22, 1995 between Ocean Federal Savings
Bank and Sandler O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement
2.1 Amended Plan of Conversion (including the Federal Stock Charter and
Bylaws of Ocean Federal Savings Bank)*
3.1 Certificate of Incorporation of Ocean Financial Corp.*
3.2 Bylaws of Ocean Financial Corp.*
3.3 Federal Stock Charter and Bylaws of Ocean Federal Savings Bank (See
Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of Ocean Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Amended Opinion of Muldoon, Murphy & Faucette re: Federal and State Tax
Matters
10.1 Form of Ocean Federal Savings Bank Employee Stock Ownership Plan*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.3 Ocean Federal Savings Bank Employees' Savings & Profit Sharing Plan
(401(k))*
10.4 Ocean Federal Savings Bank 1995 Supplemental Executive Retirement Plan
10.5 Ocean Federal Savings Bank Deferred Compensation Plan for Directors*
10.6 Ocean Federal Savings Bank Deferred Compensation Plan for Officers*
10.7 Ocean Federal Savings Bank Long-Term Award Program*
10.8 Ocean Federal Savings Bank Performance Achievement Awards Program*
10.9 Form of Employment Agreement between Ocean Federal Savings Bank and
certain executive officers
10.10 Form of Employment Agreement between Ocean Financial Corp. and certain
executive officers
10.11 Form of Change in Control Agreement between Ocean Federal Savings Bank
and certain executive officers
10.12 Form of Change in Control Agreement between Ocean Financial Corp. and
certain executive officers
10.13 Form of Ocean Federal Savings Bank Employee Severance Compensation Plan*
23.1 Consent of KPMG Peat Marwick LLP
23.3 Consent of Muldoon, Murphy & Faucette*
23.4 Consent of Morris, Nichols, Arsht & Tunnell*
23.5 Consent and Subscription Rights Letter of RP Financial, Inc.*
24.1 Powers of Attorney*
99.1 Amended Appraisal Report of RP Financial, Inc.(P)
99.2 Form of Ocean Federal Foundation Gift Instrument
</TABLE>
- -----------------------------
* Previously filed
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Brick, State of New,
Jersey, on May 8, 1996.
Ocean Financial Corp.
By: /s/ John R. Garbarino
-----------------------------------------
John R. Garbarino
Chairman of the Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Date
---- ----
<S> <C>
/s/ John R. Garbarino May 8, 1996
- ------------------------------------------
John R. Garbarino
Chairman of the Board, President and Chief
Executive Officer
(principal executive officer)
*
- -------------------------------------------------
Michael J. Fitzpatrick
Executive Vice President
and Chief Financial Officer
(principal accounting and financial officer)
*
- -------------------------------------------------
Michael E. Barrett
Executive Vice President and Director
*
- -------------------------------------------------
Thomas F. Curtin
Director
*
- -------------------------------------------------
Carl Feltz, Jr.
Director
*
- -------------------------------------------------
Roy M. Hyde
Director
*
- -------------------------------------------------
Robert E. Knemoller
Director
</TABLE>
<PAGE>
*
- -------------------------------------------------
Donald E. McLaughlin
Director
*
- -------------------------------------------------
Frederick E. Schlosser
Director
*
- -------------------------------------------------
James T. Snyder
Director
* Pursuant to the Power of Attorney filed on December 7, 1995, as Exhibit 24.1
to the S-1 Registration Statement of Ocean Financial Corp.
<PAGE>
TABLE OF CONTENTS
List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter dated August 22, 1995 between Ocean Federal Savings
Bank and Sandler O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement
2.1 Amended Plan of Conversion (including the Federal Stock Charter and
Bylaws of Ocean Federal Savings Bank)*
3.1 Certificate of Incorporation of Ocean Financial Corp.*
3.2 Bylaws of Ocean Financial Corp.*
3.3 Federal Stock Charter and Bylaws of Ocean Federal Savings Bank (See
Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of Ocean Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Amended Opinion of Muldoon, Murphy & Faucette re: Federal and State Tax
Matters
10.1 Form of Ocean Federal Savings Bank Employee Stock Ownership Plan*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.3 Ocean Federal Savings Bank Employees' Savings & Profit Sharing Plan
(401(k))*
10.4 Ocean Federal Savings Bank 1995 Supplemental Executive Retirement Plan
10.5 Ocean Federal Savings Bank Deferred Compensation Plan for Directors*
10.6 Ocean Federal Savings Bank Deferred Compensation Plan for Officers*
10.7 Ocean Federal Savings Bank Long-Term Award Program*
10.8 Ocean Federal Savings Bank Performance Achievement Awards Program*
10.9 Form of Employment Agreement between Ocean Federal Savings Bank and
certain executive officers
10.10 Form of Employment Agreement between Ocean Financial Corp. and certain
executive officers
10.11 Form of Change in Control Agreement between Ocean Federal Savings Bank
and certain executive officers
10.12 Form of Change in Control Agreement between Ocean Financial Corp. and
certain executive officers
10.13 Form of Ocean Federal Savings Bank Employee Severance Compensation Plan*
23.1 Consent of KPMG Peat Marwick LLP
23.3 Consent of Muldoon, Murphy & Faucette*
23.4 Consent of Morris, Nichols, Arsht & Tunnell*
23.5 Consent and Subscription Rights Letter of RP Financial, Inc.*
24.1 Powers of Attorney*
99.1 Amended Appraisal Report of RP Financial, Inc. (P)
99.2 Form of Ocean Federal Foundation Gift Instrument
</TABLE>
- ------------------------
* Previously filed
<PAGE>
DRAFT
FORM OF AGREEMENT
_______________ Shares
(subject to increase up to____________ shares
in the event of an oversubscription)
Ocean Financial Corp.
(a Delaware corporation)
Common Stock
(par value $.01 per share)
AGENCY AGREEMENT
May ____, 1996
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Ocean Financial Corp., a Delaware corporation (the "Company"), and Ocean
Federal Savings Bank, a federal savings bank (the "Bank"), hereby confirm their
agreement with Sandler O'Neill & Partners, L.P. ("Sandler O'Neill" or the
"Agent") with respect to the offer and sale by the Company of _________ shares
(subject to increase up to __________ shares in the event of an
oversubscription) of the Company's Common Stock, par value $.01 per share (the
"Common Stock"). The shares of Common Stock to be sold by the Company are
hereinafter called the "Securities".
The Securities are being offered in accordance with the plan of conversion
(the "Plan") adopted by the Board of Directors of the Bank pursuant to which the
Bank intends to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank and issue all of its stock to the
Company. Pursuant to the Plan, the Company is offering to certain of the Bank's
depositors and borrowers and its tax qualified employee benefit plans (the
"Employee Plans") rights to subscribe for the Securities in a subscription
offering (the "Subscription Offering"). To the extent Securities are not
subscribed for in the Subscription Offering, such Securities may be offered to
certain members of the general
<PAGE>
public, with preference given to certain natural persons residing in Ocean,
Middlesex and Monmouth Counties, New Jersey in a direct community offering (the
"Community Offering" and together with the Subscription Offering, as each may be
extended or reopened from time to time, the "Subscription/Community Offering")
to be commenced concurrently with the Subscription Offering. It is currently
anticipated by the Bank and the Company that any Securities not subscribed for
in the Subscription/Community Offering will be offered, subject to Section 3
hereof, in a syndicated community offering (the "Syndicated Community
Offering"). The Subscription Offering and the Syndicated Community Offering are
hereinafter referred to collectively as the "Offerings", and the conversion of
the Bank from mutual to stock form, the acquisition of all of the capital stock
of the Bank by the Company and the Offerings are hereinafter referred to
collectively as the "Conversion". It is acknowledged that the number of
Securities to be sold in the Conversion may be increased or decreased as
described in the Prospectus (as hereinafter defined). If the number of
Securities is increased or decreased in accordance with the Plan, the term
"Securities" shall mean such greater or lesser number, where applicable. In the
event that a holding company form of organization is not utilized, all pertinent
terms of this Agreement will apply to the conversion of the Bank from the mutual
to stock form of organization and the sale of the Bank's common stock.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 33-80123), including a
related prospectus, for the registration of the Securities under the Securities
Act of 1933, as amended (the "1933 Act"), has filed such amendments thereto, if
any, and such amended prospectuses as may have been required to the date hereof
by the Commission in order to declare such registration statement effective, and
will file such additional amendments thereto and such amended prospectuses and
prospectus supplements as may hereafter be required. Such registration statement
(as amended to date, if applicable, and as from time to time amended or
supplemented hereafter) and the prospectus constituting a part thereof
(including in each case all documents incorporated or deemed to be incorporated
by reference therein and the information, if any, deemed to be part thereof
pursuant to the rules and regulations of the Commission under the 1933 Act, as
from time to time amended or supplemented pursuant to the 1933 Act or otherwise
(the "1933 Act Regulations")), are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be used by the Company in connection with the
Subscription/Community Offering or the Syndicated Community Offering which
differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective (whether or not such revised prospectus
is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus of the Company to be used in
the Subscription/Community Offering. Such Prospectus contains information with
respect to the Bank, the Company and the Common Stock.
2
<PAGE>
SECTION 1. Representations and Warranties.
(a) The Company and the Bank jointly and severally represent and warrant
to the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by the
Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the Company and
the Bank, threatened by the Commission. At the time the Registration Statement
became effective and at the Closing Time referred to in Section 2 hereof, the
Registration Statement complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, at the date hereof does not and at the
Closing Time referred to in Section 2 hereof will not, include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus made in reliance upon and in conformity
with information with respect to the Agent furnished to the Company in writing
by the Agent expressly for use in the Registration Statement or Prospectus (the
"Agent Information", which the Company and the Bank acknowledge appears only in
the sections captioned "Market for Common Stock" and "The Conversion Marketing
and Underwriting Agreements" and "Syndicated Community Offering" of the
Prospectus).
(ii) The Company has filed with the Department of the Treasury, Office
of Thrift Supervision (the "OTS") the Company's application for approval of its
acquisition of the Bank (the "Holding Company Application") on Form H-(e)1-S
promulgated under the savings and loan holding company provisions of the Home
Owner's Loan Act ("HOLA") and the regulations promulgated thereunder. The
Company has received written notice from the OTS of its approval of the
acquisition of the Bank, such approval remains in full force and effect and no
order has been issued by the OTS suspending or revoking such approval and no
proceedings therefor have been initiated or, to the knowledge of the Company or
the Bank, threatened by the OTS. At the date of such approval and at the Closing
Time referred to in Section 2, the Holding Company Application complied and will
comply in all material respects with the applicable provisions of HOLA and the
regulations promulgated thereunder.
(iii) Pursuant to the rules and regulations of the OTS governing the
conversion of federally chartered mutual savings associations to stock form (the
"Conversion Regulations"), the Bank has filed with the OTS an application for
conversion on Form AC, and has filed such amendments thereto and supplementary
materials as may have been required to the date hereof (such application, as
amended to date, if applicable, and as from time to time amended or supplemented
hereafter, is hereinafter referred to as the "Conversion Application"),
including copies of the Bank's Proxy Statement, dated May
3
<PAGE>
___, 1996, relating to the Conversion (the "Proxy Statement"), and the
Prospectus. The OTS has, by letter dated May __, 1996, approved the Conversion
Application, such approval remains in full force and effect and no order has
been issued by the OTS suspending or revoking such approval and no proceedings
therefor have been initiated or, to the knowledge of the Company or the Bank,
threatened by the OTS. At the date of such approval and at the Closing Time
referred to in Section 2 the Conversion Application complied and will comply in
all material respects with the applicable provisions of the Conversion
Regulations.
(iv) At the time of their use, the Proxy Statement and any other proxy
solicitation materials will comply in all material respects with the applicable
provisions of the Conversion Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Prospectus and all supplemental sales
literature, as of the date the Registration Statement became effective and at
the Closing Time referred to in Section 2, complied and will comply in all
material respects with the applicable requirements of the Conversion Regulations
and, at or prior to the time of their first use, will have received all required
authorizations of the OTS for use in final form.
(v) The OTS has not, by order or otherwise, prevented or suspended the
use of the Prospectus or any supplemental sales literature authorized by the
Company or the Bank for use in connection with the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company and the
Bank will have completed the conditions precedent to the Conversion in
accordance with the Plan, the applicable Conversion Regulations and all other
applicable laws, regulations, decisions and orders, including all material
terms, conditions, requirements and provisions precedent to the Conversion
imposed upon the Company or the Bank by the OTS, the Federal Deposit Insurance
Corporation (the "FDIC"), or any other regulatory authority, other than those
which the regulatory authority permits to be completed after the Conversion.
(vii) RP Financial, Inc., which prepared the valuation of the Bank as
part of the Conversion, satisfies all requirements for an appraiser set forth in
the Conversion Regulations.
(viii) The accountants who certified the financial statements and
supporting schedules of the Bank included in the Registration Statement are
independent public accountants within the meaning of the Code of Ethics of the
American Institute of Certified Public Accountants, and such accountants are,
with respect to the Company, the Bank and each subsidiary of the Bank,
independent certified public accountants as required by the 1933 Act and the
1933 Act Regulations.
4
<PAGE>
(ix) The consolidated financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present fairly
the financial position of the Company, the Bank and its consolidated subsidiary
as at the dates indicated and the results of operations, retained earnings and
cash flows for the periods specified, and comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act Regulations
and the Conversion Regulations; except as otherwise stated in the Registration
Statement, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; and the
supporting schedules and tables included in the Registration Statement present
fairly the information required to be stated therein.
(x) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein
(A) there has been no material adverse change in the financial condition,
results of operations or business affairs of the Company, the Bank and its
subsidiary considered as one enterprise, whether or not arising in the ordinary
course of business, and (B) except for transactions specifically referred to or
contemplated in the Prospectus, there have been no transactions entered into by
the Company, the Bank or its subsidiary, other than those in the ordinary course
of business, which are material with respect to the Company, the Bank and its
subsidiary considered as one enterprise.
(xi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to enter into and
perform its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not have a material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Bank and its subsidiary
considered as one enterprise.
(xii) Upon consummation of the Conversion, the authorized, issued and
outstanding capital stock of the Company will be within the range set forth in
the Prospectus under "Capitalization" (except for subsequent issuances, if any,
pursuant to reservations, agreements or employee benefit plans referred to in
the Prospectus); except for shares issued in connection with the initial
capitalization of the Company, which shares will be canceled upon consummation
of the Conversion, no shares of Common Stock have been or will be issued and
outstanding prior to the Closing Time referred to in Section 2; at the time of
Conversion, the Securities will have been duly authorized for issuance and, when
issued and delivered by the Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be duly and validly
issued and fully paid and non-assessable; the terms and provisions of the Common
Stock and the capital stock of the Company conform to all statements relating
thereto contained in the Prospectus; and the issuance of the Securities is not
subject to preemptive or other similar rights.
5
<PAGE>
(xiii) The Bank, as of the date hereof, is a federally chartered
savings bank in mutual form and upon consummation of the Conversion will be a
federally chartered savings bank in stock form, in both instances with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus; the Company, the Bank and
its subsidiary have obtained all licenses, permits and other governmental
authorizations currently required for the conduct of their respective businesses
or required for the conduct of their respective businesses as contemplated by
the Holding Company Application and the Conversion Application, except where the
failure to obtain such licenses, permits or other governmental authorizations
would not have a material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Bank and its subsidiary
considered as one enterprise; all such licenses, permits and other governmental
authorizations are in full force and effect and the Company, the Bank and its
subsidiary are in all material respects in compliance therewith; neither the
Company, the Bank nor the Bank's subsidiary has received notice of any
proceeding or action relating to the revocation or modification of any such
license, permit or other governmental authorization which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the financial condition, results of operations
or business affairs of the Company, the Bank and its subsidiary, considered as
one enterprise; and the Bank is in good standing under the laws of the United
States and is qualified as a foreign corporation in any jurisdiction in which
the failure to so qualify would have a material adverse effect on the financial
condition, results of operations or business affairs of the Company, the Bank
and its subsidiary considered as one enterprise.
(xiv) The deposit accounts of the Bank are insured by the FDIC and
upon consummation of the Conversion, the liquidation account for the benefit of
eligible account holders and supplemental eligible account holders will be duly
established in accordance with the requirements of the Conversion Regulations.
(xv) No shares of Bank common stock have been or will be issued prior
to the Closing Time referred to in Section 2; and as of Closing Time referred to
in Section 2, all of the issued and outstanding capital stock of the Bank will
be duly authorized, validly issued and fully paid and nonassessable, and all
such capital stock will be owned beneficially and of record by the Company free
and clear of any mortgage, pledge, lien, encumbrance or claim.
(xvi) The only subsidiary of the Bank, Dome Financial Services, Inc.,
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and Prospectus,
and is duly qualified to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business except where the
failure to so qualify would not have a material adverse effect on the financial
condition, results of operations or business affairs of the Company, the Bank
and its subsidiary considered as one enterprise; the activities of such
subsidiary are permitted to subsidiaries of a federally
6
<PAGE>
chartered savings bank by the rules, regulations, resolutions and practices of
the OTS; all of the issued and outstanding capital stock of such subsidiary has
been duly authorized and validly issued, is fully paid and nonassessable and is
owned by the Bank directly, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; and the Bank has no indirect
subsidiaries.
(xvii) The Company and the Bank have taken all corporate action
necessary for them to execute, deliver and perform this Agreement, and this
Agreement has been duly executed and delivered by, and is the valid and binding
agreement of, the Company and the Bank, enforceable in accordance with its
terms, except as may be limited by bankruptcy, insolvency or other laws
affecting the enforceability of the rights of creditors generally and judicial
limitations on the right of specific performance and except as the
enforceability of indemnification and contribution provisions may be limited by
applicable securities laws.
(xviii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Time, except as otherwise may be indicated or contemplated therein, none of the
Company, the Bank or the subsidiary of the Bank will have (A) issued any
securities or incurred any material liability or obligation, direct or
contingent, or borrowed money, except borrowings in the ordinary course of
business from the same or similar sources and in similar amounts as indicated in
the Prospectus, or (B) entered into any transaction or series of transactions
which is material in light of the business of the Company, the Bank and its
subsidiary, taken as a whole, excluding the origination and sale of loans or the
purchase of investment securities or mortgage-backed securities in the ordinary
course of business or otherwise as indicated in the Prospectus.
(xix) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Securities, except for the declaration of
effectiveness of any required post-effective amendment to the Registration
Statement by the Commission and approval thereof by the OTS, the issuance of the
federal stock charter by the OTS and as may be required under the securities
laws of various jurisdictions.
(xx) Neither the Company, the Bank nor the Bank's subsidiary is in
violation of its certificate of incorporation, articles of incorporation or
charter or bylaws, as the case may be (and the Bank will not be in violation of
its charter or bylaws in stock form upon consummation of the Conversion); and
neither the Company, the Bank nor any of the Bank's subsidiary is in default
(nor has any event occurred which, with notice or lapse of time or both, would
constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which the Company, the Bank
or any of its subsidiary is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company, the Bank or any of its
subsidiary is subject, except for such defaults that would not, individually or
in the aggregate, have a material adverse effect
7
<PAGE>
on the financial condition, results of operations or business of the Company,
the Bank and its subsidiary considered as one enterprise.
(xxi) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action and do not and will not conflict
with or constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company, the Bank or its subsidiary pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Company,
the Bank or its subsidiary is a party or by which it or any of them may be
bound, or to which any of the property or assets of the Company or any of its
subsidiary is subject, except for such defaults that would not, individually or
in the aggregate, have a material adverse effect on the financial condition,
results of operations or business affairs of the Company, the Bank and its
subsidiary considered as one enterprise; nor will such action result in any
violation of the provisions of the certificate of incorporation, articles of
incorporation or charter, as the case may be, or bylaws of the Company, the Bank
or its subsidiary; nor will such action result in any violation of any
applicable law, administrative regulation or administrative or court decree.
(xxii) No labor dispute with the employees of the Company, the Bank or
any of its subsidiary exists or, to the knowledge of the Company or the Bank, is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or contractors
which might be expected to result in any material adverse change in the
financial condition, results of operations or business affairs of the Company,
the Bank and its subsidiary considered as one enterprise.
(xxiii) The Company, the Bank and its subsidiary have good and
marketable title to all properties and assets for which ownership is material to
the business of the Company, the Bank or its subsidiary and to those properties
and assets described in the Prospectus as owned by them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are described in
the Prospectus or are not material in relation to the business of the Company,
the Bank or its subsidiary considered as one enterprise; and all of the leases
and subleases material to the business of the Company, the Bank or its
subsidiary under which the Company, the Bank or its subsidiary hold properties,
including those described in the Prospectus, are valid and binding agreements of
the Company, the Bank and its subsidiary, enforceable in accordance with their
terms.
(xxiv) The Company, the Bank and its subsidiary are not in violation
of any directive from the OTS or the FDIC to make any material change in the
method of conducting their respective businesses; the Bank and its subsidiary
have conducted and are conducting their business so as to comply in all material
respects with all applicable statutes, regulations and administrative and court
decrees (including, without limitation, all regulations, decisions, directives
and orders of the OTS or the FDIC).
8
<PAGE>
(xxv) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company or the Bank, threatened, against or affecting the
Company, the Bank or any of its subsidiary which is required to be disclosed in
the Registration Statement (other than as disclosed therein), or which might
result in any material adverse change in the financial condition, results of
operations or business affairs of the Company, the Bank and its subsidiary
considered as one enterprise, or which might materially and adversely affect the
properties or assets thereof or which might materially and adversely affect the
consummation of the Conversion; all pending legal or governmental proceedings to
which the Company, the Bank or any subsidiary is a party or of which any of
their respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation incidental to
the business, are considered in the aggregate not material; and there are no
contracts or documents of the Company, the Bank or its subsidiary which are
required to be filed as exhibits to the Registration Statement or the Conversion
Application which have not been so filed.
(xxvi) The Bank has obtained an opinion of its counsel, Muldoon,
Murphy & Faucette, with respect to the legality of the Securities to be issued
and the federal and the New Jersey income tax consequences of the Conversion,
copies of which are filed as exhibits to the Registration Statement; all
material aspects of the aforesaid opinions are accurately summarized in the
Prospectus; the facts and representations upon which such opinions are based are
truthful, accurate and complete in all material respects; and neither the Bank
nor the Company has taken any action inconsistent therewith.
(xxvii) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxviii) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank included in
the Prospectus meet or are exempt from all requirements of federal, state or
local law pertaining to lending, including without limitation truth in lending
(including the requirements of Regulations Z and 12 C.F.R. Part 226 and
Section 563.99), real estate settlement procedures, consumer credit protection,
equal credit opportunity and all disclosure laws applicable to such loans,
except for violations which, if asserted, would not result in a material adverse
effect on the financial condition, results of operations or business of the
Company, the Bank and its subsidiary considered as one enterprise.
(xxix) To the knowledge of the Company and the Bank, none of the
Company, the Bank or employees of the Bank has made any payment of funds of the
Company or the Bank as a loan for the purchase of the Common Stock or made any
other payment of funds prohibited by law, and no funds have been set aside to be
used for any payment prohibited by law.
(xxx) The Company, the Bank and its subsidiary are in compliance in
all material respects with the applicable financial recordkeeping and reporting
requirements of
9
<PAGE>
the Currency and Foreign Transaction Reporting Act of 1970, as amended and the
rules and regulations thereunder.
(xxxi) Neither the Company, the Bank nor its subsidiary nor any
properties owned or operated by the Company, the Bank or its subsidiary is in
violation of or liable under any Environmental Law (as defined below), except
for such violations or liabilities that, individually or in the aggregate, would
not have a material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Bank and the subsidiary
considered as one enterprise. There are no actions, suits or proceedings, or
demands, claims, notices or investigations (including, without limitation,
notices, demand letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of the Company or the Bank,
threatened, relating to the liability of any property owned or operated by the
Company, the Bank or the subsidiary thereof, under any Environmental Law. For
purposes of this subsection, the term "Environmental Law" means any federal,
state, local or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order, judgment, decree,
injunction or agreement with any regulatory authority relating to (i) the
protection, preservation or restoration of the environment (including, without
limitation, air, water, vapor, surface water, groundwater, drinking water
supply, surface soil, subsurface soil, plant and animal life or any other
natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether
by type or by quantity, including any material containing any such substance as
a component.
(xxxii) The Company, the Bank and its subsidiary have filed all
federal income and state and local franchise tax returns required to be filed
and have made timely payments of all taxes shown as due and payable in respect
of such returns, and no deficiency has been asserted with respect thereto by any
taxing authority.
(xxxiii) The Company has received approval, subject to regulatory
approval to consummate the Offerings and issuance, to have the Securities quoted
on the Nasdaq Stock Market ("Nasdaq National Market") effective as of the
Closing Time.
(b) Any certificate signed by any officer of the Company or the Bank and
delivered to either of the Agent or counsel for the Agent shall be deemed a
representation and warranty by the Company or the Bank to each Agent as to the
matters covered thereby.
SECTION 2. Appointment of Sandler O'Neill; Sale and Delivery of the
Securities; Closing.
On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Company hereby
appoints Sandler O'Neill as its Agent to consult with and advise the Company,
and to assist the Company with the solicitation of subscriptions and purchase
orders for Securities, in connection with the
10
<PAGE>
Company's sale of Common Stock in the Subscription/Community Offering and the
Syndicated Community Offering. On the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, Sandler O'Neill hereby accepts such appointment and agrees to use its
best efforts to assist the Company with the solicitation of subscriptions and
purchase orders for Securities in accordance with this Agreement; provided,
however, that the Agent shall not be obligated to take any action which is
inconsistent with any applicable laws, regulations, decisions or orders. The
services to be rendered by Sandler O'Neill pursuant to this appointment include
the following: (i) consulting as to the securities marketing implications of any
aspect of the Plan of Conversion or related corporate documents; (ii) reviewing
with the Board of Directors the independent appraiser's appraisal of the Common
Stock; (iii) reviewing all offering documents, including the Prospectus, stock
order form and related offering materials (it being understood that preparation
and filing of such documents is the sole responsibility of the Company and the
Bank and their counsel); (iv) assisting in the design and implementation of a
marketing strategy for the Offerings; (v) providing support to the Company and
the Bank in obtaining all requisite regulatory approvals; (vi) assisting Bank
management in preparing for meetings with potential investors and broker-
dealers; and (vii) providing such other general advice and assistance as may be
requested to promote the successful completion of the Offerings.
The appointment of the Agent hereunder shall terminate upon the earlier to
occur of (a) forty-five (45) days after the last day of the
Subscription/Community Offering, unless the Company and the Agent agree in
writing to extend such period and the OTS agrees to extend the period of time in
which the Shares may be sold, or (b) the receipt and acceptance of subscriptions
and purchase orders for all of the Securities.
If any of the Securities remain available after the expiration of the
Subscription/Community Offering, at the request of the Company and the Bank, the
Agent will seek to form a syndicate of registered broker or dealers ("Selected
Dealers") to assist in the solicitation of purchase orders of such Securities on
a best efforts basis, subject to the terms and conditions set forth in a
selected dealers' agreement (the "Selected Dealers' Agreement"), substantially
in the form set forth in Exhibit A to this Agreement. Sandler O'Neill will
endeavor to limit the aggregate fees to be paid by the Company and the Bank
under any such Selected Dealers' Agreement to an amount competitive with gross
underwriting discounts charged at such time for underwritings of comparable
amounts of stock sold at a comparable price per share in a similar market
environment; provided, however, that the aggregate fees payable to the Agent and
Selected Dealers shall not exceed 7% of the aggregate Actual Purchase Price (as
defined in the Prospectus) of the Securities sold by such Selected Dealers. The
Agent will endeavor to distribute the Securities among the Selected Dealers in a
fashion which best meets the distribution objective of the Company and the
requirements of the Plan, which may result in limiting the allocation of stock
to certain Selected Dealers. It is understood that in no event shall the Agent
be obligated to act as a Selected Dealer or to take or purchase any Securities.
11
<PAGE>
In the event the Company is unable to sell at least the total minimum of
the Securities, as set forth on the cover page of the Prospectus, within the
period herein provided, this Agreement shall terminate and the Company shall
refund to any persons who have subscribed for any of the Securities the full
amount which it may have received from them, together with interest as provided
in the Prospectus, and no party to this Agreement shall have any obligation to
the others hereunder, except for the obligations of the Company and the Bank as
set forth in Sections 4, 6(a) and 7 hereof and the obligations of the Agent as
provided in Sections 6(b) and 7 hereof. Appropriate arrangements for placing the
funds received from subscriptions for Securities or other offers to purchase
Securities in special interest-bearing accounts with the Bank until all
Securities are sold and paid for were made prior to the commencement of the
Subscription Offering, with provision for refund to the purchasers as set forth
above, or for delivery to the Company if all Securities are sold.
If at least the total minimum of Securities, as set forth on the cover page
of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to above. The closing shall be held at the
offices of Muldoon, Murphy & Faucette, at 10:00 a.m., local time, or at such
other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. Certificates for Securities shall be delivered
directly to the purchasers thereof in accordance with their directions.
Notwithstanding the foregoing, certificates for Securities purchased through
Selected Dealers shall be made available to the Agent for inspection at least 48
hours prior to the Closing Time at such office as the Agent shall designate.
The hour and date upon which the Company shall release for delivery all of the
Securities, in accordance with the terms hereof, is herein called the "Closing
Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section 4 hereof,
the Agent will receive the following compensation for its services hereunder:
(a) One and three quarters percent (1.75%) of the aggregate
Actual Purchase Price of the Securities sold in the Subscription
Offering or purchased by members of the general public, in the
Community Offering, excluding in each case shares purchased by (i) any
employee benefit plan of the Bank or Company established for the
benefit of their respective directors, officers and employees and any
director, officer or employee of the Bank or members of their
immediate families which term shall mean parents, spouse, siblings,
children and grandchildren; and
(b) with respect to any Securities sold by a National Association
of Securities Dealers, Inc. ("NASD") member firm (other than Sandler
O'Neill)
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under the Selected Dealers' Agreement in the Syndicated Community
Offering, (i) the compensation payable to Selected Dealers under any
Selected Dealers' Agreement, (ii) any sponsoring dealer's fees; and
(iii) a management fee to Sandler O'Neill of one and one-half percent
(1.5%). Any fees payable to Sandler O'Neill for Securities sold by
Sandler O'Neill under any such agreement shall be limited to an
aggregate of one and three quarters percent (1.75%) of the Actual
Purchase Price of such Securities.
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Conversion is terminated by the
Company, no fee shall be payable by the Company to Sandler O'Neill;
provided,however, the Company shall reimburse the Agent for all of its
reasonable out-of-pocket expenses incurred prior to termination, including the
reasonable fees and disbursements of counsel for the Agent in accordance with
the provisions of Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in immediately
available funds at Closing Time, or upon the termination of this Agreement, as
the case may be. In recognition of the long lead times involved in the
conversion process, the Bank agrees to make advance payments to Sandler O'Neill
in the aggregate amount of $50,000, $25,000 of which has been previously paid
and the remaining $25,000 of which shall be payable upon execution hereof, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
SECTION 3. Covenants of the Company.
The Company and the Bank covenant with the Agent as follows:
(a) The Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the Conversion
Application and the Proxy Statement as may hereafter be required by the 1933 Act
Regulations or the Conversion Regulations or as may hereafter be requested by
the Agent. The Company and the Bank will promptly file the Prospectus and any
supplemental sales literature with the OTS. Following completion of the
Subscription/Community Offering, in the event of a Syndicated Community
Offering, the Company and the Bank will (i) promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement relating to
the results of the Subscription/Community Offering, any additional information
with respect to the proposed plan of distribution and any revised pricing
information or (ii) if no such post-effective amendment is required, will file
with, or mail for filing to, the Commission a prospectus or prospectus
supplement containing information relating to the results of the
Subscription/Community Offering and pricing information pursuant to Rule 424(c)
of the 1933 Act Regulations, in either case in a form acceptable to the Agent.
The Company and the Bank will notify the Agent immediately, and confirm the
notice in writing, (i) of the effectiveness of any post-effective amendment of
the Registration Statement, the filing of any supplement to the Prospectus and
the filing of any amendment to the Conversion Application, (ii) of the receipt
of any comments from the OTS or the
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Commission with respect to the transactions contemplated by this Agreement or
the Plan, (iii) of any request by the Commission or the OTS for any amendment to
the Registration Statement or the Conversion Application or any amendment or
supplement to the Prospectus or for additional information, (iv) of the issuance
by the OTS of any order suspending the Offerings or the use of the Prospectus or
the initiation of any proceedings for that purpose, (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, and (vi) of the
receipt of any notice with respect to the suspension of any qualification of the
Securities for offering or sale in any jurisdiction. The Company and the Bank
will make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) The Company and the Bank will give the Agent notice of its intention to
file or prepare any amendment to the Conversion Application or Registration
Statement (including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which the Company
proposes for use in connection with the Syndicated Community Offering of the
Securities which differs from the prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act
Regulations), will furnish the Agent with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement or use any
such prospectus to which the Agent or counsel for the Agent may object.
(c) The Company and the Bank will deliver to the Agent as many signed
copies and as many conformed copies of the Conversion Application and the
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein) as the
Agent may reasonably request, and from time to time such number of copies of
the Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be delivered, the
Company and the Bank will comply, at their own expense, with all requirements
imposed upon them by the OTS, by the applicable Conversion Regulations, as from
time to time in force, and by the 1933 Act, the 1933 Act Regulations, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and
regulations of the Commission promulgated thereunder, including, without
limitation, Rule 10b-6 under the 1934 Act, so far as necessary to permit the
continuance of sales or dealing in shares of Common Stock during such period in
accordance with the provisions hereof and the Prospectus.
(e) If any event or circumstance shall occur as a result of which it is
necessary, in the reasonable opinion of counsel for the Agent, to amend or
supplement the Prospectus in order to make the Prospectus not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser,
the Company and the Bank will forthwith amend or supplement the Prospectus (in
form and substance satisfactory to counsel for the Agent) so
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that, as so amended or supplemented, the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances existing at
the time it is delivered to a purchaser, not misleading, and the Company and the
Bank will furnish to the Agent a reasonable number of copies of such amendment
or supplement. For the purpose of this subsection, the Company and the Bank will
each furnish such information with respect to itself as the Agent may from time
to time reasonably request.
(f) The Company and the Bank will take all necessary action, in cooperation
with the Agent, to qualify the Securities for offering and sale under the
applicable securities laws of such states of the United States and other
jurisdictions as the Conversion Regulations may require and as the Agent and the
Company have agreed; provided, however, that the Company and the Bank shall not
be obligated to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so qualified.
(g) The Company authorizes Sandler O'Neill and any Selected Dealers to act
as agent of the Company in distributing the Prospectus to persons entitled to
receive subscription rights and other persons to be offered Securities having
record addresses in the states or jurisdictions set forth in a survey of the
securities or "blue sky" laws of the various jurisdictions in which the
Offerings will be made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning
not later than the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration Statement.
(i) During the period ending on the third anniversary of the expiration of
the fiscal year during which the closing of the transactions contemplated hereby
occurs, the Company will furnish to its stockholders as soon as practicable
after the end of each such fiscal year an annual report (including consolidated
statements of financial condition and consolidated statements of income,
stockholders' equity and cash flows, certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), consolidated summary
financial information of the Company for such quarter in reasonable detail. In
addition, such annual report and quarterly consolidated summary financial
information shall be made public through the issuance of appropriate press
releases at the same time or prior to the time of the furnishing thereof to
stockholders of the Company.
(j) During the period ending on the third anniversary of the expiration of
the fiscal year during which the closing of the transactions contemplated hereby
occurs, the Company will furnish to the Agent (i) as soon as available, a copy
of each report or other
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document of the Company furnished generally to stockholders of the Company or
furnished to or filed with the Commission under the 1934 Act or any national
securities exchange or system on which any class of securities of the Company is
listed, and (ii) from time to time, such other information concerning the
Company as the Agent may reasonably request.
(k) The Company and the Bank will conduct the Conversion in all material
respects in accordance with the Plan, the Conversion Regulations and all other
applicable regulations, decisions and orders, including all applicable terms,
requirements and conditions precedent to the Conversion imposed upon the Company
or the Bank by the OTS.
(l) The Company and the Bank will use the net proceeds received by them
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
(m) The Company will file with the Commission such reports on Form SR as
may be required pursuant to Rule 463 of the 1933 Act Regulations.
(n) The Company will file a registration statement for the Common Stock
under Section 12(g) of the 1934 Act prior to completion of the Offerings and
will request that such registration statement be effective upon completion of
the Conversion. The Company will maintain the effectiveness of such registration
for not less than three years. The Company will file with the Nasdaq Stock
Market all documents and notices required by the Nasdaq Stock Market of
companies that have issued securities that are traded in the over-the-counter
market and quotations for which are reported by the Nasdaq National Market.
(o) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the NASD's "Interpretation Relating to Free-Riding and
Withholding."
(p) Other than in connection with any employee benefit plan or arrangement
described in the Prospectus, the Company will not, without the prior written
consent of the Agent, sell or issue, contract to sell or otherwise dispose of,
any shares of Common Stock other than the Securities for a period of 180 days
following the Closing Time.
(q) During the period beginning on the date hereof and ending on the later
of the third anniversary of the Closing Time or the date on which the Agent
receives full payment in satisfaction of any claim for indemnification or
contribution to which it may be entitled pursuant to Sections 6 or 7 hereof,
respectively, neither the Company nor the Bank shall, without the prior written
consent of the Agent, which consent shall not be unreasonably withheld, take or
permit to be taken any action that could result in the Bank Common Stock
becoming subject to any security interest, mortgage, pledge, lien or
encumbrance; provided, however, that this covenant shall be null and void if the
Board of Governors of the Federal Reserve System, by regulation, policy
statement or interpretive release, or by written order or written advice
addressed to the Bank or the Agent specifically addressing the provisions
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of Section 6(a) hereof, permits indemnification of the Agent by the Bank as
contemplated by such provisions.
SECTION 4. Payment of Expenses.
The Company and the Bank jointly and severally agree to pay all expenses
incident to the performance of their obligations under this Agreement, including
but not limited to (i) the cost of obtaining all securities and bank regulatory
approvals, (ii) the printing and filing of the Registration Statement and the
Conversion Application as originally filed and of each amendment thereto,
(iii) the preparation, issuance and delivery of the certificates for the
Securities to the purchasers in the Offerings, (iv) the fees and disbursements
of the Company's and the Bank s counsel, accountants, conversion agent,
appraiser and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fees and disbursements of counsel in connection
therewith and in connection with the preparation of the Blue Sky Survey, (vi)
the printing and delivery to the Agent of copies of the Registration Statement
as originally filed and of each amendment thereto and the printing and delivery
of the Prospectus and any amendments or supplements thereto to the purchasers in
the Offerings and the Agent, (vii) the printing and delivery to the Agent of
copies of a Blue Sky Survey, and (viii) the fees and expenses incurred in
connection with the listing of the Securities on the Nasdaq Stock Market. In the
event the Agent incurs any such fees and expenses on behalf of the Bank or the
Company, the Bank will reimburse the Agent for such fees and expenses whether or
not the Conversion is consummated; provided, however, that the Agent shall not
incur any substantial expenses on behalf of the Bank or the Company pursuant to
this Section without the prior approval of the Bank, which approval shall not be
unreasonable withheld.
The Company and the Bank jointly and severally agree to pay certain
expenses incident to the performance of the Agent's obligations under this
Agreement, including (i) the filing fees paid or incurred by the Agent in
connection with all filings with the NASD, and (ii) all reasonable out of pocket
expenses incurred by the Agent relating to the Offerings, including, without
limitation, advertising, promotional, syndication and travel expenses and fees
and expenses of the Agent's counsel, up to an aggregate of $100,000. All fees
and expenses to which the Agent are entitled to reimbursement under this
paragraph of this Section 4 shall be due and payable upon receipt by the Company
or the Bank of a written accounting therefor setting forth in reasonable detail
the expenses incurred by the Agent.
SECTION 5. Conditions of Agent's Obligations.
The Company, the Bank and the Agent agree that the issuance and the sale of
Securities and all obligations of the Agent hereunder are subject to the
accuracy of the representations and warranties of the Company and the Bank
herein contained as of the date hereof and the Closing Time, to the accuracy of
the statements of officers and directors of the Company and the Bank made
pursuant to the provisions hereof, to the performance
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<PAGE>
by the Company and the Bank of their obligations hereunder, and to the following
further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, no order suspending the Offerings or
authorization for final use of the Prospectus shall have been issued or
proceedings therefor initiated or threatened by the OTS and no order suspending
the sale of the Securities in any jurisdiction shall have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Muldoon,
Murphy & Faucette, special counsel for the Company and the Bank, in form and
substance satisfactory to counsel for the Agent, to the effect that:
(i) The Company has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Delaware.
(ii) The Company has full corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Registration
Statement and Prospectus and to enter into and perform its
obligations under this Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in the State
of New Jersey and each jurisdiction in which the failure
to so qualify would have a material adverse effect upon
the financial condition, results of operations or business
affairs of the Company.
(iv) Upon consummation of the Conversion, the authorized,
issued and outstanding capital stock of the Company will
be within the range set forth in the Prospectus under
"Capitalization" and, except for shares issued upon
incorporation of the Company, no shares of Common Stock
have been or will be issued and outstanding prior to the
Closing Time.
(v) The Securities have been duly and validly authorized for
issuance and sale and, when issued and delivered by the
Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be
duly and validly issued and fully paid and non-assessable.
The
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certificates representing the shares of Common Stock
conform to the requirements of Delaware law.
(vi) The issuance of the Securities is not subject to
preemptive or other similar rights arising by operation of
law or, to their knowledge, otherwise.
(vii) The Bank has been at all times since the date hereof and
prior to the Closing Time organized and validly existing
under the laws of the United States of America as a
federally chartered savings bank of mutual form, and, at
Closing Time, has become duly organized and validly
existing under the laws of the United States of America as
a federally chartered savings bank in stock form, in both
instances with full corporate power and authority to own,
lease and operate its properties and to conduct its
business as described in the Registration Statement and
the Prospectus; and the Bank is duly qualified as a
foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse effect
upon the financial condition, results of operations or
business affairs of the Bank.
(viii) The Bank is a member of the Federal Home Loan Bank of New
York and the deposit accounts of the Bank are insured by
the FDIC up to the applicable limits.
(ix) The only subsidiary of the Bank has been duly
incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Registration Statement and is
duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material
adverse effect upon the financial condition, results of
operations or business of the Bank and its subsidiary,
taken as a whole; the activities of such subsidiary are
permitted to subsidiary of a savings association holding
company and of a federally chartered savings bank by the
rules, regulations, resolutions and practices of the OTS;
all of the issued and outstanding capital stock of such
subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Bank,
directly or through subsidiary, free and clear of any
security interest, mortgage,
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pledge, lien, encumbrance, claim or equity; the Bank has
no indirect subsidiaries.
(x) Upon consummation of the Conversion, all of the issued and
outstanding capital stock of the Bank will be duly
authorized and validly issued and fully paid and
nonassessable, and all such capital stock will be owned
beneficially and of record by the Company free and clear
of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(xi) The OTS has duly approved the Holding Company Application
and the Conversion Application and no action is pending,
or to such counsel s knowledge, threatened respecting the
Holding Company Application or the Conversion Application
or the acquisition by the Company of all of the Bank's
issued and outstanding capital stock; the Holding Company
Application and the Conversion Application comply as to
form with the applicable requirements of the OTS and
include all documents required to be filed as exhibits
thereto; and the Company is duly authorized to become a
savings association holding company and is duly authorized
to own all of the issued and outstanding capital stock of
the Bank to be issued pursuant to the Plan.
(xii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action
on the part of each of the Company and the Bank, and this
Agreement constitutes the legal, valid and binding
agreement of each of the Company and the Bank, enforceable
in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited under
applicable law (it being understood that such counsel may
avail itself of customary exceptions concerning the effect
of bankruptcy, insolvency or similar laws and the
availability of equitable remedies); the execution and
delivery of this Agreement, the incurrence of the
obligations herein set forth and the consummation of the
transactions contemplated herein will not result in any
violation of the provisions of the certificate of
incorporation, articles of incorporation or charter, as
the case may be, or bylaws of the Company, the Bank or its
subsidiary; and, to the best of such counsel s knowledge,
the execution and delivery of this Agreement, the
incurrence of
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the obligations herein set forth and the consummation of
the transactions contemplated herein will not conflict
with or constitute a breach of, or default under, and no
default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a
default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or
assets of the Company, the Bank or its subsidiary pursuant
to any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company, the
Bank or its subsidiary is a party or by which any of them
may be bound, or to which any of the property or assets of
the Company, the Bank or its subsidiary is subject that,
individually or in the aggregate, would have a material
adverse effect on the financial condition, results of
operations or business affairs of the Company, the Bank
and its subsidiary considered as one enterprise.
(xiii) The Prospectus has been duly authorized by the OTS for
final use pursuant to the Conversion Regulations and no
action is pending, or to such counsel's knowledge, is
threatened, by the OTS to revoke such authorization.
(xiv) The Registration Statement is effective under the 1933
Act and no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act
or proceedings therefor initiated or to such counsel's
knowledge and information threatened by the Commission.
(xv) No further approval, authorization, consent or other order
of any public board or body is required in connection with
the execution and delivery of this Agreement, the issuance
of the Securities and the consummation of the Conversion,
except as may be required under the securities or Blue Sky
laws of various jurisdictions as to which no opinion need
be rendered.
(xvi) At the time the Registration Statement became effective,
the Registration Statement (other than the financial
statements and statistical data included therein, as to
which no opinion need be rendered) complied as to form in
all material respects with the requirements of the 1933
Act and the 1933 Act Regulations and the Conversion
Regulations.
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(xvii) The Common Stock conforms to the description thereof
contained in the Prospectus, and the form of certificate
used to evidence the Common Stock is in due and proper
form and complies with all applicable statutory
requirements.
(xviii) To counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against or affecting the
Company, the Bank or its subsidiary which are required to
be disclosed in the Registration Statement and Prospectus,
other than those disclosed therein, and all pending legal
or governmental proceedings to which the Company, the Bank
or any of its subsidiary is a party or to which any of
their property is subject which are not described in the
Registration Statement, including ordinary routine
litigation incidental to the business, are, considered in
the aggregate, not material.
(xix) The information in the Prospectus under "Dividend
Policy", "Federal and State Taxation", "Regulation", "The
Conversion-Tax Aspects", "Restrictions on Acquisitions of
the Holding Company and the Bank", "Description of Capital
Stock of the Company" and "Description of Capital Stock of
the Bank", to the extent that it constitutes matters of
law, summaries of legal matters, documents or proceedings,
or legal conclusions, has been reviewed by them and is
correct in all material respects.
(xx) To counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to
in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein
or filed as exhibits thereto, the descriptions thereof or
references thereto are correct and no default exists, and
no event has occurred which, with notice or lapse of time
or both, would constitute a default in the due performance
of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument so
described, referred to or filed.
(xxi) The Plan has been duly authorized by the Board of
Directors of the Company and the Board of Directors of the
Bank and, to such counsel's knowledge, the OTS's approval
of the Plan remains in full force and effect; the Bank's
charter has been amended, effective upon consummation of
the Conversion and the filing of such
22
<PAGE>
amended charter with the OTS, to authorize the issuance of
permanent capital stock; to such counsel's knowledge, the
Company and the Bank have conducted the Conversion in all
material respects in accordance with applicable
requirements of the Conversion Regulations, the Plan and
all other applicable regulations, decisions and orders
thereunder, including all material applicable terms,
conditions, requirements and conditions precedent to the
Conversion imposed upon the Company or the Bank by the OTS
and no order has been issued by the OTS to suspend the
Offerings and no action for such purpose has been
instituted or, to such counsel's knowledge, threatened by
the OTS; and, to such counsel's knowledge, no person has
sought to obtain review of the final action of the OTS in
approving the Plan.
(xxii) To such counsel's knowledge, the Company and the Bank and
its subsidiary have obtained all licenses, permits and
other governmental authorizations currently required for
the conduct of their respective businesses as described in
the Registration Statement and Prospectus, and all such
licenses, permits and other governmental authorizations
are in full force and effect, and the Company and the Bank
and its subsidiary are in all material respects complying
therewith.
(xxiii) Neither the Company, nor the Bank nor its subsidiary is in
violation of its certificate of incorporation, articles of
incorporation or charter, as the case may be (and the Bank
will not be in violation of its charter in stock form upon
consummation of the Conversion) or, to such counsel's
knowledge, in default (nor has any event occurred which,
with notice or lapse of time or both, would constitute a
default) in the performance or observance of any material
obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company, the Bank
or any of its subsidiary is a party or by which the
Company, the Bank or any of its subsidiary or any of their
property may be bound.
(xxiv) The Company is not required to be registered as an
investment company under the Investment Company Act of
1940.
(2) The favorable opinion, dated as of Closing Time, of Elias, Matz,
Tiernan & Herrick L.L.P., counsel for the Agent, with respect to the matters set
forth in
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Section 5(b)(1)(i), (iv), (v), (vi) (solely as to preemptive rights arising by
operation of law), (xii), (xvi) and (xvii) and such other matters as the Agent
may reasonably require.
(3) In giving their opinions required by subsections (b)(l) and
(b)(2), respectively, of this Section, Muldoon, Murphy & Faucette and Elias,
Matz, Tiernan & Herrick L.L.P. shall each additionally state that nothing has
come to their attention that would lead them to believe that the Registration
Statement (except for financial statements, the notes thereto and other
financial, statistical data and appraisal included therein, as to which counsel
need make no statement), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus (except for financial statements and schedules and other
financial or statistical data included therein, as to which counsel need make no
statement), at the time the Registration Statement became effective or at
Closing Time, included an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. In giving
their opinions, Muldoon, Murphy & Faucette and Elias, Matz, Tiernan & Herrick
L.L.P. may rely as to matters of fact on certificates of officers and directors
of the Company and the Bank and certificates of public officials, and as to
certain matters of Delaware law upon the opinion of Morris, Nichols, Arsht &
Tunnell, which opinion shall be in form and substance satisfactory to counsel
for the Agent, and Elias, Matz, Tiernan & Herrick L.L.P. may also rely on the
opinions of Muldoon, Murphy & Faucette and Morris, Nichols, Arsht & Tunnell
except as to paragraph (xvi) hereof. The opinions of Muldoon, Murphy & Faucette
and Elias, Matz, Tiernan & Herrick L.L.P. shall be governed by the provisions of
the Legal Opinion Accord ("Accord") of the American Bar Association Section of
Business Law (1991) and the term "knowledge" as used herein shall have the
meaning set forth in the Accord for the term "Actual Knowledge" .
(c) At Closing Time, there shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change in the financial
condition, results of operations or business affairs of the Company, the Bank
and its subsidiary considered as one enterprise, whether or not arising in the
ordinary course of business, and the Agent shall have received a certificate of
the Chief Executive Officer of the Company and of the Bank, the President of the
Company and the Bank and the chief financial or chief accounting officer of the
Company and of the Bank, dated as of Closing Time, to the effect that (i) there
has been no such material adverse change, (ii) there shall have been no material
transaction entered into by the Company or the Bank from the latest date as of
which the financial condition of the Company or the Bank as set forth in the
Registration Statement and the Prospectus other than transactions referred to or
contemplated therein and transactions in the ordinary cause of business, (iii)
neither the Company nor the Bank shall have received from the OTS any direction
(oral or written) to make any material change in the method of conducting its
business with which it has not complied (which direction, if any, shall have
been disclosed to the Agent) or which materially and adversely would affect the
business, financial condition or results of operations of the Company or the
Bank, (iv) the representations and
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<PAGE>
warranties in Section 1 hereof are true and correct with the same force and
effect as though expressly made at and as of the Closing Time, (v) the Company
and the Bank have complied with all agreements and satisfied all conditions on
their part to be performed or satisfied at or prior to Closing Time, (vi) no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or threatened by
the Commission and (vii) no order suspending the Offerings or the authorization
for final use of the Prospectus has been issued and no proceedings for that
purpose have been initiated or threatened by the OTS and no person has sought to
obtain regulatory or judicial review of the action of the OTS in approving the
Plan in accordance with the Conversion Regulations.
(d) At the time of the execution of this Agreement, the Agent shall have
received from KPMG Peat Marwick LLP a letter dated such date, in form and
substance satisfactory to the Agent, to the effect that (i) they are independent
public accountants with respect to the Company, the Bank and its subsidiary
within the meaning of the Code of Ethics of the AICPA, the 1933 Act and the 1933
Act Regulations and the Conversion Regulations; (ii) it is their opinion that
the consolidated financial statements and supporting schedules included in the
Registration Statement and covered by their opinion therein comply as to form in
all material respects with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations; (iii) based upon limited procedures set forth
in detail in such letter, nothing has come to their attention which causes them
to believe that (A) the unaudited financial statements and supporting schedules
of the Bank and its subsidiary included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations or are not presented
in conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus, (B) the unaudited amounts of
net interest income and net income set forth under "Selected Consolidated
Financial and Other Data of the Bank" in the Prospectus were not determined on a
basis substantially consistent with that used in determining the corresponding
amounts in the audited financial statements included in the Registration
Statement, (C) at a specified date not more than five days prior to the date of
this Agreement, there has been any increase in the consolidated long-term or
short-term debt of the Bank and its subsidiary or any decrease in consolidated
total assets, the allowance for loan losses, total deposits or net worth of the
Bank and its subsidiary, in each case as compared with the amounts shown in the
September 30, 1995 balance sheet included in the Registration Statement or, (D)
during the period from September 30, 1995 to the date of the most recent
financial statements available prior to the date of this Agreement, there were
any decreases, as compared with the corresponding period in the preceding year,
in total interest income, net interest income, net interest income after
provision for loan losses, income before income tax expense or net income of the
Bank and its subsidiary, except in all instances for increases or decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur; and (iv) in addition to the examination referred to in their opinion
and the limited procedures referred to in clause (iii) above, they have carried
out certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information
25
<PAGE>
which are included in the Registration Statement and Prospectus and which are
specified by the Agent, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and other
records of the Company, the Bank and its subsidiary identified in such letter.
(e) At Closing Time, the Agent shall have received from KPMG Peat Marwick
LLP a letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not more
than five days prior to Closing Time.
(f) At Closing Time, the Securities shall have been approved for listing on
the Nasdaq Stock Market upon notice of issuance.
(g) At Closing Time, the Agent shall have received a letter from RP
Financial, Inc., dated as of the Closing Time, confirming its appraisal.
(h) At Closing Time, counsel for the Agent shall have been furnished with
such documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein contemplated and
related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Agent and counsel for the Agent.
(i) At any time prior to Closing Time, (i) there shall not have occurred
any material adverse change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other calamity
or crisis the effect of which it, in the judgment of the Agent, are so material
and adverse as to make it impracticable to market the Securities or to enforce
contracts, including subscriptions or orders, for the sale of the Securities,
and (ii) trading generally on either the American Stock Exchange or the New York
Stock Exchange shall not have been suspended, and minimum or maximum prices for
trading shall not have been fixed, or maximum ranges for prices for securities
have been required, by either of said Exchanges or by order of the Commission or
any other governmental authority, and a banking moratorium shall not have been
declared by either Federal or New York authorities.
SECTION 6. Indemnification.
(a) The Company and the Bank, jointly and severally, agree to indemnify and
hold harmless the Agent, each person, if any, who controls the Agent, within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and its
respective partners, directors, officers and employees as follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, related to or arising out of the Conversion or
any action taken by
26
<PAGE>
the Agent where acting as agent of the Company or the Bank or otherwise as
described in Section 2 hereof; provided, however, that this indemnity agreement
shall not apply to any loss, liability, claim, damage or expense found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from the bad faith, willful misconduct or gross negligence of the Agent seeking
indemnification hereunder.
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, based upon or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(iii) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
described in clauses (i) or (ii) above, if such settlement is effected with the
written consent of the Company or the Bank, which consent shall not be
unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Agent), reasonably incurred in investigating, preparing
for or defending against any litigation, or any investigation, proceeding or
inquiry by any governmental agency or body, commenced or threatened, or any
claim whatsoever described in clauses (i) or (ii) above, to the extent that any
such expense is not paid under (i), (ii) or (iii) above; provided, however, that
this indemnity agreement shall not apply to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus (or any amendment or
supplement thereto) or omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the circumstance
under which they were made, not misleading which was made in reliance upon and
in conformity with written information relating to the Agent furnished to the
Company or the Bank by the Agent expressly for use in the Prospectus (or any
amendment or supplement thereto), which information the Company and the Bank
acknowledge is included only in the sections captioned "Market for the Common
Stock," "The Conversion - Marketing and Underwriting Arrangements" and
"Syndicated Community Offering" of the Prospectus ("Agent's Information").
Notwithstanding the foregoing, the indemnification provided for in this
paragraph (a) shall not apply to the Bank in the event that it is found in a
final judgement by a court of competent jurisdiction to constitute an
impermissible covered transaction under Section 23A of the Federal Reserve Act.
27
<PAGE>
(b) The Agent agree to indemnify and hold harmless the Company, the Bank,
their directors and trustees, each of their officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, of a
material fact made in the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with the Agent's Information.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to no more than one local counsel
in each separate jurisdiction in which any action or proceeding is commenced)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(d) The Company and the Bank also agree that the Agent shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Bank, the Company, its security holders or the Bank's or the Company's creditors
relating to or arising out of the engagement of the Agent pursuant to, or the
performance by the Agent of the services contemplated by, this Agreement, except
to the extent that any loss, claim, damage or liability is found in a final
judgment by a court of competent jurisdiction to have resulted primarily from
the Agent's bad faith, willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iv) hereof, in the event that any Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act or any of its partners, directors, officers and employees is requested
or required to appear as a witness or otherwise gives testimony in any action,
proceeding, investigation or inquiry brought by or on behalf of or against the
Company, the Bank, the Agent or any of their respective affiliates or any
participant in the transactions contemplated hereby in which the Agent or such
person or agent is not named as a defendant, the Company and the Bank jointly
and severally agree to reimburse the Agent for all reasonable and necessary out-
of-pocket expenses incurred by it in connection with preparing or appearing as a
witness or otherwise giving testimony and to compensate the Agent in an amount
to be mutually agreed upon.
SECTION 7. Contribution.
In order to provide for just and equitable contribution in circumstances in
which the indemnity agreement provided for in Section 6 hereof is for any reason
held to be
28
<PAGE>
unenforceable by the indemnified parties although applicable in accordance with
its terms, the Company, the Bank and the Agent shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreement incurred by the Company or the Bank and the Agent, as
incurred, in such proportions (i) that the Agent is responsible for that portion
represented by the percentage that the maximum aggregate marketing fees
appearing on the cover page of the Prospectus bears to the maximum aggregate
gross proceeds appearing thereon and the Company and the Bank are jointly and
severally responsible for the balance or (ii) if, but only if, the allocation
provided for in clause (i) is for any reason held unenforceable, in such
proportion as is appropriate to reflect not only the relative benefits to the
Company and the Bank on the one hand and the Agent on the other, as reflected in
clause (i), but also the relative fault of the Company and the Bank on the one
hand and the Agent on the other, as well as any other relevant equitable
considerations; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Agent within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Agent, and
each director of the Company, each trustee of the Bank, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company or the Bank within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company and the Bank. Notwithstanding anything to the contrary set forth
herein, to the extent permitted by applicable law, in no event shall the Agent
be required to contribute an aggregate amount in excess of the aggregate
marketing fees to which the Agent is entitled and actually paid pursuant to this
Agreement.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement,
or contained in certificates of officers of the Company or the Bank submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Agent or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities.
SECTION 9. Termination of Agreement.
(a) The Agent may terminate this Agreement, by notice to the Company, at
any time at or prior to Closing Time (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement, any material adverse change in the financial
condition, results of operations or business affairs of the Company or the Bank,
or the Company, the Bank and its subsidiary considered as one enterprise,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effect of which it, in the judgment of the Agent,
are so material and adverse as to make it
29
<PAGE>
impracticable to market the Securities or to enforce contracts, including
subscriptions or orders, for the sale of the Securities, (iii) or if trading
generally on either the American Stock Exchange or the New York Stock Exchange
has been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by either of said
Exchanges or by order of the Commission or any other governmental authority, or
if a banking moratorium has been declared by either Federal or New York
authorities, (iv) if any condition specified in Section 5 shall not have been
fulfilled when and as required to be fulfilled; (v) if there shall have been
such material adverse change in the condition or prospects of the Company or the
Bank or the prospective market for the Company s securities as in the Agent s
good faith opinion would make it inadvisable to proceed with the offering, sale
or delivery of the Securities; (vi) if in the Agent s good faith opinion, the
price for the Securities established by the Company is not reasonable or
equitable under then prevailing market condition; or (vii) if the Conversion is
not consummated on or prior to May 1, 1996.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof relating to the reimbursement of expenses and
except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
SECTION 10. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Agent shall be directed to the Agent
at Two World Trade Center, 104th Floor, New York, New York 10048, attention of
Catherine Lawton, Vice President, with a copy to Raymond A. Tiernan, Esq.,
Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street N.W., Washington, D.C.
20005; notices to the Company and the Bank shall be directed to either of them
at Ocean Federal Savings Bank, 74 Brick Boulevard, Brick, New Jersey 08723,
attention of John R. Garbarino, President and Chief Executive Officer, with a
copy to Joseph G. Passaic Jr., Esq., Muldoon, Murphy & Faucette, 5101 Wisconsin
Avenue, N.W., Washington, D.C. 20016.
SECTION 11. Parties.
This Agreement shall inure to the benefit of and be binding upon the Agent,
the Company and the Bank and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Agent, the Company and the Bank and
their respective successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein or therein contained. This
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the Agent, the Company and the Bank and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation.
30
<PAGE>
SECTION 12. Entire Agreement; Amendment.
This Agreement represents the entire understanding of the parties hereto
with reference to the transactions contemplated hereby and supersedes any and
all other oral or written agreements heretofore made. No waiver, amendment or
other modification of this Agreement shall be effective unless in writing and
signed by the parties hereto.
SECTION 13. Governing Law and Time.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in said State without regard to the conflicts of laws provisions thereof.
Unless otherwise noted, specified times of day refer to Eastern time.
SECTION 14. Severability.
Any term or provision of this which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
SECTION 15. Headings.
Sections headings are not to be considered part of this Agreement, are for
convenience and reference only, and are not to be deemed to be full or accurate
descriptions of the contents of any paragraph or subparagraph.
31
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
OCEAN FINANCIAL CORP.
By:_________________________________
John R. Garbarino
President and Chief Executive Officer
OCEAN FEDERAL SAVING BANK
By:_________________________________
John R. Garbarino
President and Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
SANDLER O NEILL & PARTNERS, L.P.
By: Sandler O Neill & Partners Corp.,
the sole general partner
By:_____________________________
Catherine Lawton
Vice President
32
<PAGE>
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE ATTORNEYS AT LAW APPEARS HERE]
May 3, 1996
Board of Directors
Ocean Federal Savings Bank
74 Brick Boulevard
Brick, New Jersey 08723
Re: The offering of up to 8,388,078 shares of Ocean Financial Corp. Common
Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Ocean Federal Savings Bank (the "Bank"), a
federally-chartered savings bank, from the mutual form of ownership to the stock
form of ownership (the "Conversion"), and the related subscription offering,
community offering and syndicated community offering (the "Offerings") by Ocean
Financial Corp., a Delaware corporation (the "Company"), of up to 7,293,981
shares of its common stock, par value $.01 per share, ("Common Stock"),
(8,388,078 shares if the Estimated Valuation Range is increased up to 15% to
reflect changes in market and financial conditions following commencement of the
Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on November 21, 1995 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
December 7, 1995 and as amended on March 21, 1996 (the "Registration
Statement"); a consent of the sole incorporator of the Company; resolutions of
the Board of Directors of the Company (the "Board") concerning the organization
of the Company, the Offerings and designation of a Pricing Committee of the
Board, and the form of stock certificate approved by the Board to represent
shares of Common Stock. We have also been furnished a certificate of the
Delaware Secretary of State certifying the Company's good standing as a Delaware
corporation. Capitalized terms used but not defined herein shall have the
meaning given them in the Certificate of Incorporation.
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
Ocean Federal Savings Bank
May 3, 1996
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe you are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds which the ESOP Trust will
use to purchase shares of Common Stock for which the ESOP Trust subscribes
pursuant to the Offerings and for purposes of rendering the opinion set forth in
paragraph 2 below, we assume that: (a) the Board has duly authorized the loan
to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate purpose;
(c) the Loan will be made at an interest rate and on other terms that are fair
to the Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP Trust to the Company as a result of
the Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP Trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the Prospectus and such resolution of
the Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable.
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
Ocean Federal Savings Bank
May 3, 1996
Page 3
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and in the Prospectus.
Very truly yours,
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL APPEARS HERE]
May 3, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Ocean Federal Savings Bank, a federally
chartered savings bank (the "Bank"), from the mutual form of ownership to stock
form of ownership (the "Conversion"), and the subscription and community
offering (the "Offering"), in connection with the Conversion, by Ocean Financial
Corp., a Delaware Corporation (the "Company"), of up to 8,388,078 shares of its
common stock, par value $.01 per share (the "Common Stock").
In connection with your request for our opinion, you have provided to us,
and we have reviewed, the Company's certificate of incorporation (the
"Certificate of Incorporation"), its by-laws, the Registration Statement filed
with the Securities and Exchange Commission in connection with the Offering (the
"Registration
<PAGE>
Muldoon, Murphy & Faucette
May 3, 1996
Page 2
Statement"), including the prospectus constituting a part thereof (the
"Prospectus"), a consent of the sole incorporator of the Company, resolutions of
the Board of Directors of the Company (the "Board"), concerning, inter alia, the
----- ----
organization of the Company, the Offering and the designation of a Pricing
Committee of the Board (the "Pricing Committee"), resolutions of the Pricing
Committee fixing the number of shares of Common Stock to be sold in the Offering
and the price therefor (the "Pricing Committee Resolution"), and the form of
stock certificate approved by the Board to represent shares of Common Stock. We
have also obtained a certificate of the Delaware Secretary of State as to the
Company's good standing as a Delaware corporation. Capitalized terms used but
not defined herein shall have the meanings given them in the Certificate of
Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan to the ESOP
(the "Loan"); (b) the Loan serves a valid corporate purpose; (c) the Loan will
be made at an interest rate and on other terms that are fair to the Company;
(d) the terms of the Loan will be set forth in customary and appropriate
documents including,
<PAGE>
Muldoon, Murphy & Faucette
May 3, 1996
Page 3
without limitation, a promissory note representing the indebtedness of the ESOP
to the Company as a result of the Loan; and (e) the closing for the Loan and
for the sale of Common Stock to the ESOP will be held after the closing for the
sale of the other shares of Common Stock sold in the Offering and the receipt by
the Company of the proceeds thereof.
We call your attention to the fact that the opinions expressed herein are
limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the Offering, or the
Conversion, including, without limitation, those applicable to federally
chartered savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. The Common Stock to be issued in the Offering (including the shares to
be issued to the ESOP) have been duly authorized and, when such shares are sold
and paid for in accordance with the terms set forth in the Prospectus and the
<PAGE>
Muldoon, Murphy6 & Faucette
May 3, 1996
Page 4
Pricing Committee Resolution, and certificates representing such shares in the
form provided to us are duly and properly issued, will be validly issued, fully
paid and nonassessable, with no personal liability for the payment of the
Company's debts arising solely by virtue of the ownership thereof; such issuance
and sale will not be in violation of or subject to any preemptive rights
provided for by Delaware law or by the Certificate of Incorporation.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply the provisions
of those Articles, subsection C.4 of Article FOURTH, to the extent that
provision obligates any person to provided to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any, that a court applying Delaware law were to impose
equitable limitations upon the authority of the directors of the Company under
such provisions.
<PAGE>
Muldoon, Murphy & Faucette
May 3, 1996
Page 5
(b) Article NINTH of the Certificate of Incorporation, which purports to
permit the Board to consider the effect of any offer to acquire the Company on
constituencies other than stockholders in evaluating any such offer.
Very truly yours,
/s/ Morris, Nicholas, Arsht & Tunnell
<PAGE>
Exhibit 8.0
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE ATTORNEYS AT LAW APPEARS HERE]
May 7, 1996
Board of Directors
Ocean Federal Savings Bank
74 Brick Boulevard
Brick, New Jersey 08723
Board of Directors
Ocean Financial Corp.
74 Brick Boulevard
Brick, New Jersey 08723
Re: Certain Federal and State Tax Consequences of the Conversion of Ocean
Federal Savings Bank from a Federally Chartered Mutual Savings Bank to
a Federally Chartered Stock Savings Bank and the Offer and Sale of
Common Stock of Ocean Financial Corp. (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income and state tax
consequences of the proposed conversion of Ocean Federal Savings Bank (the
"Bank") from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the acquisition of the Bank's capital stock by Ocean
Financial Corp., a Delaware corporation (the "Holding Company"), pursuant to the
plan of conversion adopted on August 17, 1995, and amended on November 22, 1995,
March 20, 1996 and May 7, 1996 (the "Plan of Conversion"). This opinion
supercedes our previous opinion to the Bank and the Company dated March 21,
1996.
The proposed transaction is described in the section of this letter
entitled "STATEMENT OF FACTS," and the tax consequences of the proposed
transaction will be as set forth in the section of this letter entitled
"OPINION."
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 2
STATEMENT OF FACTS
------------------
Ocean Federal Savings Bank, with an administrative office in Brick, New
Jersey, is a federally chartered mutual savings bank. As a mutual savings bank,
the Bank has never been authorized to issue stock. Instead, the proprietary
interest in the reserves and undivided profits of the Bank belong to the deposit
account holders of the Bank, hereinafter sometimes referred to as "depositors."
A depositor of the Bank has a right to share, pro rata, with respect to the
withdrawal value of his respective deposit account in any liquidation proceeds
distributed in the event the Bank is ever liquidated. In addition, a depositor
of the Bank is entitled to interest on his account balance as fixed and paid by
the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted a plan of conversion (the "Plan of Conversion")
whereby the Bank will convert itself into a federally chartered stock savings
bank (the "Converted Bank"), the stock of which will be held entirely by Ocean
Financial Corp., a Delaware corporation (the "Holding Company"). The Holding
Company will acquire the stock of the Bank by purchase, using no less than
approximately 50% of the net proceeds received from the sale of its own stock
under the Plan of Conversion. The Holding Company will have authorized capital
consisting of 55 million shares of common stock ("Common Stock"), and 5 million
shares of preferred stock. In connection with the Conversion, the Holding
Company will issue shares of its Common Stock without par value in Subscription
and Community Offerings. It is anticipated that all such shares of Common Stock
not subscribed for in the Subscription and Community Offerings will be offered
to the general public in a Syndicated Community Offering (the "Syndicated
Community Offering"). The aggregate sales price of the Common Stock issued in
the Conversion will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Common Stock of the Converted Bank. The
Conversion and sale of the Common Stock will be accomplished pursuant to the
rules and regulations and will be subject to the approval of the Office of
Thrift Supervision (the "OTS").
As part of the Conversion, the Company and the Bank intend to establish a
charitable foundation that will qualify as an exempt organization under Section
501(c)(3) of the Internal Revenue Code (the "Foundation") and to donate to the
Foundation up to 8.0% of the number of shares of common stock issued in the
Conversion. The establishment and funding of the Foundation as part of the
Conversion is subject to the approval of the voting members of the Bank at the
Special Meeting of Members.
A. Subscription Offering and Subscription Rights. In accordance with the
Plan of Conversion, rights to subscribe for the purchase of Common Stock have
been granted under the Plan of Conversion to the following persons in the
following order of priority: (1) holders of deposit accounts with a balance of
$50 or more as of the "Eligibility Record Date" of July 31, 1994 ("Eligible
Account Holders"); (2) the Bank's tax-qualified employee stock
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 3
benefit plans (the "Employee Plans"); (3) holders of deposit accounts with a
balance of $50 or more as of the "Supplemental Eligibility Record Date," meaning
the last day of the calendar quarter preceding the OTS approval of the
application for conversion ("Supplemental Eligible Account Holders"); and (4)
"Other Members" a term which is defined to mean any person, other than an
Eligible Account Holder or a Supplemental Eligible Account Holder, who is a
Member of the Bank as of the close of business on the date fixed by the Bank's
Directors in accordance with OTS regulations for determining eligibility to vote
at the Special Meeting of Members (the "Voting Record Date"). All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan of Conversion as described below.
Category 1: Eligible Account Holders
Each Eligible Account Holder shall receive, as first priority and without
payment, nontransferable subscription rights to subscribe for shares of Common
Stock offered, equal to an amount up to the greater of: the amount permitted to
be subscribed for in the Community Offering which amount is equal to the greater
of .10% or $200,000 of the Common Stock offered, but which may be increased to
5% of the Common Stock offered without the further approval of members or
resolicitation of subscribers; one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or fifteen times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the Eligible Account Holder's deposit and the denominator is the total amount of
deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date, subject to the maximum and minimum purchase limitations as described below
and exclusive of an increase in the total number of shares issued due to an
increase in the estimated price range of up to 15%.
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in the Conversion in excess of the total
number of such shares eligible for subscription, the shares of Common Stock
shall be allocated among the subscribing Eligible Account Holders so as to
permit each subscribing Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Common Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Eligible Account Holder. Any shares remaining after that
allocation will be allocated among the subscribing Eligible Account Holders
whose subscriptions remain unsatisfied in the proportion that the amount of
their respective eligible deposits bears to the total amount of the eligible
deposits of all subscribing Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by
any one or more Eligible Account Holders, the excess shall be reallocated (one
or more times as necessary) among those Eligible Account Holders whose
subscriptions are still not
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 4
fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied.
Subscription rights as Eligible Account Holders received by Directors and
Officers and their Associates which are based on deposits made by such persons
during the twelve (12) months preceding the Eligibility Record Date shall be
subordinated to the subscription rights of all other Eligible Account Holders.
Category 2: Employee Plans
The Employee Plans shall receive as second priority and without payment
therefor, nontransferable subscription rights to purchase Common Stock in the
Conversion requested by such Employee Plans. If, after the filling of
subscriptions of Eligible Account Holders, a sufficient number of shares is not
available to fill the subscriptions by such Employee Plans, the subscription by
such Employee Plans shall be filled to the maximum extent possible, provided
however that in the event of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%, the additional
shares may be sold to the Employee Plans, subject to the purchase limitations
set forth below.
Category 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive, as third priority
and without payment, nontransferable subscription rights to subscribe for shares
of Common Stock offered, equal to an amount up to the greater of: the amount
permitted to be subscribed for in the Community Offering which amount is the
greater of .10% or $200,000 of the Common Stock offered, but which may be
increased to 5% of the Common Stock offered, without the further approval of
members or resolicitation of subscribers; one-tenth of one percent (.10%) of the
total offering of Common Stock; or fifteen times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the eligible deposits of the Supplemental Eligible Account Holders and the
denominator is the total amount of the eligible deposits of all Supplemental
Eligible Account Holders in the Bank on the Supplemental Eligibility Record
Date, subject to the maximum and minimum purchase limitations as described below
and exclusive of an increase in the total number of shares issued due to an
increase in the estimated price range of up to 15%.
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription, the shares of Common Stock
shall be allocated among the subscribing Supplemental Eligible Account Holders
so as to permit each subscribing Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Common Stock equal to the lesser of 100 shares or the
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 5
number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the eligible deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the eligible deposits of all remaining
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by one or more
remaining Supplemental Eligible Account Holders, the excess shall be reallocated
(one or more times as necessary) among those remaining Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
Subscription rights received by an Eligible Account Holder as described
above under "Category 1: Eligible Account Holders" shall be applied in partial
satisfaction of the subscription rights to be received as a Supplemental
Eligible Account Holder.
Category 4: Other Members
Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, Employee
Plans and Supplemental Eligible Account Holders, nontransferable subscription
rights to subscribe for shares of Common Stock equal to an amount up to the
greater of: the amount permitted to be subscribed for in the Community
Offering, which amount is the greater of .10% or $200,000 of the Common Stock
offered, but which may be increased to 5% of the Common Stock offered without
the further approval of members or resolicitation of subscribers; or one-tenth
of one percent (.10%) of the total offering of shares of Common Stock, subject
to the maximum and minimum purchase limitations as described below, and
exclusive of an increase in the total number of shares issued due to an increase
in the estimated price range of up to 15%.
In the event that Other Members exercise subscription rights for a number
of shares of Common Stock in excess of the total number of shares eligible for
subscription, but shares remain available for subscription, the shares of Common
Stock shall be allocated among the subscribing Other Members so as to permit
each subscribing Other Member, to the extent possible, to purchase a number of
shares sufficient to make his or her total allocation of Common Stock equal to
the lesser of 100 shares or the number of shares subscribed for by the Other
Member. Any shares remaining after that allocation will be allocated among the
subscribing Other Members whose subscriptions remain unsatisfied pro rata in the
same proportion that the number of votes of a subscribing Other Member on the
Voting Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 6
remaining Other Members whose subscriptions are still not fully satisfied on the
same principle until all available shares have been allocated or all
subscriptions satisfied.
B. Community Offering. If less than the total number of shares of Common
Stock to be subscribed for in the Conversion are sold in the Subscription
Offering, it is expected that shares remaining unsubscribed for in the
Subscription Offering will be made available for purchase in the Community
Offering to certain members of the general public, who may subscribe together
with any associate or group of persons acting in concert for up to the greater
of .10% or $200,000 of the shares of Common Stock offered, subject to the
maximum and minimum purchase limitations as described below and exclusive of an
increase in the total number of shares issued due to an increase in the
estimated price range of up to 15%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% of the Common
Stock offered without the further approval of members or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. Any
excess of shares and those not subscribed for by institutional investors will be
available for purchase by the general public with preference given to natural
persons residing in Ocean, Monmouth, and Middlesex Counties, New Jersey
("Preferred Subscribers"). The Bank shall make distribution of the Common Stock
to be sold in the Community Offering in such a manner as to promote a wide
distribution of the Common Stock. The Bank reserves the right to reject any or
all orders in whole or in part, which are received in the Community Offering.
To the extent that there are shares remaining after all subscriptions by
institutional investors are filled, if the Preferred Subscribers in the
Community Offering, whose orders would otherwise be accepted, subscribe for more
shares than are available for purchase, the shares available to them will be
allocated among the Preferred Subscribers in the manner which permits each such
person, to the extent possible, to purchase the number of shares necessary to
make his total allocation of Common Stock equal to the lesser of 100 shares or
the number of shares subscribed for by such persons with preference given to
Preferred Subscribers. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers in the Community Offering whose subscriptions remain
unsatisfied on a 100 shares per order basis until all such orders have been
filled or the remaining shares have been allocated. To the extent that there
are shares remaining after all subscriptions by Preferred Subscribers, any
remaining shares will be allocated among members of the general public using the
foregoing allocation as applied to Preferred Subscribers. The Bank may
establish all other terms and conditions of such offer. The Community Offering
may commence concurrently with the Subscription Offering. The Community
Offering must be completed within 45 days after the completion of the
Subscription Offering unless otherwise extended by the OTS.
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 7
C. Syndicated Community Offering. If feasible, all shares of Common Stock
in the Conversion not subscribed for in the Subscription and Community Offerings
may be sold in a Syndicated Community Offering, subject to such terms,
conditions and procedures as may be determined by the Bank, in a manner that
will achieve the widest distribution of the Common Stock subject to the right of
the Bank to accept or reject in whole or in part all subscriptions in the
Syndicated Community Offering. In the Syndicated Community Offering, any
person, together with any associate or group of persons acting in concert may
purchase up to the greater of .10% or $200,000 of the shares of Common Stock
offered, subject to the maximum and minimum purchase limitations as described
below, and exclusive of an increase in the total number of shares issued due to
an increase in the estimated price range of up to 15%; provided, however, that
this amount may be increased to 5% of the Common Stock offered without the
further approval of members. The shares purchased by any person, together with
any associate or group of persons acting in concert, shall be counted toward
meeting the maximum percentage of shares permitted to be purchased in the
Syndicated Community Offering. Provided that the Subscription Offering has
commenced, the Bank may commence the Syndicated Community Offering at any time
after the mailing to the members of the proxy statement to be used in connection
with the special meeting of members, provided that the completion of the offer
and sale of the Common Stock in the Conversion shall be conditioned upon the
approval of the Conversion by the members. If the Syndicated Community Offering
is not sooner commenced pursuant to the provisions of the preceding sentence,
the Syndicated Community Offering will be commenced as soon as practicable
following the date upon which the Subscription and Community Offerings
terminate.
Alternatively, if a Syndicated Community Offering is not held, the Bank
shall have the right to sell any shares of Common Stock remaining following the
Subscription and Community Offerings in an underwritten firm commitment public
offering. The maximum and minimum limitations on purchases described below
shall not be applicable to sales to underwriters for purposes of such an
offering but shall be applicable to the sales by the underwriters to the public.
The price to be paid by the underwriters in such an offering shall be equal to
the actual purchase price for the Common Stock, less an underwriting discount to
be negotiated among such underwriters and the Bank, which will in no event
exceed an amount deemed to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Common Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any insignificant residue of shares of Common Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
underwritten firm commitment public offering, other purchase arrangements will
be made by the Bank for the sale of unsubscribed shares, if possible. Such
other purchase arrangements will be subject to the approval of the OTS.
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 8
D. Limitations on Common Stock Purchases. The Plan of Conversion includes
the following limitations on the number of shares of Common Stock which may be
purchased during the Conversion:
1. The maximum number of shares of Common Stock which may be subscribed
for or purchased in all categories in the Conversion by any person or
participant together with any associate or group of persons acting in concert
shall not exceed 1.0% of the Common Stock offered except for the Employee Plans
which may subscribe for up to 10% of the Common Stock issued and except for
certain Eligible Account Holders and Supplemental Eligible Account Holders which
may subscribe for or purchase shares in accordance with their subscription
rights; provided, however, that in the event the maximum purchase limitation is
increased to more than 2.0% of the shares of Common Stock offered, orders for
Common Stock in the Community Offering and in the Syndicated Community Offering
(or, alternatively an underwritten firm commitment public offering), if any,
shall, as determined by the Bank, be filled to a maximum of 2.0% of the total
number of shares of Common Stock offered and thereafter remaining shares shall
be allocated on an equal number of shares basis per order until all orders have
been filled.
2. The maximum number of shares of Common Stock which may be purchased in
all categories in the Conversion by Officers and Directors of the Bank and their
associates in the aggregate shall not exceed 25% of the total number of shares
of Common Stock issued.
3. A minimum of 25 shares of Common Stock must be purchased by each
person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Common Stock purchased times the price per share exceeds $500, then such minimum
purchase requirement shall be reduced to such number of shares of Common Stock
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.
If the number of shares of Common Stock otherwise allocable to any person
or that person's associates would be in excess of the maximum number of shares
permitted as set forth above, the number of shares of Common Stock allocated to
each such person shall be reduced to the lowest limitation applicable to that
person, and then the number of shares allocated to each group consisting of a
person and that person's associates shall be reduced so that the aggregate
allocation to that person and his or her associates complies with the above
maximums, and such maximum number of shares shall be reallocated among that
person and his or her associates as they may agree, or in the absence of an
agreement, in proportion to the shares subscribed by each (after first applying
the maximums applicable to each person, separately).
Depending upon market or financial or other conditions, the Boards of
Directors of the Bank and of the Holding Company, without further approval of
the members, may decrease or
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 9
increase the purchase limitations in the Plan of Conversion, provided that the
maximum purchase limitations may not be decreased below 1% or increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Common Stock
exceeding 5% of the shares being offered shall not exceed, in the aggregate, 10%
of the total offering. If the Bank or the Holding Company, as the case may be,
increases the maximum purchase limitations, the Bank or the Holding Company, as
the case may be, is only required to resolicit persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the Bank or the
Holding Company, as the case may be, resolicit certain other large subscribers.
In the event there is an increase in the total number of shares of Common
Stock offered due to an increase in the estimated price range of up to 15% (the
"Adjusted Maximum"), such shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription to the Adjusted Maximum;
(ii) in the event that there is an oversubscription at the Eligible Account
Holder level, to fill unfulfilled subscriptions of Eligible Account Holders
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription at the Supplemental Eligible Account Holder level, to fill
unfulfilled subscriptions of Supplemental Eligible Account Holders exclusive of
the Adjusted Maximum; (iv) in the event that there is an oversubscription at the
Other Member level, to fill unfulfilled subscriptions of Other Members exclusive
of the Adjusted Maximum; and (v) to fill unfulfilled subscriptions in the
Community Offering exclusive of the Adjusted Maximum.
The Directors of the Bank and the Holding Company shall not be deemed to be
associates or a group affiliated with each other or otherwise acting in concert
solely as a result of their being Directors of the Bank or the Holding Company.
Each person purchasing Common Stock in the Conversion shall be deemed to
confirm that such purchase does not conflict with the above purchase
limitations.
For a period of three years following the Conversion, no Officer, Director
or their associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of Common Stock, except from a broker-dealer
registered with the Securities and Exchange Commission (the "SEC"). This
provision shall not apply to negotiated transactions involving more than one
percent of the outstanding shares of Common Stock, the exercise of any options
pursuant to a stock option plan or purchases of Common Stock, made by or held by
any tax-qualified employee stock benefit plan or non-tax-qualified employee
stock benefit plan of the Holding Company (including the Employee Plans) which
may be attributable to any Officer or Director. As used herein, the term
"negotiated transaction" means a transaction in which the securities are offered
and the terms and arrangements relating to any sale are arrived at through
direct communications between the seller or any person acting on its behalf and
the purchaser or his investment representative. The term "investment
representative" shall
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 10
mean a professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
The term "Associate" of a person is defined to mean: (i) any corporation or
organization (other than the Bank, or a majority-owned subsidiary of the Bank)
of which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity except that the term "Associate" does not include any non-tax-qualified
employee stock benefit plan or any tax-qualified employee stock benefit plan in
which a person has a substantial beneficial interest or serves as a trustee or
in a similar fiduciary capacity, and except that, for purposes of aggregating
total shares that may be held by Officers and Directors the term "Associate"
does not include any tax-qualified employee stock benefit plan, and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a Director or Officer of the Holding Company,
or any of its parents or subsidiaries.
E. Characteristics of Deposit Accounts. The Conversion will not affect
the Bank's deposit accounts, individual account balances (except to the extent
that a depositor uses funds in his account to purchase stock), or the existing
FDIC insurance coverage, nor will it affect the Bank's loan accounts, loan
account balances or the obligations of the borrowers to the Bank. Upon
Conversion, voting rights with respect to the Bank's corporate matters shall
vest exclusively in the Holding Company, which will be the sole shareholder of
the Converted Bank.
The Converted Bank will continue, after completion of the Conversion, to
provide existing services to depositors and borrowers pursuant to existing
policies and will maintain its existing office, management and employees. The
Converted Bank will continue to be insured by the FDIC up to applicable limits.
The affairs of the Converted Bank will be directed by the existing Board of
Directors of the Bank who will become directors of the Converted Bank. The
Bank's depositors will pay expenses of the Conversion solely attributable to
them, if any; the Bank and the Holding Company will each pay their own expenses
of the Conversion and will not pay any expenses solely attributable to the
shareholders of the Holding Company.
The proposed Conversion of the Bank does not involve a receivership,
foreclosure or similar proceeding before a federal or state agency involving a
financial institution.
F. Liquidation Account. The Bank shall establish at the time of
Conversion a liquidation account in an amount equal to its net worth as of the
latest practicable date prior to Conversion. The liquidation account will be
maintained by the Bank for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 11
maintain their savings accounts at the Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to his savings account,
hold a related inchoate interest in a portion of the liquidation account
balance, in relation to his savings account balance on the Eligibility Record
Date and/or Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
account holders to the extent of their savings accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his savings account then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of savings
accounts and other liabilities, or similar transaction with an FDIC institution,
in which the Bank is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
The initial subaccount balance for a savings account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's eligible deposits and the denominator of
which is the total amount of all eligible deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Bank. Such initial
subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below.
If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the savings
account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the savings account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the eligible
deposits in such savings account, the subaccount balance for such savings
account shall be adjusted by reducing such subaccount balance in an amount
proportionate to the reduction in such deposit balance. In the event of such
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
savings account. If any such savings account is closed, the related subaccount
shall be reduced to zero.
The creation and maintenance of the liquidation account shall not operate
to restrict the use or application of any of the net worth accounts of the Bank,
except that the Bank shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 12
thereof would cause its regulatory capital to be reduced below the amount
required for the liquidation account.
G. Transfer of Assets and Liabilities. The assets and liabilities,
including deposits, of the Bank shall become the assets and liabilities of the
Converted Bank. All account balances at the termination of operations under the
Bank charter will be transferred by operation of law intact to the Converted
Bank.
H. Establishment of Foundation. To further the Converted Bank's long
term commitment to its community, as part of the Conversion, the Bank has
provided for the establishment of the Foundation. The Plan provides that the
Foundation is intended to complement the Bank's existing community reinvestment
activities so as to allow the local community to share in the growth and
profitability of the Holding Company and the Converted Bank over the long term.
The Plan of Conversion provides that the Holding Company intends to donate up to
$13.4 million of its authorized but unissued common stock (or up to 8% of the
number of shares of common stock issued in the Conversion) to the Foundation.
In the event that the Foundation does not receive the prerequisite approval, the
Bank may determine to complete the Conversion without the Foundation.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within Ocean County, New Jersey and its neighboring
communities, including, but not limited to, grants or donations to support
housing assistance, scholarships, local education, not-for-profit medical
facilities, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants and
donations to assist charitable organizations or to fund projects within its
local community of not less than 5% of the average fair value of the Foundation
assets each year.
* * *
You have also provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date or the Supplemental Eligibility Record
Date, then no amount of that individual's total deposits will be
excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which have a balance
of less than $50 on the Eligibility Record Date or
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 13
the Supplemental Eligibility Record Date will be less than 1% of the
total fair market value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank will own all of
the outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
Plans.
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as compensation by means of the Employee
Plans. Compensation to be paid to such Directors and depositor-
employees will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 14
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes a reserve for bad debts in accordance with section
593 and, following the Conversion, the Converted Bank shall likewise
utilize a reserve for bad debts in accordance with section 593.
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender" tests
set out in sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA").
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 15
(r) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the fair market value of the stock of
the Holding Company at the time of the completion of the Conversion as
determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the Code except if and to the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion (and
taking into consideration the limitations at the end of this opinion), it is our
opinion that under current federal income tax law:
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 16
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 17
(Section 356(a)). Eligible Account Holders and Supplemental Eligible
Account Holders will not realize any taxable income as a result of the
exercise by them of the nontransferable subscription rights (Rev. Rul.
56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to
its stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from RP Financial, Inc. that the subscription rights
do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
NEW JERSEY STATE TAX OPINION
----------------------------
We express no opinion as to the laws of any jurisdiction other than those
of the State of New Jersey. We express no opinion as to any laws within that
jurisdiction other than those specifically discussed below. Based on and
subject to the foregoing, it is our opinion that under New Jersey State Tax Law:
<PAGE>
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 18
(1) No gain or loss will be recognized by the Bank under the New Jersey
Corporation Business Tax Act.
(2) No gain or loss will be recognized by the Bank or the Stock Bank under
the New Jersey Savings Institution Tax Act.
(3) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by depositors under the New Jersey
Gross Income Tax Act.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form S-1 Registration Statement of Ocean Financial Corp. and the references
to and summary of this opinion in such Form AC and Form S-1 Registration
Statement.
Sincerely,
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
<PAGE>
DRAFT
04/19/96 SKV
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Agreement (the "Agreement"),
effective as of the _______ day of _____________, 1996, formalizes the
understanding by and between OCEAN FEDERAL SAVINGS BANK (the "Bank"), a
federally chartered savings bank, and Michael J. Fitzpatrick, hereinafter
referred to as "Executive".
W I T N E S S E T H :
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed for it
by the Executive and wishes to encourage continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after retirement from active service with the Bank or other termination of
employment and wishes to provide his beneficiary with benefits from and after
death; and
WHEREAS, the Bank and the Executive wish to provide the terms and conditions
upon which the Bank shall pay such additional compensation to the Executive
after retirement or other termination of employment and/or death benefits to his
beneficiary after death; and
WHEREAS, the Internal Revenue Code of 1986, as amended (the "Code") imposes
limitations on the amount of contributions which may be made to the Bank's
Employee Stock Ownership Plan ("ESOP") by the Bank on behalf of the Executive,
and limits the amount of compensation which may be considered in determining
such contributions; and
WHEREAS, the Board of Directors of the Bank desires to provide the Executive
with benefits to replace benefits to which he would be entitled under the ESOP,
but for the application of the above-described limitations imposed by the Code;
<PAGE>
DRAFT
WHEREAS, the Bank has adopted this Executive Supplemental Retirement Income
Agreement which controls all issues relating to benefits as described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the Bank and the Executive agree as follows:
SECTION I
DEFINITIONS
-----------
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit Account" shall be represented by the bookkeeping entries
-----------
required to record the Executive's (i)Supplemental Retirement Income
Benefit Phantom Contributions and Supplemental ESOP Benefit Phantom
Contributions plus (ii) accrued interest, equal to the Interest Factor,
earned to-date on such amounts. However, neither the existence of such
bookkeeping entries nor the Accrued Benefit Account itself shall be deemed
to create either a trust of any kind, or a fiduciary relationship between
the Bank and the Executive or Beneficiary.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Administrator" means the Human Resources/Compensation Committee of the
Board of Directors of the Bank.
1.4 "Bank" means OCEAN FEDERAL SAVINGS BANK and any successor thereto.
1.5 "Beneficiary" means the individuals or entities designated as Beneficiary
in Exhibit B of this Agreement to whom the deceased Executive's benefits
are payable. If no designated Beneficiary is living at the time of the
Executive's death, the benefits payable pursuant to this Agreement shall
pass in accordance with the Executive's will or by the laws of intestacy,
as applicable.
2
<PAGE>
DRAFT
1.6 "Benefit Age" means the Executive's sixty-fifth (65th) birthday provided,
however, that another date may be chosen upon mutual agreement between the
Executive and the Bank's Board of Directors.
1.7 "Benefit Eligibility Date" means the date on which the Executive is
entitled to receive any benefit(s) pursuant to Section(s) III, or V of
this Agreement. It shall be the first day of the month following the month
in which the Executive attains his Benefit Age.
1.8 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses),
or final cease-and-desist order, material breach of any provision of this
Agreement, gross negligence in matters of material importance to the Bank,
or any other basis for termination as set forth in the Bank's personnel
manual, as such manual currently exists or may be amended.
1.9 "Code" means the Internal Revenue Code of 1986, as amended.
1.10 "Contributions" shall collectively refer to any and all Supplemental ESOP
Benefit Contributions and Supplemental Retirement Income Benefit
Contributions.
1.11 (a) "Disability Benefit" means the benefit payable to the Executive
following a determination, in accordance with Subsection 6.1(a), that he
is no longer able, properly and satisfactorily, to perform his duties at
the Bank.
(b) "Disability Benefit-Supplemental" (if applicable) means the benefit
payable to the Executive's Beneficiary upon the Executive's death in
accordance with Subsection 6.1(b).
1.12 "Effective Date" of this Agreement shall be_________________, 19____.
1.13 "ESOP" means the Bank's Employee Stock Ownership Plan.
3
<PAGE>
DRAFT
1.14 "ESOP Account" means the Executive's interest in the assets accumulated
under the ESOP, as expressed in terms of a separate account balance which
is periodically adjusted to reflect Bank contributions, the ESOP's
investment experience, and distributions and forfeitures.
1.15 "Estate" means the estate of the Executive.
1.16 "Interest Factor" for purposes of:
(a) monthly compounding, discounting or annuitizing of the Accrued Benefit
Account, the term shall mean Six percent (6%) per annum.
(b) monthly compounding or discounting of the Retirement Income Trust
Fund, the term shall mean Four percent (4%) per annum, provided, however,
that for purposes of annuitizing the balance of the Retirement Income
Trust Fund over the Payout Period, the trustee of the Michael J.
Fitzpatrick Grantor Trust shall exercise discretion in selecting the
appropriate rate, given the nature of the investments contained in the
Retirement Income Trust Fund and the expected return associated with the
investments.
1.17 "Payout Period" means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in monthly
installments commencing on the first day of the month following the
occurrence of the event which triggers distribution and continuing for a
period of one hundred eighty (180) months. Should the Executive make a
Timely Election to receive a lump sum benefit payment, the Executive's
Payout Period shall be deemed to be one (1) month.
1.18 "Phantom Contributions" shall collectively refer to any and all
Supplemental ESOP Benefit Phantom Contributions and Supplemental
Retirement Income Benefit Phantom Contributions.
1.19 "Plan Year" shall mean _____________, 1996 through December 31, 1996 for
the first Plan Year. Thereafter the term shall mean the twelve (12) month
period commencing January 1, 1997 and each consecutive twelve (12) month
period thereafter.
1.20 "Retirement Income Trust Fund" means the trust fund account established by
the Executive and into which annual Contributions will be made by the Bank
on behalf of the Executive pursuant to
4
<PAGE>
DRAFT
Subsection 2.1. The contractual rights of the Bank and the Executive with
respect to the Retirement Income Trust Fund shall be outlined in a
separate writing to be known as the Michael J. Fitzpatrick Grantor Trust
agreement.
1.21 "Supplemental ESOP Benefit" means the benefit provided by this Agreement
and calculated with reference to the limitations imposed by Section(s)
401(a)(17) and/or 415 of the Code on the Executive's benefits under the
ESOP. Such benefit shall be determined annually by multiplying the per
share market price of the Bank's stock on December 31 of each Plan Year by
the following number of shares: the difference between (i) the number of
shares which would have been allocated to the Executive's ESOP Account for
such Plan Year, had the limitation of Sections 401(a)(17) and 415 of the
Code not been applicable, and (ii) the number of shares actually allocated
to the Executive's ESOP Account for such Plan Year (taking into account
such Code limitations).
1.22 "Supplemental ESOP Benefit Contribution(s)" means those annual
contributions which the Bank is required to make to the Retirement Income
Trust Fund on behalf of the Executive in accordance with Subsections
2.1(a)(3) and 1.21.
1.23 "Supplemental ESOP Benefit Phantom Contribution(s)" means those annual
contributions which the Bank is no longer required to make on behalf of
the Executive to the Retirement Income Trust Fund. Rather, once the
Executive has exercised the withdrawal rights described in Subsection 2.2,
the Bank shall be required to record the annual amounts, described in
Subsections 2.1(a)(3) and 1.21, in the Executive's Accrued Benefit
Account.
1.24 "Supplemental Retirement Income Benefit" means an actuarially determined,
annual amount, (before taking into account federal and state income taxes)
------
equal to One Hundred Twenty Eight Thousand and Fifty Two Dollars
($128,052.00) payable in monthly installments throughout the Payout Period
and based on certain assumptions incorporated into this Agreement and
disclosed in Exhibit E. The definition of Supplemental Retirement Income
Benefit has been incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Supplemental Retirement
Income Benefit Contributions (or Supplemental Retirement Income Benefit
Phantom Contributions) to the Retirement Income Trust fund (or Accrued
Benefit Account). The amount of any actual retirement, pre-retirement or
disability benefit payable pursuant to the Agreement will be a function of
(i) the amount and timing of Supplemental Retirement Income Benefit
Contributions (or Supplemental Retirement Income Benefit Phantom
5
<PAGE>
DRAFT
Contributions) to the Retirement Income Trust Fund (or Accrued Benefit
Account) and (ii) the actual investment experience of such Supplemental
Retirement Income Benefit Contributions (or the monthly compounding rate
of Supplemental Retirement Income Benefit Phantom Contributions).
1.25 "Supplemental Retirement Income Benefit Contribution(s)" means those
annual contributions which the Bank is required to make to the Retirement
Income Trust Fund on behalf of the Executive in accordance with Subsection
2.1(a)(2) and in the amounts set forth in Exhibit A of the Agreement.
1.26 "Supplemental Retirement Income Benefit Phantom Contribution(s)" means
those annual contributions which the Bank is no longer required to make on
behalf of the Executive to the Retirement Income Trust Fund. Rather, once
the Executive has exercised the withdrawal rights described in Subsection
2.2, the Bank shall be required to record the annual amounts set forth in
Exhibit A of the Agreement and pursuant to Subsection 2.1(a)(2) in the
Executive's Accrued Benefit Account.
1.27 "Timely Election" means the Executive has made an election to change the
form of his benefit payment(s) by filing with the Administrator a Notice
of Election to Change Form of Payment (Exhibit C of this Agreement), such
election having been made prior to the event which triggers distribution
and at least two (2) years prior to the Executive's Benefit Eligibility
Date.
SECTION II
BENEFITS - GENERALLY
--------------------
2.1 (a)(1) Retirement Income Trust Fund and Accrued Benefit Account. The
--------------------------------------------------------
Executive shall establish the Michael J. Fitzpatrick Grantor Trust into
which the Bank shall be required to make annual Supplemental Retirement
Income Benefit Contributions and Supplemental ESOP Benefit Contributions
on the Executive's behalf, pursuant to Subsection 2.1(a)(2) and Exhibit A
with respect to the Supplemental Retirement Income Benefit, and pursuant
to Subsections 2.1(a)(3) and 1.21 with respect to the Supplemental ESOP
Benefit. A trustee shall be jointly selected by the Executive and the
Bank. The trustee shall maintain an account, separate and distinct from
the Executive's personal contributions, which account shall constitute the
Retirement Income Trust Fund. The trustee shall
6
<PAGE>
DRAFT
be charged with the responsibility of investing all contributed funds in
accordance with the terms of the Michael J. Fitzpatrick Grantor Trust.
Distributions from the Retirement Income Trust Fund of the Michael J.
Fitzpatrick Grantor Trust shall be made by the trustee to the Executive,
in accordance with the terms of the Michael J. Fitzpatrick Grantor Trust
and the tax reimbursement formula therein, for purposes of payment of
income taxes due and owing on Supplemental Retirement Income Benefit
Contributions and Supplemental ESOP Benefit Contributions by the Bank to
the Retirement Income Trust Fund, and on any taxable earnings associated
with such Contributions, which the Executive shall be required to pay from
year to year under applicable law prior to actual receipt of any benefit
payments from the Retirement Income Trust Fund. If the Executive exercises
his withdrawal rights pursuant to Subsection 2.2, the Bank's obligation to
make Supplemental Retirement Income Benefit Contributions and Supplemental
ESOP Benefit Contributions to the Retirement Income Trust Fund shall
cease, and the Bank's obligation to record Supplemental Retirement Income
Benefit Phantom Contributions and Supplemental ESOP Benefit Phantom
Contributions in the Accrued Benefit Account shall immediately commence,
pursuant to Subsections 2.1(a)(2) and 2.1(a)(3) (as applicable) and
Exhibit A of the Agreement. To the extent the language in this Agreement
is inconsistent with the language in the Michael J. Fitzpatrick Grantor
Trust agreement, this Agreement shall take precedence over the Michael J.
Fitzpatrick Grantor Trust agreement.
(2) Supplemental Retirement Income Benefit. The annual Supplemental
---------------------------------------
Retirement Income Benefit Contributions (or Supplemental Retirement Income
Benefit Phantom Contributions) required to be made by the Bank to the
Retirement Income Trust Fund of the Michael J. Fitzpatrick Grantor Trust
(or recorded by the Bank in the Accrued Benefit Account) have been
actuarially determined and are set forth in Exhibit A which is attached
hereto and incorporated herein by reference. The amount of the annual
Supplemental Retirement Income Benefit Contributions (or Supplemental
Retirement Income Benefit Phantom Contributions) to the Retirement Income
Trust Fund (or Accrued Benefit Account) has been based on the annual
incremental accounting accruals which would be required of the Bank until
the earlier of the Executive's death or Benefit Age, (i) pursuant to APB
Opinion No. 12, as amended by FAS 106 and (ii) assuming a discount rate
equal to Six Percent (6%) per annum, in order to provide the unfunded,
non-qualified Supplemental Retirement Income Benefit described in
Subsection 1.24. Supplemental Retirement Income Benefit Contributions
shall be made by the Bank to the
7
<PAGE>
DRAFT
Retirement Income Trust Fund (i) within thirty (30) days of establishment
of such trust, and (ii) within the first five (5) days of the beginning of
each subsequent Plan Year, unless this Section expressly provides
otherwise. Supplemental Retirement Income Benefit Phantom Contributions,
if any, shall be recorded in the Accrued Benefit Account within the first
five (5) days of the beginning of each applicable Plan Year, unless this
Section expressly provides otherwise. Supplemental Retirement Income
Benefit Phantom Contributions shall accrue interest at a rate equal to the
Interest Factor, during the Payout Period, until the balance of the
Accrued Benefit Account has been fully distributed. Interest on any
Supplemental Retirement Income Benefit Phantom Contribution shall not
commence until such Payout Period commences.
The Administrator shall review the schedule of annual Supplemental
Retirement Income Benefit Contributions (or Supplemental Retirement Income
Benefit Phantom Contributions) provided for in Exhibit A (i) within thirty
(30) days prior to the close of every third (3rd) Plan Year and (ii) if
the Executive is employed by the Bank until attaining Benefit Age, on or
immediately before attainment of such Benefit Age. Such review shall
consist of an evaluation of the accuracy of all assumptions used to
establish (i) the schedule of Supplemental Retirement Income Benefit
Contributions (or Supplemental Retirement Income Benefit Phantom
Contributions) provided for in Exhibit A and (ii) the amount of the
Supplemental Retirement Income Benefit as defined in Subsection 1.24. Such
assumptions shall include: (a) those listed in Exhibit E, (b) an assumed
tax-deferred investment rate of Six (6%) and (c) an assumed combined
marginal Federal and state tax rate of Forty One and Three Tenths Percent
(41.3%), during the contribution period. Provided that the investments
contained in the Retirement Income Trust Fund have been approved by the
Administrator, the Administrator shall prospectively amend the schedule of
Supplemental Retirement Income Benefit Contributions (or Supplemental
Retirement Income Benefit Phantom Contributions) provided for in Exhibit
A, should the Administrator determine during any such review that an
increase (but not a decrease) in such Supplemental Retirement Income
Benefit Contributions (or Supplemental Retirement Income Benefit Phantom
Contributions) is necessary in order (i) to provide a benefit equivalent
to the existing Supplemental Retirement Income Benefit, on an after-tax
basis or (ii)
8
<PAGE>
DRAFT
to provide a benefit equivalent to a revised Supplemental Retirement
Income Benefit. If the Executive has exercised his withdrawal rights, the
Administrator may prospectively reduce the schedule provided for in
Exhibit A should the Administrator determine, during any review, that such
reduction is warranted in order to provide the benefit calculated pursuant
to Subsection 1.24. Furthermore, should the Administrator determine that
the balance of the Accrued Benefit Account be excessive for any reason, at
the time benefits are payable from the Accrued Benefit Account (and
Retirement Income Trust Fund) any excess balance shall be eliminated and
inure to the Bank's benefit.
(3) Supplemental ESOP Benefit. The annual Supplemental ESOP Benefit
--------------------------
Contributions (or Supplemental ESOP Benefit Phantom Contributions)
required to be made by the Bank to the Retirement Income Trust Fund of the
Michael J. Fitzpatrick Grantor Trust (or recorded by the Bank in the
Accrued Benefit Account) are calculated as of December 31 of each Plan
Year. Such calculation shall be performed by the Bank in accordance with
Subsection 1.21 of this Agreement, within thirty (30) days after the end
of each Plan Year. Supplemental ESOP Benefit Contributions shall be made
by the Bank to the Retirement Income Trust Fund within sixty (60) days
after the end of each Plan Year, unless this Section expressly provides
otherwise. Supplemental ESOP Benefit Phantom Contributions shall be
recorded in the Accrued Benefit Account within sixty (60) days after the
end of each Plan Year, unless this Section expressly provides otherwise.
Supplemental ESOP Benefit Phantom Contributions shall accrue interest at a
rate equal to the Interest Factor, up to and throughout the Payout Period,
until the balance of the Accrued Benefit Account has been fully
distributed. Interest on any Supplemental ESOP Benefit Phantom
Contribution shall commence on the date such Supplemental ESOP Benefit
Phantom Contribution is initially recorded in the Executive's Accrued
Benefit Account.
If the Executive is eligible to receive a benefit under the terms of the
ESOP for any Plan Year, and a Supplemental ESOP Benefit is due for such
Plan Year pursuant to Subsection 1.21, a Supplemental ESOP Benefit
Contribution (or a Supplemental ESOP Benefit Phantom Contribution) shall
be required of the Bank for such Plan Year. If the Executive has not
exercised any withdrawal rights described in Subsection 2.2 as of December
31 of any Plan Year, a Supplemental ESOP Benefit Contribution to the
Retirement Income Trust Fund for such Plan Year
9
<PAGE>
DRAFT
shall be required of the Bank. If the Executive has exercised the
withdrawal rights described in Subsection 2.2 as of December 31 of any
Plan Year, a Supplemental ESOP Benefit Phantom Contribution shall be
recorded in the Executive's Accrued Benefit Account. Thereafter, the
Executive will only be eligible to receive Supplemental ESOP Benefit
Phantom Contributions. The Supplemental ESOP Benefit Contributions to the
Retirement Income Trust Fund (or the Supplemental ESOP Benefit Phantom
Contributions recorded in the Executive's Accrued Benefit Account) shall
commence in the Plan Year in which the ESOP is established, and shall
continue through each successive Plan Year in which (i) the Executive is
eligible to receive a benefit under the terms of the ESOP and (ii) a
Supplemental ESOP Benefit is due for such Plan Year pursuant to Subsection
1.21.
(b) Withdrawal Rights Not Exercised.
--------------------------------
(1) Contributions Made Annually
---------------------------
If the Executive does not exercise any withdrawal rights pursuant to
Subsection 2.2, the annual Contributions to the Retirement Income Trust
Fund shall continue each year, unless this Subsection specifically states
otherwise, until the earlier of (i) the last Plan Year that Supplemental
Retirement Income Benefit Contributions are required pursuant to Exhibit A
or (ii) the Plan Year in which the Executive's employment terminates.
(2) Death During Employment
-----------------------
If the Executive (i) does not exercise any withdrawal rights pursuant to
Subsection 2.2 and (ii) dies while employed by the Bank, all annual
Supplemental Retirement Income Benefit Contributions set forth in Exhibit
A shall be required of the Bank. Such Supplemental Retirement Income
Benefit Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year in which the Retirement Income Trust Fund is established
and shall continue through the Plan Year in which the Executive dies. The
final Supplemental Retirement Income Benefit Contribution payable for the
Plan Year of the Executive's death shall be equal to: (i) the Supplemental
Retirement Income Benefit Contribution scheduled for such Plan Year
pursuant to Exhibit A (unless already made), plus (ii) any remaining
Supplemental Retirement Income Benefit Contributions, required pursuant to
Exhibit A, for Plan Years subsequent to the Executive's death. Such final
Supplemental Retirement Income Benefit Contribution shall be payable in a
lump sum to the Retirement Income Trust Fund within thirty (30) days of
the Executive's death.
10
<PAGE>
DRAFT
(3) Change in Control
-----------------
If (i) the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2 and (ii) a Change in Control (as defined in Subsection 5.2)
occurs at the Bank, the Supplemental Retirement Income Benefit
Contributions set forth below shall be required of the Bank. The annual
Supplemental Retirement Income Benefit Contributions set forth in Exhibit
A shall be made to the Retirement Income Trust Fund, commencing in the
Plan Year in which the Retirement Income Trust Fund is established and
continuing through the Plan Year in which the Change in Control occurs.
Upon the occurrence of said Change in Control (as defined in Subsection
5.2), the Bank shall be required to make a lump sum Supplemental
Retirement Income Benefit Contribution to the Executive's Retirement
Income Trust Fund in an amount equal to: (i) the full Supplemental
Retirement Income Benefit Contribution required for the Plan Year in which
such Change in Control occurs, as provided for in Exhibit A (unless
already made), plus (ii) the present value (computed using a discount rate
equal to Four Percent (4%) per annum) of the total Supplemental Retirement
Income Benefit Contributions which would have been required in accordance
with Exhibit A for the three (3) Plan Years following the Plan Year in
which such Change in Control occurs. In the event the Executive continues
employment with the Bank following the date of the Change in Control, the
Bank shall be required to resume making Supplemental Retirement Income
Benefit Contributions in accordance with the schedule provided for in
Exhibit A. Such Supplemental Retirement Income Benefit Contributions shall
resume in the fourth (4th) Plan Year following the Plan Year in which the
Change in Control occurred and shall continue for the lesser of: (i) the
number of years remaining in the schedule provided for in Exhibit A, or
(ii) the number of years the Executive remains employed by the Bank.
(4) Voluntary or Involuntary Termination (Not For Cause) Prior to
Benefit Age
-------------------------------------------------------------
If the Executive (i) does not exercise his withdrawal rights pursuant to
Subsection 2.2 and (ii) voluntarily or involuntarily terminates his
service with the Bank pursuant to Subsection 5.1 and such termination is
not for Cause, disability, or related to a Change in Control, the annual
Supplemental Retirement Income Benefit Contributions to the Retirement
Income Trust Fund set forth in Exhibit A for all Plan Years through the
Plan Year in which such termination occurs, shall be required of the Bank.
No additional Supplemental Retirement Income Benefit Contributions to the
Retirement Income Trust Fund shall be required by the Bank for Plan Years
subsequent to the Plan Year in which termination occurs
11
<PAGE>
DRAFT
(5) Termination Due to Disability
-----------------------------
If the Executive (i) does not exercise his withdrawal rights pursuant to
Subsection 2.2 and (ii) terminates service with the Bank due to disability
pursuant to Subsection 6.1, all annual Supplemental Retirement Income
Benefit Contributions set forth in Exhibit A for all Plan Years through
the Plan Year in which such termination occurs shall be required of the
Bank. No additional Supplemental Retirement Income Benefit Contributions
to the Retirement Income Trust Fund shall be required by the Bank for Plan
Years subsequent to the Plan Year in which termination occurs.
(6) Termination For Cause
---------------------
If the Executive (i) does not exercise his withdrawal rights pursuant to
Subsection 2.2 and (ii) is terminated for Cause pursuant to Subsections
1.8 and 5.3, the annual Supplemental Retirement Income Benefit
Contributions to the Retirement Income Trust Fund set forth in Exhibit A
for all Plan Years through the Plan Year in which such termination occurs
shall be required of the Bank. Thereafter, no further Supplemental
Retirement Income Benefit Contribution(s) to the Retirement Income Trust
Fund shall be required of the Bank for Plan Years subsequent to the Plan
Year in which such termination for Cause occurs.
(c) Withdrawal Rights Exercised.
----------------------------
(1) Phantom Contributions Made Annually
-----------------------------------
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, no further Supplemental Retirement Income Benefit Contributions to
the Retirement Income Trust Fund shall be required of the Bank.
Thereafter, Supplemental Retirement Income Benefit Phantom Contributions
shall be recorded annually, pursuant to Exhibit A, in the Executive's
Accrued Benefit Account commencing with the Plan Year following the Plan
Year in which the Executive first exercises his withdrawal rights. Such
Supplemental Retirement Income Benefit Contributions shall continue until
the earlier of (i) the last Plan Year that Supplemental Retirement Income
Benefit Phantom Contributions are required pursuant to Exhibit A, or (ii)
the Plan Year in which the Executive's employment terminates.
12
<PAGE>
DRAFT
(2) Death During Employment
-----------------------
If the Executive (i) exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) dies while employed by the Bank, all annual
Supplemental Retirement Income Benefit Contributions set forth in Exhibit
A for all Plan Years preceding and including such exercise of withdrawal
rights shall be required of the Bank. Such Supplemental Retirement Income
Benefit Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year in which the Retirement Income Trust Fund is established
and shall continue through the Plan Year in which the Executive first
exercises his withdrawal rights. Thereafter, Supplemental Retirement
Income Benefit Phantom Contributions shall be recorded annually, pursuant
to Exhibit A, in the Executive's Accrued Benefit Account. Supplemental
Retirement Income Benefit Phantom Contributions shall be recorded for the
Plan Year following the Plan Year in which the Executive first exercises
his withdrawal rights and shall continue through the Plan Year in which
the Executive dies. The final Supplemental Retirement Income Benefit
Phantom Contribution recorded in the Accrued Benefit Account for the Plan
Year of the Executive's death shall be equal to: (i) the Supplemental
Retirement Income Benefit Phantom Contribution scheduled for such Plan
Year pursuant to Exhibit A (unless already made), plus (ii) all remaining
Supplemental Retirement Income Benefit Phantom Contributions, required
pursuant to Exhibit A, for Plan Years subsequent to the Executive's death.
Such final Supplemental Retirement Income Benefit Phantom Contribution
shall be recorded in the Accrued Benefit Account within thirty (30) days
of the Executive's death.
(3) Change in Control
-----------------
If the (i) Executive exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) a Change in Control (as defined in Subsection 5.2)
occurs at the Bank, the following Supplemental Retirement Income Benefit
Contributions and Supplemental Retirement Income Benefit Phantom
Contributions shall be required of the Bank. The annual Supplemental
Retirement Income Benefit Contributions set forth in Exhibit A shall be
made to the Retirement Income Trust Fund, commencing in the Plan Year in
which the Retirement Income Trust Fund is established and continuing
through the Plan Year in which the Executive first exercises his
withdrawal rights. Thereafter, Supplemental Retirement Income Benefit
Phantom Contributions shall be recorded, annually, in the Executive's
Accrued Benefit Account. Supplemental Retirement Income Benefit Phantom
Contributions shall commence in the Plan Year following the Plan Year in
which the Executive first exercises his withdrawal rights and shall
continue through the Plan Year in which
13
<PAGE>
DRAFT
the Change in Control occurs. Upon the occurrence of said Change in
Control (as defined in Subsection 5.2), the Bank shall be required to
record a lump sum Supplemental Retirement Income Benefit Phantom
Contribution in the Executive's Accrued Benefit Account in an amount equal
to: (i) the full Supplemental Retirement Income Benefit Phantom
Contribution required for the Plan Year in which such Change in Control
occurs, as provided for in Exhibit A (unless already made), plus (ii) the
present value (computed using a discount rate equal to Six Percent (6%)
per annum) of the total Supplemental Retirement Income Benefit Phantom
Contributions which would have been required in accordance with Exhibit A
for the three (3) Plan Years following the Plan Year in which such Change
in Control occurs. In the event the Executive continues employment with
the Bank following the date of the Change in Control, the Bank shall be
required to resume recording Supplemental Retirement Income Benefit
Phantom Contributions in accordance with the schedule provided for in
Exhibit A. Such Supplemental Retirement Income Benefit Phantom
Contributions shall resume in the fourth (4th) Plan Year following the
Plan Year in which the Change in Control occurred and shall continue for
the lesser of: (i) the number of years remaining in the schedule provided
for in Exhibit A, or (ii) the number of years the Executive remains
employed by the Bank.
(4) Voluntary or Involuntary Termination (Not For Cause) Prior to
-------------------------------------------------------------
Benefit Age
-----------
If the Executive (i) exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) voluntarily or involuntarily terminates his
service with the Bank pursuant to Subsection 5.1 and such termination is
not for Cause, disability, or related to a Change in Control, all annual
Supplemental Retirement Income Benefit Contributions set forth in Exhibit
A for all Plan Years preceding and including such exercise of withdrawal
rights shall be required of the Bank. Such Supplemental Retirement Income
Benefit Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year in which the Retirement Income Trust Fund is established
and shall continue through the Plan Year in which the Executive first
exercises his withdrawal rights. Thereafter, Supplemental Retirement
Income Benefit Phantom Contributions shall be recorded annually, pursuant
to Exhibit A, in the Executive's Accrued Benefit Account. Supplemental
Retirement Income Benefit Phantom Contributions shall be recorded for the
Plan Year following the Plan Year in which the Executive first exercises
his withdrawal rights and shall continue through the Plan Year in which
the Executive is terminated. No additional Supplemental Retirement Income
Benefit Phantom Contributions shall be required to be recorded in the
Accrued Benefit Account for Plan Years subsequent to the Plan Year in
which termination occurs.
14
<PAGE>
DRAFT
(5) Termination Due to Disability
-----------------------------
If the Executive (i) exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) terminates service with the Bank due to disability
pursuant to Subsection 6.1, all annual Supplemental Retirement Income
Benefit Contributions set forth in Exhibit A for all Plan Years preceding
and including such exercise of withdrawal rights shall be required of the
Bank. Such Supplemental Retirement Income Benefit Contributions to the
Retirement Income Trust Fund shall commence in the Plan Year in which the
Retirement Income Trust Fund is established and shall continue through the
Plan Year in which the Executive first exercises his withdrawal rights.
Thereafter, Supplemental Retirement Income Benefit Phantom Contributions
shall be recorded annually, pursuant to Exhibit A, in the Executive's
Accrued Benefit Account. Supplemental Retirement Income Benefit Phantom
Contributions shall be recorded for the Plan Year following the Plan Year
in which the Executive first exercises his withdrawal rights and shall
continue through the Plan Year in which the termination due to disability
occurs. No additional Supplemental Retirement Income Benefit Phantom
Contributions shall be required to be recorded in the Accrued Benefit
Account for Plan Years subsequent to the Plan Year in which termination
occurs.
(6) Termination For Cause
---------------------
If the Executive (i) exercises his withdrawal rights pursuant to
Subsection 2.2 and (ii) is terminated for Cause pursuant to Subsections
1.8 and 5.3, the annual Supplemental Retirement Income Benefit
Contributions to the Retirement Income Trust Fund set forth in Exhibit A
for all Plan Years preceding and including such exercise of withdrawal
rights shall be required of the Bank. Such Supplemental Retirement Income
Benefit Contributions to the Retirement Income Trust Fund shall commence
in the Plan Year in which the Retirement Income Trust Fund is established
and shall continue through the Plan Year in which the Executive first
exercises his withdrawal rights. The entire balance of the Executive's
Accrued Benefit Account at the time of such termination, which shall
include (i) any recorded Supplemental Retirement Income Benefit Phantom
Contributions, plus (ii) interest accrued on such Supplemental Retirement
Income Benefit Phantom Contributions, shall be forfeited.
15
<PAGE>
DRAFT
2.2 Withdrawals from Retirement Income Trust Fund.
----------------------------------------------
Exercise of withdrawal rights by the Executive pursuant to the Michael J.
Fitzpatrick Grantor Trust agreement shall terminate the Bank's obligation
to make any further Supplemental Retirement Income Benefit Contributions
and Supplemental ESOP Benefit Contributions to the Retirement Income Trust
Fund, and the Bank's obligation to record Supplemental Retirement Income
Benefit Phantom Contributions and Supplemental ESOP Benefit Phantom
Contributions in the Executive's Accrued Benefit Account shall immediately
commence pursuant to Subsection 2.1 of the Agreement. For purposes of this
Subsection 2.2, "exercise of withdrawal rights" shall mean those
withdrawal rights to which the Executive is entitled under Article III of
the Michael J. Fitzpatrick Grantor Trust agreement and shall exclude any
distributions made by the trustee of the Retirement Income Trust Fund to
the Executive for purposes of payment of income taxes in accordance with
Subsection 2.1 of this Agreement.
SECTION III
RETIREMENT BENEFIT
------------------
3.1 (a) Normal form of payment.
----------------------
If (i) the Executive is employed with the Bank until reaching his Benefit
Age, excluding employment with the Bank until Benefit Age following a
Change in Control which is covered in Subsection 5.1, and (ii) the
Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 3.1(a) shall be controlling with respect to retirement
benefits. Supplemental Retirement Income Benefit Contributions shall be
made in accordance with Subsection 2.1(b)(1) and Supplemental Retirement
Income Benefit Phantom Contributions shall be recorded in accordance with
2.1(c)(1), as applicable. Supplemental ESOP Benefit Contributions and
Supplemental ESOP Benefit Phantom Contributions, as applicable, shall be
made or recorded in accordance with Subsection 2.1(a)(3).
The Retirement Income Trust Fund, measured as of the Executive's Benefit
Age, shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable for the Payout Period. Such benefit
payments shall commence on the Executive's Benefit Eligibility Date.
Should Retirement Income Trust Fund assets actually earn a rate of return,
following the date such balance is annuitized, which is less than the rate
of return used to annuitize the Retirement Income
16
<PAGE>
DRAFT
Trust Fund, no additional contributions to the Retirement Income Trust
Fund shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the less-than-
expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is greater than the rate of return used to annuitize the
Retirement Income Trust Fund, the final benefit payment to the Executive
(or his Beneficiary) shall distribute the excess amounts attributable to
the greater-than-expected rate of return. The Executive may at anytime
during the Payout Period request to receive the unpaid balance of his
Retirement Income Trust Fund in a lump sum payment. If such a lump sum
payment is requested by the Executive, payment of the balance of the
Retirement Income Trust Fund in such lump sum form shall be made only if
the Executive gives notice to both the Administrator and trustee in
writing. Such lump sum payment shall be payable within thirty (30) days
of such notice. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of all
monthly payments due and owing hereunder, (i) the trustee of the
Retirement Income Trust Fund shall pay to the Executive's Beneficiary the
monthly installments (or a continuation of such monthly installments if
they have already commenced) for the balance of months remaining in the
Payout Period, or (ii) the Executive's Beneficiary may request to receive
the unpaid balance of the Executive's Retirement Income Trust Fund in a
lump sum payment. If a lump sum payment is requested by the Beneficiary,
payment of the balance of the Retirement Income Trust Fund in such lump
sum form shall be made only if the Executive's Beneficiary notifies both
the Administrator and trustee in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment shall be payable
within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the Executive's Benefit Age, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such benefit payments shall commence on the Executive's Benefit
Eligibility Date. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of all
the payments due and owing hereunder, (i) the Bank shall pay to the
Executive's Beneficiary the same monthly installments (or a continuation
of such monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the Executive's
Beneficiary may request to receive the remainder of any unpaid benefit
payments in a lump sum payment. If a lump sum payment is requested by the
17
<PAGE>
DRAFT
Beneficiary, the amount of such lump sum payment shall be equal to the
unpaid balance of the Executive's Accrued Benefit Account. Payment in such
lump sum form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the Administrator in
writing of such election within ninety (90) days of the Executive's death.
Such lump sum payment, if approved by the Board of Directors, shall be
payable within thirty (30) days of such Board of Director approval.
(b) Alternative payout option.
-------------------------
If (i) the Executive is employed with the Bank until reaching his Benefit
Age, excluding employment with the Bank until Benefit Age following a
Change in Control which is covered in Subsection 5.1, and (ii) the
Executive has made a Timely Election to receive a lump sum benefit, this
Subsection 3.1(b) shall be controlling with respect to retirement
benefits. Supplemental Retirement Income Benefit Contributions shall be
made in accordance with Subsection 2.1(b)(1) and Supplemental Retirement
Income Benefit Phantom Contributions shall be recorded in accordance with
2.1(c)(1). Supplemental ESOP Benefit Contributions and Supplemental ESOP
Benefit Phantom Contributions, as applicable, shall be made or recorded in
accordance with Subsection 2.1(a)(3).
The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum on
his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit Age),
but before the actual payment is made, his Beneficiary shall be entitled
to receive the lump sum benefit in accordance with this Subsection 3.1(b)
within thirty (30) days of the date the Administrator receives notice of
the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the Executive's Benefit Age, shall be paid to the Executive
in a lump sum on his Benefit Eligibility Date. In the event the Executive
dies after becoming eligible for such payment (upon attainment of his
Benefit Age), but before the actual payment is made, his Beneficiary shall
be entitled to receive the lump sum benefit in accordance with this
Subsection 3.1(b) within thirty (30) days of the date the Administrator
receives notice of the Executive's death.
18
<PAGE>
DRAFT
SECTION IV
PRE-RETIREMENT DEATH BENEFIT
----------------------------
4.1 (a) Normal form of payment.
----------------------
If (i) the Executive dies while employed by the Bank and (ii) the
Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 4.1(a) shall be controlling with respect to pre-retirement
death benefits. Supplemental Retirement Income Benefit Contributions shall
be made in accordance with Subsection 2.1(b)(2) (or 2.1(b)(3), as
applicable) and Supplemental Retirement Income Benefit Phantom
Contributions shall be recorded in accordance with 2.1(c)(2) (or
2.1(c)(3), as applicable). Supplemental ESOP Benefit Contributions and
Supplemental ESOP Benefit Phantom Contributions, as applicable, shall be
made or recorded in accordance with Subsection 2.1(a)(3).
The Executive's Beneficiary shall be entitled to receive benefits in
accordance with this Subsection 4.1(a). The Executive's Retirement Income
Trust Fund, measured as of the latest of (i) the date of the Executive's
death, (ii) the date any final lump sum Supplemental Retirement Income
Benefit Contribution is made pursuant to Subsection 2.1(b)(2) (or
2.1(b)(3)), or (iii) the date any final Supplemental ESOP Benefit
Contribution is made pursuant to Subsection 2.1(a)(3), shall be annuitized
(using the Interest Factor) into monthly installments and shall be payable
for the Payout Period. Such benefit payments shall commence within thirty
(30) days of the date the Administrator receives notice of the Executive's
death. Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is less than
the rate of return used to annuitize the Retirement Income Trust Fund, no
additional contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit payment(s) and
make up for any shortage attributable to the less-than-expected rate of
return. Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is greater
than the rate of return used to annuitize the Retirement Income Trust
Fund, the final benefit payment to the Executive's Beneficiary shall
distribute the excess amounts attributable to the greater-than-expected
rate of return. The Executive's Beneficiary may request to receive the
unpaid balance of the Executive's Retirement Income Trust Fund in a lump
sum payment. If a lump sum payment is requested by the Beneficiary,
payment of the balance of the Retirement Income Trust Fund in such lump
sum form shall be made only if the Executive's Beneficiary notifies both
the Administrator and trustee
19
<PAGE>
DRAFT
in writing of such election within ninety (90) days of the Executive's
death. Such lump sum payment shall be made within thirty (30) days of such
notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the latest of (i) the date of the Executive's death, (ii) the date the
final Supplemental Retirement Income Benefit Phantom Contribution is
recorded pursuant to Subsection 2.1(c)(2) (or 2.1(c)(3)), or (iii) the
date any final Supplemental ESOP Benefit Phantom Contribution is recorded
pursuant to Subsection 2.1(a)(3), shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable to the Beneficiary
for the Payout Period. Such benefit payments shall commence within thirty
(30) days of the date the Administrator receives notice of the Executive's
death. The Executive's Beneficiary may request to receive the remainder of
any unpaid monthly benefit payments due from the Accrued Benefit Account
in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, the amount of such lump sum payment shall be equal to the
balance of the Executive's Accrued Benefit Account. Payment in such lump
sum form shall be made only if the Executive's Beneficiary (i) obtains
Board of Director approval, and (ii) notifies the Administrator in writing
of such election within ninety (90) days of the Executive's death. Such
lump sum payment, if approved by the Board of Directors, shall be payable
within thirty (30) days of such Board of Director approval.
(b) Alternative payout option.
-------------------------
If (i) the Executive dies while employed by the Bank and (ii) the
Executive has made a Timely Election to receive a lump sum benefit, this
Subsection 4.1(b) shall be controlling with respect to pre-retirement
death benefits. Supplemental Retirement Income Benefit Contributions shall
be made in accordance with Subsection 2.1(b)(2) (or 2.1(b)(3), as
applicable) and Supplemental Retirement Income Benefit Phantom
Contributions shall be recorded in accordance with 2.1(c)(2) (or
2.1(c)(3), as applicable). Supplemental ESOP Benefit Contributions and
Supplemental ESOP Benefit Phantom Contributions, as applicable, shall be
made or recorded in accordance with Subsection 2.1(a)(3).
The Executive's Beneficiary shall be entitled to receive a lump sum
benefit in accordance with this Subsection 4.1(b). The balance of the
Executive's Retirement Income Trust Fund, measured as of the latest of (i)
the date of the Executive's death, (ii) the date any final lump sum
Supplemental Retirement Income Benefit Contribution is made pursuant to
Subsection 2.1(b)(2) (or 2.1(b)(3)),
20
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DRAFT
or (iii) the date any final Supplemental ESOP Benefit Contribution is made
pursuant to Subsection 2.1(a)(3), shall be paid to the Executive's
Beneficiary in a lump sum within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the latest of (i) the date of the Executive's death, (ii)
the date the final Supplemental Retirement Income Benefit Phantom
Contribution is recorded pursuant to Subsection 2.1(c)(2) (or 2.1(c)(3)),
or (iii) the date any final Supplemental ESOP Benefit Phantom Contribution
is recorded pursuant to Subsection 2.1(a)(3), shall be paid to the
Executive's Beneficiary in a lump sum within thirty (30) days of the date
the Administrator receives notice of the Executive's death.
SECTION V
BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
-------------------------------------------------
PRIOR TO BENEFIT AGE
--------------------
5.1 Voluntary or Involuntary Termination of Service Other Than for Cause. In
--------------------------------------------------------------------
the event the Executive's service with the Bank is voluntarily or
involuntarily terminated prior to Benefit Age, for any reason other than
for Cause, but excluding any termination related to disability which shall
be covered in Section VI, the Executive (or his Beneficiary) shall be
entitled to receive benefits in accordance with this Subsection 5.1.
Payment of benefits pursuant to this Subsection 5.1 shall be made in
accordance with Subsection 5.1(a) or 5.1(b) below, as applicable.
(a) Normal form of payment.
----------------------
(1) Executive Lives Until Benefit Age
---------------------------------
If (i) after such termination, the Executive lives until attaining his
Benefit Age, and (ii) the Executive has not made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(a)(1) shall be controlling
with respect to retirement benefits. Supplemental Retirement Income
Benefit Contributions shall be made in accordance with Subsection
2.1(b)(4) (or 2.1(b)(3), as applicable) and Supplemental Retirement Income
Benefit Phantom Contributions shall be recorded in accordance with
2.1(c)(4) (or (2.1(c)(3), as applicable). Supplemental ESOP Benefit
Contributions and Supplemental ESOP Benefit Phantom Contributions, as
applicable, shall be made or recorded in accordance with Subsection
2.1(a)(3).
21
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DRAFT
The Retirement Income Trust Fund, measured as of the Executive's Benefit
Age, shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable for the Payout Period. Such payments
shall commence on the Executive's Benefit Eligibility Date. Should
Retirement Income Trust Fund assets actually earn a rate of return,
following the date such balance is annuitized, which is less than the rate
of return used to annuitize the Retirement Income Trust Fund, no
additional contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit payment(s) and
make up for any shortage attributable to the less-than-expected rate of
return. Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is greater
than the rate of return used to annuitize the Retirement Income Trust
Fund, the final benefit payment to the Executive (or his Beneficiary)
shall distribute the excess amounts attributable to the greater-than-
expected rate of return. The Executive may at anytime during the Payout
Period request to receive the unpaid balance of his Retirement Income
Trust Fund in a lump sum payment. If such a lump sum payment is requested
by the Executive, payment of the balance of the Retirement Income Trust
Fund in such lump sum form shall be made only if the Executive gives
notice to both the Administrator and trustee in writing. Such lump sum
payment shall be payable within thirty (30) days of such notice. In the
event the Executive dies at any time after attaining his Benefit Age, but
prior to commencement or completion of all monthly payments due and owing
hereunder, (i) the trustee of the Retirement Income Trust Fund shall pay
to the Executive's Beneficiary the monthly installments (or a continuation
of the monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the Executive's
Beneficiary may request to receive the unpaid balance of the Executive's
Retirement Income Trust Fund in a lump sum payment. If a lump sum payment
is requested by the Beneficiary, payment of the balance of the Retirement
Income Trust Fund in such lump sum form shall be made only if the
Executive's Beneficiary notifies both the Administrator and trustee in
writing of such election within ninety (90) days of the Executive's death.
Such lump sum payment shall be made within thirty (30) days of such
notice.
22
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DRAFT
The Executive's Accrued Benefit Account (if applicable), measured as of
the Executive's Benefit Age, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable of the Payout
Period. Such payments shall commence on the Executive's Benefit
Eligibility Date. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of all
the payments due and owing hereunder, (i) the Bank shall pay to the
Executive's Beneficiary the same monthly installments (or a continuation
of such monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the Executive's
Beneficiary may request to receive the remainder of any unpaid benefit
payments in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, the amount of such lump sum payment shall be equal to the
unpaid balance of the Executive's Accrued Benefit Account. Payment in such
lump sum form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the Administrator in
writing of such election within ninety (90) days of the Executive's death.
Such lump sum payment, if approved by the Board of Directors, shall be
payable within thirty (30) days of such Board of Director approval.
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If (i) after such termination, the Executive dies prior to attaining his
Benefit Age, and (ii) the Executive has not made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(a)(2) shall be controlling
with respect to retirement benefits. Supplemental Retirement Income
Benefit Contributions shall be made in accordance with Subsection
2.1(b)(4) (or 2.1(b)(3), as applicable) and Supplemental Retirement Income
Benefit Phantom Contributions shall be recorded in accordance with
2.1(c)(4) (or 2.1(c)(3), as applicable). Supplemental ESOP Benefit
Contributions and Supplemental ESOP Benefit Phantom Contributions, as
applicable, shall be made or recorded in accordance with Subsection
2.1(a)(3).
The Retirement Income Trust Fund, measured as of the date of the
Executive's death, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
payments shall commence within thirty (30) days of the date the
Administrator receives notice of the Executive's death. Should Retirement
Income Trust Fund assets actually earn a rate of return, following the
date such balance is annuitized, which is less than the rate of return
used to annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be required by the
Bank in order to fund the final benefit
23
<PAGE>
DRAFT
payment(s) and make up for any shortage attributable to the less-than-
expected rate of return. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is greater than the rate of return used to annuitize the
Retirement Income Trust Fund, the final benefit payment to the Executive's
Beneficiary shall distribute the excess amounts attributable to the
greater-than-expected rate of return. The Executive's Beneficiary may
request to receive the unpaid balance of the Executive's Retirement Income
Trust Fund in the form of a lump sum payment. If a lump sum payment is
requested by the Beneficiary, payment of the balance of the Retirement
Income Trust Fund in such lump sum form shall be made only if the
Executive's Beneficiary notifies both the Administrator and trustee in
writing of such election within ninety (90) days of the Executive's death.
Such lump sum payment shall be made within thirty (30) days of such
notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the date of the Executive's death, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such payments shall commence within thirty (30) days of the date
the Administrator receives notice of the Executive's death. The
Executive's Beneficiary may request to receive the unpaid balance of the
Executive's Accrued Benefit Account in the form of a lump sum payment. If
a lump sum payment is requested by the Beneficiary, payment of the balance
of the Accrued Benefit Account in such lump sum form shall be made only if
the Executive's Beneficiary (i) obtains Board of Director approval, and
(ii) notifies the Administrator in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment, if approved by
the Board of Directors, shall be made within thirty (30) days of such
Board of Director approval.
(b) Alternative payout option.
-------------------------
(1) Executive Lives Until Benefit Age
---------------------------------
If (i) after such termination, the Executive lives until attaining his
Benefit Age, and (ii) the Executive has made a Timely Election to receive
a lump sum benefit, this Subsection 5.1(b)(1) shall be controlling with
respect to retirement benefits. Supplemental Retirement Income Benefit
Contributions shall be made in accordance with Subsection 2.1(b)(4) (or
2.1(b)(3), as applicable) and Supplemental Retirement Income Benefit
Phantom Contributions shall be recorded in accordance with 2.1(c)(4) (or
2.1(c)(3), as applicable). Supplemental ESOP Benefit Contributions
24
<PAGE>
DRAFT
and Supplemental ESOP Benefit Phantom Contributions, as applicable, shall
be made or recorded in accordance with Subsection 2.1(a)(3).
The Retirement Income Trust Fund, measured as of the Executive's Benefit
Age, shall be paid to the Executive in a lump sum on his Benefit
Eligibility Date. In the event the Executive dies after becoming eligible
for such payment (upon attainment of his Benefit Age), but before the
actual payment is made, his Beneficiary shall be entitled to receive the
lump sum benefit in accordance with this Subsection 5.1(b)(1) within
thirty (30) days of the date the Administrator receives notice of the
Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the Executive's Benefit Age, shall be paid to the Executive
in a lump sum on his Benefit Eligibility Date. In the event the Executive
dies after becoming eligible for such payment (upon attainment of his
Benefit Age), but before the actual payment is made, his Beneficiary shall
be entitled to receive the lump sum benefit in accordance with this
Subsection 5.1(b)(1) within thirty (30) days of the date the Administrator
receives notice of the Executive's death.
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If (i) after such termination, the Executive dies prior to attaining his
Benefit Age, and (ii) the Executive has made a Timely Election to receive
a lump sum benefit, this Subsection 5.1(b)(2) shall be controlling with
respect to retirement benefits. Supplemental Retirement Income Benefit
Contributions shall be made in accordance with Subsection 2.1(b)(4) (or
2.1(b)(3), as applicable) and Supplemental Retirement Income Benefit
Phantom Contributions shall be recorded in accordance with 2.1(c)(4) (or
2.1(c)(3), as applicable). Supplement ESOP Benefit Contributions and
Supplemental ESOP Benefit Phantom Contributions, as applicable, shall be
made or recorded in accordance with Subsection 2.1(a)(3).
The balance of the Retirement Income Trust Fund, measured as of the date
of the Executive's death, shall be paid to the Executive's Beneficiary
within thirty (30) days of the date the Administrator receives notice of
the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the date of the Executive's death, shall be paid to the
Executive's Beneficiary within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
25
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DRAFT
5.2 Change in Control Defined.
-------------------------
For purposes of this Subsection, the terms "stockholders" and "member(s)"
shall be considered one and the same. For purposes of this Subsection, the
term "Holding Company" shall mean the holding company (including any
successor thereto) organized to acquire the capital stock of the Bank upon
the Bank's conversion from mutual to stock form. For purposes of this
Agreement, a "Change in Control" of the Bank shall include the following:
(1) a Change in Control of a nature that would be required to be
reported in response to Item 1 of the current report on Form 8-K, as
in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or
(2) a change in control of the Bank within the meaning of 12 C.F.R.
574.4; or
(3) a Change in Control at such time as
(i) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank representing Twenty
Percent (20.0%) or more of the combined voting power of the
Bank's outstanding securities ordinarily having the right to
vote at the election of directors, except for (i) any stock of
the Bank purchased by the Holding Company in connection with
the conversion of the Bank to stock form, and (ii) any stock
purchased by the Bank's Employee Stock Ownership Plan and/or
trust; or
(ii) individuals who constitute the board of directors on the date
hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose
nomination for election by the Bank's members (or stockholders)
was approved by the Bank's nominating committee which is
comprised of members of the Incumbent Board, shall be, for
purposes of this clause (ii), considered as though he were a
member of the Incumbent Board; or
(iii) merger, consolidation, or sale of all or substantially all of
the assets of the Bank occurs; or
(iv) a proxy statement is issued soliciting proxies from the members
(or stockholders) of the Bank by someone other than the current
management of the Bank, seeking member (or stockholder)
approval of a plan of reorganization, merger, or
26
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DRAFT
consolidation of the Bank with one or more corporations as a
result of which the outstanding shares of the class of the
Bank's securities are exchanged for or converted into cash or
property or securities not issued by the Bank.
(4) any company, any director or officer of a bank or savings and loan
holding company, or any individual who owns, controls, or holds more
than twenty-five percent (25.0%) of the voting stock of a bank or
savings and loan holding company seeks to effect a change in control
(as defined herein) and receives written approval from the
appropriate federal bank regulatory agency pursuant to 12 C.F.R.
574.3(a),
(5) any person (other than certain persons affiliated with a bank or
savings and loan holding company subject to 12 C.F.R. 574.3(a))
seeks to effect a change in control of the Bank (as defined herein)
and receives written approval from the appropriate federal bank
regulatory agency pursuant to 12 C.F.R. 574.3(b), or
(6) any appropriate federal bank regulatory agency approves any
combination, merger, consolidation, purchase or sale of assets
pursuant to 12 C.F.R. 563.22 or 12 C.F.R. 522.13.
5.3 Termination For Cause. If the Executive is terminated for Cause, all
----------------------
benefits under this Agreement, other than those which can be paid from
previous Supplemental Retirement Income Benefit Contributions and
Supplemental ESOP Benefit Contributions to the Retirement Income Trust
Fund (and earnings on all such Contributions), shall be forfeited, and
this Agreement shall become null and void. Furthermore, no Supplemental
Retirement Income Benefit Contribution or Supplemental ESOP Benefit
Contribution to the Executive's Retirement Income Trust Fund shall be
required of the Bank for the Plan Year in which such termination for Cause
occurs. The Executive shall be entitled to receive a benefit in accordance
with this Subsection.
The balance of the Executive's Retirement Income Trust Fund shall be paid
to the Executive in a lump sum on his Benefit Eligibility Date. In the
event the Executive dies prior to his Benefit Eligibility Date, his
Beneficiary shall be entitled to receive the balance of the Executive's
Retirement Income Trust Fund in a lump sum within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
27
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DRAFT
SECTION VI
OTHER BENEFITS
--------------
6.1 (a) Disability Benefit.
------------------
If the Executive's service is terminated prior to Benefit Age due to a
disability which meets the criteria set forth below, the Executive may
request to receive the Disability Benefit in lieu of the retirement
benefit(s) available pursuant to Section 5.1 (which is (are) not available
prior to the Executive's Benefit Eligibility Date). Supplemental
Retirement Income Benefit Contributions shall be made in accordance with
Subsection 2.1(b)(5) and Supplemental Retirement Income Benefit Phantom
Contributions shall be recorded in accordance with 2.1(c)(5), as
applicable. Supplemental ESOP Benefit Contributions and Supplemental ESOP
Benefit Phantom Contributions, as applicable, shall be made or recorded in
accordance with Subsection 2.1(a)(3).
Notwithstanding any other provision hereof, if requested by the Executive
and approved by the Board of Directors, the Executive shall receive a lump
sum Disability Benefit hereunder, in any case in which it is determined by
a duly licensed independent physician selected by the Bank, that the
Executive is no longer able, properly and satisfactorily, to perform his
regular duties as an Executive, because of ill health, accident,
disability or general inability due to age. The lump sum benefit(s) to
which the Executive is entitled shall include: (i) the balance of the
Retirement Income Trust Fund, plus (ii) the balance of the Accrued Benefit
Account (if applicable), both measured as of the later of (a) the date of
the disability determination, or (b) the date of any final Supplemental
ESOP Benefit Contribution (or Supplemental ESOP Benefit Phantom
Contribution) pursuant to Subsection 2.1(a)(3). The benefit(s) shall be
paid within thirty (30) days following the date of the Executive's request
for such benefit. In the event the Executive dies after becoming eligible
for such payment(s) but before the actual payment(s) is (are) made, his
Beneficiary shall be entitled to receive the benefit(s) provided for in
this Subsection 6.1(a) within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
(b) Disability Benefit - Supplemental.
---------------------------------
Furthermore, if (i) the Executive's death occurs prior to attaining
Benefit Age, and (ii) Board of Director approval is obtained upon the
Executive's death, the Bank shall make a direct, lump sum payment to the
Executive's Beneficiary in an amount equal to the following: the sum of
all remaining Supplemental Retirement Income Benefit Contributions (or
Supplemental Retirement
28
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DRAFT
Income Benefit Phantom Contributions) set forth in Exhibit A, but not
required pursuant to Subsection 2.1(b)(5) (or 2.1(c)(5)) due to the
disability-related termination. Such lump sum payment, if approved by the
Board of Directors, shall be payable within thirty (30) days of such
Board of Director approval.
6.2 Additional Death Benefit - Burial Expense. Upon the Executive's death,
-----------------------------------------
the Executive's Beneficiary shall also be entitled to receive a one-time
lump sum death benefit in the amount of Ten Thousand Dollars
($10,000.00). This benefit shall be paid directly from the Bank to the
Beneficiary and shall be provided specifically for the purpose of
providing payment for burial and/or funeral expenses of the Executive.
Such death benefit shall be payable within thirty (30) days of the date
the Administrator receives notice of the Executive's death. The
Executive's Beneficiary shall not be entitled to such benefit if the
Executive is terminated for Cause prior to death.
SECTION VII
NON-COMPETITION
---------------
7.1 Non-Competition During Employment.
---------------------------------
In consideration of the agreements of the Bank contained herein and of
the payments to be made by the Bank pursuant hereto, the Executive
hereby agrees that, for as long as he remains employed by the Bank, he
will devote substantially all of his time, skill, diligence and
attention to the business of the Bank, and will not actively engage,
either directly or indirectly, in any business or other activity which
is, or may be deemed to be, in any way competitive with or adverse to
the best interests of the business of the Bank, unless the Executive has
the prior express written consent of the Bank.
7.2 Breach of Non-Competition Clause.
--------------------------------
(a) Continued Employment Following Breach.
-------------------------------------
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 7.1 occurs, and (ii) the Executive
continues employment at the Bank following such breach, all further
Supplemental Retirement Income Benefit Contributions and Supplemental
ESOP Benefit Contributions by the Bank to the Retirement Income Trust
Fund (or Supplemental Retirement Income Benefit Phantom Contributions
and Supplemental ESOP Benefit Phantom Contribution recorded in the
Accrued Benefit Account) shall immediately cease, and all benefits
29
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DRAFT
under this Agreement, other than those which can be paid from previous
Supplemental Retirement Income Benefit Contributions and Supplemental
ESOP Benefit Contributions to the Retirement Income Trust Fund (and
earnings on such Supplemental Retirement Income Benefit Contributions
and Supplemental ESOP Benefit Contributions), shall be forfeited. The
Executive (or his Beneficiary) shall be entitled to receive a benefit
from the Retirement Income Trust Fund in accordance with Subpart (1) or
(2) below, as applicable.
(1) Executive Lives Until Benefit Age
---------------------------------
If, following such breach, the Executive lives until attaining his
Benefit Age, he shall be entitled to receive a benefit from the
Retirement Income Trust Fund in accordance with this
Subsection 7.2(a)(1). The balance of the Retirement Income Trust Fund,
measured as of the Executive's Benefit Age, shall be paid to the
Executive in a lump sum on his Benefit Eligibility Date. In the event
the Executive dies after attaining his Benefit Age but before actual
payment is made, his Beneficiary shall be entitled to receive the lump
sum benefit in accordance with this Subsection 7.2(a)(1) within thirty
(30) days of the date of the Administrator receives notice of the
Executive's death.
(2) Executive Dies Prior to Benefit Age
-----------------------------------
If, following such breach, the Executive dies prior to attaining his
Benefit Age, his Beneficiary shall be entitled to receive a benefit
from the Retirement Income Trust Fund in accordance with this
Subsection 7.2 (a)(2). The balance of the Retirement Income Trust Fund,
measured as of the date of the Executive's death, shall be paid to the
Executive's Beneficiary in a lump sum within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
(b) Termination of Employment Following Breach.
------------------------------------------
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 7.1 occurs, and (ii) the Executive's
employment with the Bank is terminated due to such breach, such
termination shall be deemed to be for Cause and the benefits payable to
the Executive shall be paid in accordance with Subsection 5.3 of this
Agreement.
30
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DRAFT
SECTION VIII
BENEFICIARY DESIGNATION
-----------------------
The Executive shall make an initial designation of primary and
secondary Beneficiaries upon execution of this Agreement and shall have
the right to change such designation, at any subsequent time, by
submitting to (i) the Administrator, and (ii) the trustee of the
---
Retirement Income Trust Fund, in substantially the form attached as
Exhibit B to this Agreement, a written designation of primary and
secondary Beneficiaries. Any Beneficiary designation made subsequent to
execution of this Agreement shall become effective only when receipt
thereof is acknowledged in writing by the Administrator.
SECTION IX
EXECUTIVE'S RIGHT TO ASSETS
---------------------------
The rights of the Executive, any Beneficiary, or any other person
claiming through the Executive under this Agreement, shall be solely
those of an unsecured general creditor of the Bank, unless this
Agreement provides otherwise. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right
to receive from the Bank those payments so specified under this
Agreement. The Executive agrees that he, his Beneficiary, or any other
person claiming through him shall have no rights or interests
whatsoever in any asset of the Bank, including any insurance policies
or contracts which the Bank may possess or obtain to informally fund
this Agreement. Any asset used or acquired by the Bank in connection
with the liabilities it has assumed under this Agreement, unless
expressly provided herein, shall not be deemed to be held under any
trust for the benefit of the Executive or his Beneficiaries, nor shall
any asset be considered security for the performance of the obligations
of the Bank. Any such asset shall be and remain, a general, unpledged,
and unrestricted asset of the Bank.
SECTION X
RESTRICTIONS UPON FUNDING
-------------------------
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement,
unless this Agreement provides otherwise. Except as otherwise provided
for in this Agreement, the Executive, his Beneficiaries or any
successor in interest to him shall be and remain simply a general
unsecured creditor of the Bank in the same
31
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DRAFT
manner as any other creditor having a general claim for matured and
unpaid compensation. The Bank reserves the absolute right in its sole
discretion to either purchase assets to meet its obligations undertaken
by this Agreement or to refrain from the same and to determine the
extent, nature, and method of such asset purchases. Should the Bank
decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right,
in its sole discretion, to terminate such assets at any time, in whole
or in part. At no time shall the Executive be deemed to have any lien,
right, title or interest in or to any specific investment or to any
assets of the Bank. If the Bank elects to invest in a life insurance,
disability or annuity policy upon the life of the Executive, then the
Executive shall assist the Bank by freely submitting to a physical
examination and by supplying such additional information necessary to
obtain such insurance or annuities.
SECTION XI
ACT PROVISIONS
--------------
11.1 Named Fiduciary and Administrator. The Human Resources/Compensation
---------------------------------
Committee of the Board of Directors of the Bank shall be the named
fiduciary and Administrator (the "Administrator") of this Agreement. As
Administrator, the Human Resources/Compensation Committee of the Board
of Directors of the Bank shall be responsible for the management,
control and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Agreement , including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
--------------------------------
Agreement are not paid to the Executive (or to his Beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made to
the Administrator within sixty (60) days from the date payments are
refused. The Administrator shall review the written claim and, if the
claim is denied, in whole or in part, it shall provide in writing,
within ninety (90) days of receipt of such claim, its specific reasons
for such denial, reference to the provisions of this Agreement upon
which the denial is based, and any additional material or information
necessary to perfect the claim. Such writing by the Administrator shall
further indicate the additional steps which must be undertaken by
claimants if an additional review of the claim denial is desired.
32
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DRAFT
If claimants desire a second review, they shall notify the Board of
Directors of the Bank in writing within sixty (60) days of the first
claim denial. Claimants may review this Agreement or any documents
relating thereto and submit any issues and comments, in writing, they
may feel appropriate. In its sole discretion, the Board of Directors
shall then review the second claim and provide a written decision
within sixty (60) days of receipt of such claim. This decision shall
state the specific reasons for the decision and shall include reference
to specific provisions of this Agreement upon which the decision is
based.
If claimants continue to dispute the benefit denial based upon an
assertion of completed performance of this Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may submit
the dispute to a Board of Arbitration for final arbitration. Said Board
of Arbitration shall consist of one member selected by the claimant,
one member selected by the Bank, and the third member selected by the
first two members. The Board of Arbitration shall operate under any
generally recognized set of arbitration rules. The parties hereto agree
that they, their heirs, personal representatives, successors and
assigns shall be bound by the decision of such Board of Arbitration
with respect to any controversy properly submitted to it for
determination.
SECTION XII
MISCELLANEOUS
-------------
12.1 No Effect on Employment Rights. Nothing contained herein will confer
------------------------------
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with
the Executive without regard to the existence of the Agreement.
Pursuant to 12 C.F.R. (S) 563.39(b), the following conditions shall
apply to this Agreement:
(1) The Bank's Board of Directors may terminate the Executive at
any time, but any termination by the Bank's Board of Directors
other than termination for Cause shall not prejudice the
Executive's vested right to compensation or other benefits
under the contract. As provided in Subsection 5.3, the
Executive shall have no right to receive additional
compensation or other benefits, other than those provided for
in Subsection 5.3, after termination for Cause.
33
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DRAFT
(2) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the
Bank's obligations under the contract shall be suspended
(except vested rights) as of the date of termination of service
unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Bank may in its discretion (i) pay
the Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
(3) If the Executive is terminated and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an
order issued under Section 8(e)(4) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all
non-vested obligations of the Bank under the contract shall
terminate as of the effective date of the order.
(4) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of the
Bank:
(i) by the Director [of the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation] or his
designee at the time the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation enters
into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in (S) 13(c) of
the Federal Deposit Insurance Act; or
34
<PAGE>
DRAFT
(ii) by the Director [of the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation] or his
designee, at the time the Director or his designee
approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined
by the Director to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, (i.e., the balance
of the Executive's Retirement Income Trust Fund and the balance of the
Executive's Accrued Benefit Account, if applicable), however, shall
not be affected by such action.
12.2 State Law. The Agreement is established under, and will be construed
---------
according to, the laws of the state of New Jersey, to the extent such
laws are not preempted by the Act and valid regulations published
thereunder.
12.3 Severability. In the event that any of the provisions of this
------------
Agreement or portion thereof, are held to be inoperative or invalid by
any court of competent jurisdiction, then: (1) insofar as is
reasonable, effect will be given to the intent manifested in the
provisions held invalid or inoperative, and (2) the validity and
enforceability of the remaining provisions will not be affected
thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared
-----------------------
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his
person or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
-----------------
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of the Executive is not made known to the Bank as of the
date upon which any payment of any Supplemental Retirement Income
Benefit(s) may first be made, the Bank shall delay payment of the
Executive's benefit payment(s) until the location of the Executive is
made known to the Bank; however, the Bank shall only be obligated to
hold such benefit payment(s) for the Executive until the expiration of
thirty-six (36) months. Upon expiration of the thirty-six (36) month
period, the Bank may discharge its obligation by payment to the
Executive's Beneficiary. If the location of the Executive's
Beneficiary is not made known to the Bank by the end of an additional
two (2) month period following expiration of the thirty-six (36) month
period, the Bank may discharge its obligation by payment to the
35
<PAGE>
DRAFT
Executive's Estate. If there is no Estate in existence at such time or
if such fact cannot be determined by the Bank, the Executive and his
Beneficiary(ies) shall thereupon forfeit any rights to any and all
Supplemental Retirement Income Benefit(s) provided for such Executive
and/or Beneficiary under this Agreement.
12.6 Limitations on Liability. Notwithstanding any of the preceding
------------------------
provisions of the Agreement, no individual acting as an employee or
agent of the Bank, or as a member of the Board of Directors shall be
personally liable to the Executive or any other person for any claim,
loss, liability or expense incurred in connection with the Agreement.
12.7 Gender. Whenever in this Agreement words are used in the masculine or
------
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in
--------------------------------------------
this Agreement shall affect the right of the Executive to participate
in or be covered by any qualified or non-qualified pension, profit
sharing, group, bonus or other supplemental compensation or fringe
benefit agreement constituting a part of the Bank's existing or future
compensation structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Agreement,
-------
if the Executive's death results from suicide, whether sane or insane,
within twenty-four (24) months after execution of this Agreement, all
further Supplemental Retirement Income Benefit Contributions to the
Retirement Income Trust Fund (or Supplemental Retirement Income
Benefit Phantom Contributions recorded in the Accrued Benefit Account)
shall thereupon cease, and no Supplemental Retirement Income Benefit
Contribution (or Supplemental Retirement Income Benefit Phantom
Contribution) shall be made by the Bank to the Retirement Income Trust
Fund (or recorded in the Accrued Benefit Account) in the year such
death resulting from suicide occurs. All benefits other than those
available from previous Supplemental Retirement Income Benefit
Contributions and Supplemental ESOP Benefit Contributions to the
Retirement Income Trust Fund under this Agreement shall be forfeited,
and this Agreement shall become null and
36
<PAGE>
DRAFT
void. The balance of the Retirement Income Trust Fund, measured as of
the Executive's date of death, shall be paid to the Beneficiary within
thirty (30) days of the date the Administrator receives notice of the
Executive's death.
12.10 Inurement. This Agreement shall be binding upon and shall inure to the
---------
benefit of the Bank, its successors and assigns, and the Executive,
his successors, heirs, executors, administrators, and Beneficiaries.
12.11 Headings. Headings and sub-headings in this Agreement are inserted for
--------
reference and convenience only and shall not be deemed a part of this
Agreement.
SECTION XIII
AMENDMENT/PLAN TERMINATION
--------------------------
13.1 Amendment or Plan Termination. The Bank intends this Agreement to be
-----------------------------
permanent, but reserves the right to amend or terminate the
Agreement when, in the sole opinion of the Bank, such amendment or
termination is advisable. However, any termination of the Agreement
which is done in anticipation of or pursuant to a "Change in
Control", as defined in Subsection 5.2, shall be deemed to trigger
Subsections 5.1 and 2.1(b)(3) (or 2.1(c)(3), as applicable) of the
Agreement, and benefit(s) shall be paid from the Retirement Income
Trust Fund (and Accrued Benefit Account, if applicable) in
accordance with such Subsections. Any amendment or termination of
the Agreement shall be made pursuant to a resolution of the Board of
Directors of the Bank and shall be effective as of the date of such
resolution. No amendment or termination of the Agreement shall
directly or indirectly deprive the Executive of all or any portion
of the Executive's Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable) as of the effective date of the resolution
amending or terminating the Agreement.
13.2 Executive's Right to Payment Following Plan Termination. In the
-------------------------------------------------------
event of a termination of the Agreement, the Executive shall be
entitled to the balance, if any, of his Retirement Income Trust Fund
(and Accrued Benefit Account, if applicable), measured as of the
date of plan termination. However, if such termination is done in
anticipation of or pursuant to a "Change in Control", as defined in
Subsection 5.2, such balance(s) shall be measured as of the date the
final Supplemental Retirement Income Benefit Contribution and/or
Supplemental ESOP Benefit Contribution (or
37
<PAGE>
DRAFT
Supplemental Retirement Income Benefit Phantom Contribution and/or
Supplemental ESOP Benefit Phantom Contribution) is made (or
recorded) pursuant to Subsection 2.1(b)(3) (or 2.1(c)(3)). Payment
of the balance(s) of the Executive's Retirement Income Trust Fund
(and Accrued Benefit Account, if applicable) shall not be dependent
upon his continuation of employment with the Bank following the
termination date of the Agreement. Payment of the balance(s) of the
Executive's Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable) shall be made in a lump sum within thirty
(30) days of the date of termination of the Agreement.
38
<PAGE>
DRAFT
SECTION XIV
EXECUTION
---------
14.1 This Agreement and the Michael J. Fitzpatrick Grantor Trust
agreement set forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded
by this Agreement and the Michael J. Fitzpatrick Grantor Trust
agreement.
14.2 The Executive hereby acknowledges and understands, as evidenced by the
fact that he has read and signed Exhibit D of this Agreement, that his
status as an employee-at-will of the Bank is not affected in any way
by execution of this Agreement.
14.3 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
39
<PAGE>
DRAFT
IN WITNESS WHEREOF, the Bank and the Executive have caused this Agreement
to be executed on this ____ day of ____________, 19__.
OCEAN FEDERAL SAVINGS BANK:
By:
---------------------------
---------------------------
(Title)
MICHAEL J. FITZPATRICK
------------------------------
Executive
40
<PAGE>
DRAFT
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
<TABLE>
<CAPTION>
Amount
------
<S> <C> <C>
Establishment Contribution $ 10,459
Plan Year 1996 $ 12,427
Plan Year 1997 $ 13,921
Plan Year 1998 $ 15,551
Plan Year 1999 $ 17,329
Plan Year 2000 $ 19,267
Plan Year 2001 $ 21,379
Plan Year 2002 $ 23,678
Plan Year 2003 $ 26,179
Plan Year 2004 $ 28,899
Plan Year 2005 $ 31,854
Plan Year 2006 $ 35,064
Plan Year 2007 $ 38,549
Plan Year 2008 $ 42,330
Plan Year 2009 $ 46,431
Plan Year 2010 $ 50,877
Plan Year 2011 $ 55,695
Plan Year 2012 $ 60,914
Plan Year 2013 $ 66,564
Plan Year 2014 $ 72,680
Plan Year 2015 $ 79,297
Plan Year 2016 $ 86,453
Plan Year 2017 $ 94,191
Plan Year 2018 $102,555
Plan Year 2019 $111,591
</TABLE>
Exhibit A
<PAGE>
DRAFT
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
BENEFICIARY DESIGNATION
The Executive, under the terms of the Executive Supplemental Retirement
Income Agreement executed by the Bank, of Brick New Jersey, dated the
________________ day of ______________________________,1996, hereby designates
the following Beneficiary(ies) to receive any guaranteed payments or death
benefits under such Agreement, following his death:
PRIMARY BENEFICIARY: ______________________________________
SECONDARY BENEFICIARY: ______________________________________
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: ______________________, 19____
__________________________________
EXECUTIVE
__________________________________
(WITNESS)
___________________________________
(WITNESS)
Exhibit B
<PAGE>
DRAFT
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
NOTICE OF ELECTION TO CHANGE FORM OF PAYMENT
TO: Bank
Attention:
I hereby give notice of my election to change the form of payment of my
Supplemental Retirement Income Benefit, as specified below. I understand that
such notice, in order to be effective, must be submitted in accordance with the
time requirements described in Subsection 1.27 of my Executive Supplemental
Retirement Income Agreement.
[_] I hereby elect to change the form of payment of my benefits from
monthly installments throughout my Payout Period to a lump sum
benefit payment.
[_] I hereby elect to change the form of payment of my benefits from a
lump sum benefit payment to monthly installments throughout my Payout
Period. Such election hereby revokes my previous notice of election
to receive a lump sum form of benefit payments.
___________________________________
Executive
___________________________________
Date
Acknowledged
By:________________________________
Title:_____________________________
___________________________________
Date
Exhibit C
<PAGE>
DRAFT
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
ACKNOWLEDGMENT OF EMPLOYEE-AT-WILL STATUS
I, ___________________________, hereby acknowledge that I have read and
understood the following as it relates to my status as an employee-at-will at
Ocean Federal Savings Bank of New Jersey.
Employment At Will
------------------
Nothing contained in this Agreement is to be considered as an implied or
explicit guarantee of my employment at Ocean Federal Savings Bank. The
employment relationship between Ocean Federal Savings Bank and its employees is
(1) terminable at the will of either party, (2) terminable with or without
Cause, and (3) terminable without prior notice. Ocean Federal Savings Bank
retains all of its rights and privileges to hire, transfer, terminate, and
otherwise manage people as it thinks is in the best interest of all.
_______________________________________
Executive
_______________________________________
Date
Exhibit D
<PAGE>
DRAFT
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
DESCRIPTION OF BENEFIT COMPUTATION AND
UNDERLYING ASSUMPTIONS
The benefit amount included in Subsection 1.24 is computed based on the
following:
. Projected High Four (4) Compensation, multiplied by
. Projected Wage Replacement Percentage, less
A hypothetical pension benefit of:
. One Percent (1%), multiplied by
. Projected Years of Service, multiplied by
. Projected High Four (4) Compensation
A hypothetical employer-paid (matching) 401(k) benefit of:
. Seventy-Five Percent (75%), multiplied by
. Six Percent (6%), multiplied by
. annual Compensation (for every year employed subsequent to 1988) (Annual
hypothetical employer-paid (matching) contributions to the 401(k) plan
shall be deemed to grow at Seven (7%) per annum, compounded monthly
through Benefit Age)
The hypothetical pension benefit and hypothetical employer-paid
(matching) 401(k) benefit shall be computed assuming all applicable
statutory limitations apply, including but not limited to, those imposed
pursuant Section 415 and Section 401(a)(17) of the Code.
TERMS USED IN COMPUTATION ABOVE:
"Compensation" means regular salary compensation received by the Executive
from the Bank during any calendar year, including bonuses and amounts
deferred through non-qualified or qualified plans and excluding fringe
benefits.
"Projected High Four (4) Compensation" means Four Hundred Forty Six
Thousand Three Hundred Ninety Two Dollars ($446,392.00) and represents the
average of the highest Compensation projected to be received by the
Executive during any four (4) consecutive calendar years while such
Executive is employed by the Bank.
"Projected Wage Replacement Percentage" means the percentage of Projected
High Four (4) Compensation which shall be used to compute the Executive's
Supplemental Retirement Income Benefit. The Wage Replacement Percentage
shall be Fifty Six Percent (56%). Such percentage represents the lesser of:
(i) Two Percent (2%), multiplied by the Projected Years of Service earned
by the Executive as of the date of his Benefit Age, or (ii) Seventy Percent
(70%).
"Projected Years of Service" means the number of twelve (12) month periods
of continuous service (including authorized leaves of absence) projected to
be earned by the Executive at any time after commencement of employment
with the Bank.
Exhibit E
<PAGE>
OCEAN FEDERAL SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of ___________________, 1996 by
and among Ocean Federal Savings Bank (the "Bank"), a federally chartered savings
institution, with its principal administrative office at 74 Brick Boulevard,
Brick, New Jersey 08723, Ocean Financial Corp., a corporation organized under
the laws of the State of Delaware, the holding company for the Bank (the
"Holding Company"), and _____________________________ ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as ______________________ of the Bank. Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be three (3) years unless the Executive elects not
to extend the term of this Agreement by giving written notice in accordance with
Section 8 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of
$__________ per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or unqualified plan
maintained by the Bank. Such Base Salary shall be payable bi-weekly. During
the period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Bank shall also
provide Executive, at no premium cost to Executive, with all such other benefits
as are provided uniformly to permanent full-time employees of the Bank.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Bank employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, health-and-
accident plans, medical coverage or any other employee benefit plan or
arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate. Nothing
paid to the Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which the Executive is entitled under this
Agreement.
- 2 -
<PAGE>
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Bank's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as _______________________, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, unless consented to by
Executive, (C) a relocation of Executive's principal place of employment by more
than 25 miles from its location at the effective date of this Agreement, unless
consented to by the Executive, (D) a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, unless consented to by the Executive, or (E) a liquidation or
dissolution of the Bank or Holding Company, or (F) breach of this Agreement by
the Bank. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be an amount equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Bank during the remaining term of this
Agreement at the Executive's Base Salary at the Date of Termination; and (ii)
the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Bank or the Holding
Company during the remaining term of this Agreement based on contributions made
(on an annualized basis) at the Date of Termination; provided, however, that any
-------- -------
payments pursuant to this subsection and subsection 4(c) below, shall not, in
the aggregate, exceed three times Executive's average annual compensation for
the five most recent taxable years that Executive has been employed by the Bank
or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five years. In the event the Bank is not in
compliance with its minimum capital requirements or if such payments pursuant to
this subsection (b) would cause
- 3 -
<PAGE>
the Bank's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Bank or
successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made in a lump sum as of the Executive's Date of Termination. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank or the Holding
Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Bank or Holding Company employees. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank
or Holding Company shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to
- 4 -
<PAGE>
have occurred or to have been effectuated upon the receipt of all required
regulatory approvals not including the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c), and (d) of this Section
5 upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement;
or 2) three (3) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Bank or such
lesser number of years in the event that Executive shall have been employed by
the Bank for less than five (5) years. Such average annual compensation shall
include Base Salary, commissions, bonuses, contributions on Executive's behalf
to any pension and/or profit sharing plan, severance payments, retirement
payments, directors or committee fees, fringe benefits paid or to be paid to the
Executive in any such year, and payment of expense items without accountability
or business purpose or that do not meet the IRS requirements for deductibility
by the Institution; provided however, that any payment under this provision and
-------- -------
subsection 5(d) below shall not exceed three (3) times the Executive's average
annual compensation. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum regulatory capital requirements, such payments
shall be deferred until such time as the Bank or successor thereto is in capital
compliance. At the election of the Executive, which election is to be made
prior to a Change in Control, such payment shall be made in a lump sum as of the
Executive's Date of Termination. In the event that no election is made, payment
to the Executive will be made in approximately equal installments on a monthly
basis over a period of thirty-six (36) months following the Executive's
termination. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
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6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination for Cause, stock options and related limited rights granted
to Executive under any stock option plan shall not be exercisable, nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date
of Termination for Cause, such stock options and related limited rights and such
unvested awards shall become null and void and shall not be exercisable by or
delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
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<PAGE>
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Bank for a period
of one (1) year following such termination in any city, town or county in which
the Executive's normal business office is located and the Bank has an office or
has filed an application for regulatory approval to establish an office,
determined as of the effective date of such termination, except as agreed to
pursuant to a resolution duly adopted by the Board. Executive agrees that
during such period and within said cities, towns and counties, Executive shall
not work for or advise, consult or otherwise serve with, directly or indirectly,
any entity whose business materially competes with the depository, lending or
other business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners,
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agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank.
Further, Executive may disclose information regarding the business activities of
the Bank to the OTS and the Federal Deposit Insurance Corporation ("FDIC")
pursuant to a formal regulatory request. In the event of a breach or threatened
breach by Executive of the provisions of this Section, the Bank will be entitled
to an injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated __________, 1996,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by Executive as determined by the Holding Company and the Bank on a
quarterly basis.
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12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
15. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. (S)1818(e)(3) or (g)(1); the Bank 's obligations under this contract
shall be suspended as of the date of service, unless stayed by
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<PAGE>
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion: (i) pay Executive all or part of the compensation
withheld while their contract obligations were suspended; and (ii) reinstate (in
whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution: (i) by the Director
of the OTS (or his designee), the FDIC or the Resolution Trust Corporation, at
the time the FDIC enters into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS
(or his designee) at the time the Director (or his designee) approves a
supervisory merger to resolve problems related to the operations of the Bank or
when the Bank is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and 12 C.F.R. (S)545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
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17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey, but only to
the extent not superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
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22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) as permitted under federal law against
all expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 C.F.R.(S) 545.121 and any
rules or regulations promulgated thereunder.
23. SUCCESSOR TO THE BANK.
The Bank 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 Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, __________________ and _____________________ have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the _____ day of _________, 1996.
ATTEST: OCEAN FEDERAL SAVINGS BANK
By:
- -------------------------- -----------------------------
Secretary Entire Board of Directors
[SEAL]
ATTEST: OCEAN FINANCIAL CORP.
(Guarantor)
By:
- -------------------------- -----------------------------
Secretary Entire Board of Directors
[SEAL]
WITNESS:
- -------------------------- -----------------------------
Executive
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<PAGE>
OCEAN FINANCIAL CORP.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of
___________________, by and between Ocean Financial Corp. (the "Holding
Company"), a corporation organized under the laws of Delaware, with its
principal administrative office at 74 Brick Boulevard, Brick, New Jersey 08723,
and ________________________ (the "Executive"). Any reference to "Institution"
herein shall mean Ocean Federal Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services
of Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive
agrees to serve as __________________ and _____________________ of the Holding
Company. The Executive shall render administrative and management services to
the Holding Company such as are customarily performed by persons in a similar
executive capacity. During said period, Executive also agrees to serve, if
elected, as an officer and director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board,
<PAGE>
from time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Holding Company or its Subsidiaries, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement. Moreover, in the event the Executive is
terminated or suspended from his position with the Institution, Executive shall
not perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Institution, duties
and responsibilities formerly performed at the Institution as part of his duties
and responsibilities as ____________ and ____________ of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding
Company or its Subsidiaries of $____________ per year ("Base Salary"). Base
Salary shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Holding Company and its
Subsidiaries. Such Base Salary shall be payable bi-weekly. During the period
of this Agreement, Executive's Base Salary shall be reviewed at least annually;
the first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Holding Company shall also provide
Executive, at no premium cost to Executive, with all such other benefits as
provided uniformly to permanent full-time employees of the Holding Company and
its Subsidiaries.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Holding Company
and its Subsidiaries will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans, profit-
sharing plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Holding Company and its
Subsidiaries in the future to its senior executives and key management
employees, subject to
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and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Executive shall be entitled to incentive
compensation and bonuses as provided in any plan of the Holding Company and its
Subsidiaries in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred in the performance of
Executive's obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as ________________ and __________________,
unless consented to by the Executive, (B) a material change in Executive's
function, duties, or responsibilities with the Holding Company or its
Subsidiaries, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by the Executive, (C)
a relocation of Executive's principal place of employment by more than 25 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Holding Company or the Institution, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six full calendar
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
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Executive's behalf to any employee benefit plans of the Institution or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination. At the
election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding
Company will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that; (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries; or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or
4
<PAGE>
to have been effectuated upon the receipt of all required federal regulatory
approvals not including the lapse of any statutory waiting periods; or (D) a
proxy statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company shall be distributed; or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c) and, (d), of this Section
5 upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions,
bonuses, contributions on behalf of Executive to any pension and profit sharing
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Company will cause to be continued life, medical, dental and
disability coverage substantially equivalent to the coverage maintained by the
Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Change in Control.
5
<PAGE>
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded
to Executive, which are deemed to be parachute payments as
defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") or any successor thereof,
(the "Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the Code;
and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with
said Section 280G and the Non-Triggering Amount less the
product of the marginal rate of any applicable state and
federal income tax and the Non Triggering Amount would be
greater than the aggregate value of the Termination
Benefits (without such reduction) minus (i) the amount of
tax required to be paid by the Executive thereon by Section
4999 of the Code and further minus (ii) the product of the
Termination Benefits and the marginal rate of any
applicable state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its Subsidiaries caused by the
Executive's intentional failure to perform stated duties, personal dishonesty,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Holding Company or its Subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During
6
<PAGE>
the period beginning on the date of the Notice of Termination for Cause pursuant
to Section 8 hereof through the Date of Termination, stock options and related
limited rights granted to Executive under any stock option plan shall not be
exercisable nor shall any unvested awards granted to Executive under any stock
benefit plan of the Holding Company or its Subsidiaries vest. At the Date of
Termination, such stock options and related limited rights and such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Date of Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
7
<PAGE>
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may
8
<PAGE>
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to this Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ___________________,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
9
<PAGE>
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
10
<PAGE>
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding 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 Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
11
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Ocean Financial Corp. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the _____ day of
_____, 1996.
ATTEST: OCEAN FINANCIAL CORP.
By:
- ----------------------------- ---------------------------------
Secretary Entire Board of Directors
[SEAL]
WITNESS:
By:
- ----------------------------- ---------------------------------
Executive
12
<PAGE>
FORM OF
OCEAN FEDERAL SAVINGS BANK
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ______, 1996 by and between
Ocean Federal Savings Bank (the "Bank"), a federally chartered savings
institution, with its principal administrative office at
______________________________________, ____________________ ("Executive"), and
Ocean Financial Corp. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive
has made to the Bank and wishes to protect Executive's position therewith for
the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the Ocean Federal Savings Bank Two Year Change in Control
Agreement (the "Agreement") shall be deemed to have commenced as of the date
first above written and shall continue for a period of twenty-four (24) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Bank ("Board") may extend the Agreement for an additional year.
The Board will review the Agreement and Executive's performance annually for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Bank or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause,
as defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits, or relocation of
his principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control.
<PAGE>
(b) For purposes of this Plan, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933 and the Rules and Regulations promulgated by the Office
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the Rules and Regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Holding Company
representing 25% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board of Directors of the Bank at a meeting of the Board called and held for
that purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any
2
<PAGE>
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for
Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Bank and the Holding Company shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a sum equal to two (2) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five years. Such average
annual compensation shall include Base Salary, commissions, bonuses,
contributions on Executive's behalf to any pension and/or profit sharing plan,
severance payments, retirement payments, directors or committee fees, fringe
benefits paid or to be paid to the Executive in any such year and payment of any
expense items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank; provided
--------
however, that any payment under this provision and subsection 3(b) below shall
- -------
not exceed three (3) times the Executive's average annual compensation. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Bank shall cause to be continued life, medical and
disability coverage substantially identical to the coverage maintained by the
Bank or Holding Company for Executive prior to his severance, except to the
extent such coverage may be changed in its application to all Bank or Holding
Company employees on a nondiscriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty-six (36) full calendar months from the
Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with said Section 280G.
The allocation of the
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<PAGE>
reduction required hereby among the Termination Benefits provided by the
preceding paragraphs of this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of Termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of:
(1) the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general funds of the
Bank. Further, the Holding Company guarantees such payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
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<PAGE>
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2 hereinabove.
5
<PAGE>
(b) If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. (S)1818(e)(3) or (g)(1)), the Bank's obligations under this contract
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
(S)1818(c)(4) or (g)(1)), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Bank under this contract
shall terminate as of the date of default, but this paragraph shall not affect
any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to
the extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the
Director of the Office of Thrift Supervision (or his or her designee) at the
time the Director (or his or her designee) approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
6
<PAGE>
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey but only to
the extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
(a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) as permitted under federal law against
all expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or
7
<PAGE>
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 C.F.R.(S) 545.121 and any
rules or regulations promulgated thereunder.
17. SUCCESSOR TO THE BANK
---------------------
The Bank 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 Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Ocean Federal Savings Bank and Ocean Financial
Corp. have caused this Agreement to be executed by their duly authorized
officers, and Executive has signed this Agreement, on the _____ day of
__________, 1996.
ATTEST: OCEAN FEDERAL SAVINGS BANK
_______________________________ By: ___________________________
Secretary Officer
SEAL
ATTEST: OCEAN FINANCIAL CORP.
(Guarantor)
_______________________________ By: ___________________________
Secretary Officer
SEAL
WITNESS:
_______________________________ ___________________________
Executive
9
<PAGE>
FORM OF
OCEAN FINANCIAL CORP.
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _______________, 1996, by and
between Ocean Financial Corp. (the "Holding Company"), a corporation organized
under the laws of the State of Delaware, with its office at
_____________________________________, and ____________________ ("Executive").
The term "Bank" refers to Ocean Federal Savings Bank, the wholly-owned
subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding
Company or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day until such time as the board of directors of the Holding Company (the
"Board") or Executive elects not to extend the term of the Agreement by giving
written notice to the other party in accordance with Section 8 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the third anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company
(as herein defined) followed at any time during the term of this Agreement by
the termination of Executive's employment, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in annual compensation or material reduction in
benefits, or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of death or termination for cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the Bank
or Holding Company shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933 and the Rules and Regulations promulgated by the Office
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any employee benefit plan of the Bank, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity, or (D) a proxy statement is
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed, or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or
Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar offenses)
or final cease and desist order, or any material breach of this Agreement.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that
2
<PAGE>
in the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to Section
8 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards, shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination For Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to two (2) times Executive's average annual compensation for the five
most recent taxable years that Executive has been employed by the Bank or such
lesser number of years in the event that Executive shall have been employed by
the Bank for less than five years. Such annual compensation shall include Base
Salary, commissions, bonuses, contributions on behalf of Executive to any
pension and profit sharing plan, severance payments, director or committee fees
and fringe benefits paid or to be paid to the Executive during such years. At
the election of Executive which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the
Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause, the
Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance, except to the extent such coverage may be
changed in its application to all Bank employees. Such coverage and payments
shall cease upon expiration of thirty-six (36) full calendar months following
the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as
defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") or any successor thereof, (the
"Termination Benefits") would be deemed to
3
<PAGE>
include an "excess parachute payment" under Section 280G of
the Code; and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with
said Section 280G and the Non-Triggering Amount less the
product of the marginal rate of any applicable state and
federal income tax and the Non Triggering Amount would be
greater than the aggregate value of the Termination Benefits
(without such reduction) minus (i) the amount of tax
required to be paid by the Executive thereon by Section 4999
of the Code and further minus (ii) the product of the
Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among the Termination
Benefits shall be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company, or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to his current annual
salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in
4
<PAGE>
accordance with this Agreement. Amounts paid under this Section 4(c) are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general funds of the
Holding Company. Further, the Holding Company guarantees such payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amount and benefits due from the Bank are not timely paid or provided by the
Bank, such amounts and benefits shall be paid and provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company and
Executive, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain Executive in its employ for any
period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
5
<PAGE>
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER BANK AGREEMENT.
----------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) of the Change-in-Control Agreement between Executive and the Bank
dated _____________________, 1996 (the "Bank Agreement") during the term of this
Agreement and a Change in Control, as defined herein, occurs the Holding Company
will assume its obligation to pay and Executive will be entitled to receive all
of the termination benefits provided for under Section 3 of the Bank Agreement
upon the notification of the Holding Company of the Bank's receipt of a
dismissal of charges in the Notice.
10. EFFECT OF ACTION UNDER BANK AGREEMENT.
--------------------------------------
Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits are paid to or received by Executive under the Bank
Agreement between Executive and Bank, the amount of such payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
11. SEVERABILITY.
-------------
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
6
<PAGE>
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
---------------------
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful pursuant to
a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE HOLDING COMPANY.
--------------------------------
The Holding 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 Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Ocean Financial Corp. has caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, on the _____ day of _________________, 1996.
ATTEST: OCEAN FINANCIAL CORP.
__________________________________ By: ___________________________
Secretary Officer
WITNESS:
__________________________________ ___________________________
Executive
Seal
8
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ocean Federal Savings Bank:
We consent to the use of our report included in Amendment No. 2 to Registration
Statement No. 33-80123 on Form S-1 and in the Application for Conversion on Form
AC and to the reference to our Firm under the heading "Experts" and "Legal and
Tax Opinions" in the prospectus.
Our report refers to a change in the method of accounting for investments in
1994.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0<F2>
<INT-BEARING-DEPOSITS> 0<F2>
<FED-FUNDS-SOLD> 0<F2>
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 471,828
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 615,790
<ALLOWANCE> 0<F2>
<TOTAL-ASSETS> 1,130,204
<DEPOSITS> 931,273
<SHORT-TERM> 98,800
<LIABILITIES-OTHER> 0<F2>
<LONG-TERM> 0<F2>
0<F1>
0<F1>
<COMMON> 0<F1>
<OTHER-SE> 92,091
<TOTAL-LIABILITIES-AND-EQUITY> 1,130,204
<INTEREST-LOAN> 0<F2>
<INTEREST-INVEST> 0<F2>
<INTEREST-OTHER> 0<F2>
<INTEREST-TOTAL> 18,988
<INTEREST-DEPOSIT> 0<F2>
<INTEREST-EXPENSE> 11,208
<INTEREST-INCOME-NET> 7,780
<LOAN-LOSSES> 125
<SECURITIES-GAINS> 0<F2>
<EXPENSE-OTHER> 4,460
<INCOME-PRETAX> 3,891
<INCOME-PRE-EXTRAORDINARY> 3,891
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,411
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<YIELD-ACTUAL> 0<F2>
<LOANS-NON> 0<F2>
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0<F2>
<LOANS-PROBLEM> 0<F2>
<ALLOWANCE-OPEN> 0<F2>
<CHARGE-OFFS> 0<F2>
<RECOVERIES> 0<F2>
<ALLOWANCE-CLOSE> 0<F2>
<ALLOWANCE-DOMESTIC> 0<F2>
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F2>
<FN>
<F1>Not applicable.
<F2>Not broken out in Recent Developments.
</FN>
</TABLE>
<PAGE>
CHARITABLE GIFT TO OCEAN FEDERAL FOUNDATION
Ocean Financial Corp., 74 Brick Boulevard, Brick, New Jersey (the
"Company"), desires and intends to make a gift of its common stock, par value
$.01 per share to Ocean Federal Foundation, a nonprofit corporation organized
under the laws of the State of Delaware. The purpose of the donation is to
establish a bond between Ocean Financial Corp. and the community in which it and
its affiliates operate to enable the community to share in the growth and
success of the Company and its affiliates over the long term. To that end,
Ocean Financial Corp. now gives, transfers, and delivers to Ocean Federal
Foundation [number] shares of its common stock, par value $.01 per share
("Common Stock") subject to the following conditions:
1. The Foundation shall use the donation solely for charitable and
educational purposes within Ocean County, New Jersey and its neighboring
communities in accordance with the provisions of the Foundation's Certificate of
Incorporation; and
2. Consistent with the Company's intent to form a long-term bond
between the Company and the community, the amount of Common Stock that may be
sold by the Foundation in any one year shall not exceed 5% of the market value
(measured as of the first business day of each year), of the assets held by the
Foundation or such amount as may be necessary to maintain the Foundation's
designation as a tax-exempt organization under Section 501(c)(3) of the Internal
Revenue Code of 1986 as amended, except that this restriction shall not prohibit
the board of directors of the Foundation by two-thirds vote, determines that the
failure to sell a greater amount of the common stock held by the Foundation
would result in a long-term reduction of the value of the Foundation's assets
relative to their then current value that would jeopardize the Foundation's
capacity to carry out its charitable and educational purposes.
Executed at __________________ on _______________, 1996.
[Signature of Chief
Executive Officer of
Ocean Financial Corp.]
